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We all know how powerful physical activity is for good health; the research has been piling up for years. But in investing, interestingly, too much activity can be harmful. Buying and selling, in the markets and out again — this kind of churning drums up a lot of trading expenses and, sometimes, not a lot of lasting investment returns. In fact, that’s a core tenet underpinning our philosophy of long-term investing and why we urge our shareholders to make an investment plan.

However, that doesn’t mean your financial life should be dormant. 2020 has been an epically challenging time for so many, with staggering job losses on top of the health scare that defines the COVID-19 pandemic. In the wake of

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3QA QUARTERLY NEWSLETTER FOR HOMESTEAD FUNDS’ SHAREHOLDERS

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such disruption, it’s as important as ever to stay active in your financial life. What does that mean? It means taking the time to check in with your financial goals and taking steps to stay on track with them.

In this issue, our Certified Financial Planners™ share the types of changes and updates they see families making to their finances today. We also look at what it means to be an active portfolio manager and share some of the ways that we’re actively reaching out to serve you better. Last, we brought back the 2020 resolution calendar, with some tips on reestablishing some normalcy in your finances to finish out a tough year in better shape.

NerdWallet, “Survey: How the Pandemic Alters Americans’ Financial Habits”

After the Storm, Taking StockMarkets may have rebounded from pandemic-driven lows, but that doesn’t mean that American households are financially back to normal. Unemployment remains elevated, especially for young people, women and immigrants. Unsurprisingly, many families have had to turn to emergency funds and other lifelines to make it through the storm.

STILL GETTING PAPER STATEMENTS?If you’d prefer to receive your account statements electronically, just visit us at homesteadfunds.com

and log in to your account to update your preferences.

RAINY DAY FUNDS AT WORK

69% of Americans say their household income was negatively impacted by the pandemic

25% used funds from their emergency savings (or are considering doing so)

12% took emergency withdrawals from an IRA or other retirement account

Staying Active for Good (Financial) Health

Homestead Funds | Horizons 3Q | 2020 | homesteadfunds.com 2

After the Storm, Taking Stock continued from page 1

Our portfolio managers think of themselves as buy-and-hold investors, seeing the value in sticking to a long-term investment plan without making frequent changes.

We generally take the same approach when talking to individual investors, but there’s an important footnote to that idea: Being a buy-and-hold kind of investor doesn’t mean your finances are static. In the wake of COVID-19, our on-staff Certified Financial Planners™ (CFPs) are seeing some major financial activities and decisions among families today.

An emergency fund reboot With a quarter of Americans tapping into their emergency funds or planning to do so, many families will need to replenish their emergency savings as their incomes recover. “The majority of families in the U.S. have faced some income loss this year,” says Megan McFarland, CFP®. “Emergency savings are more important than ever, so that’s the first priority for many people.”

A LONGER-TERM IMPACT¹

75% of Americans plan to take financial action after COVID-19

38% plan to save more in their emergency fund

37% plan to spend less on nonessentials

Indeed, there’s a good case for doubling up your normal emergency fund today. The U.S. economy remains fragile as the pandemic stretches on, which means continued vulnerability for household incomes. When job security is an issue, a solid savings account can be a crucial source of income.

A rush to get affairs in order A pandemic brings with it a uniquely personal risk — the threat of illness or even death. For many, the circumstances have raised the urgency to get their affairs in order, prompting them to draw up wills, health care directives and other important estate documents.

“So many people put this off, but this public health emergency has finally pushed them to get it done,” says John Scott, CFP®. “We work with families to make sure they have the information about their financial accounts that they’ll need and to make those important beneficiary updates.”

A change in retirement plans A recession always has some backlash for retirement decisions. Many people need to delay their retirement to save more; others take a partial-retirement path and continue to work part time. Performance losses in retirement portfolios can be a major factor. “This situation is a little different because the markets have recovered so much, so fast,” says

John. “Investments are only part of the problem. Disruption of jobs and income are also playing a significant role.”

There’s also the changing math of pension options. A recession often comes with lower interest rates as the Federal Reserve tries to stimulate lending. Historically, lower interest rates tend to make lump-sum amounts rise, compared with ongoing-income payments. This shift can drive pending retirees to the lump-sum choice.

WHY DOES THE PENSION MATH CHANGE?Lump-sum pension amounts are calculated in comparison with ongoing-income amounts. The current market interest rate is part of the calculation. The effect of the interest rate is basically inverse: Historically, when rates go up, the lump-sum value typically goes down; when interest rates go down, the lump-sum value goes up.

A portfolio rebalance Portfolios need periodic rebalancing even in normal environments. Historically, stocks tend to have higher returns than bonds over long periods,² which means a mixed portfolio will drift to higher and higher portions of stocks.

In the COVID-19 downturn, the effect may trend the other direction: Bonds jumped in value as interest rates were swiftly cut. “Basically, it’s worth checking in every year or so on your allocation,” notes Megan.

A return to your other goals With incomes under pressure, many families have cut back on their normal savings goals — things like education, travel, even retirement. “The emergency fund always comes first,” says Raymond Scott, CFP®. “But it’s good to jump back into your other priorities as soon as you’re able, because time makes such a big difference in growing investments.”

PRIORITIES ON HOLD³

14% have decreased retirement contributions

11% have made a withdrawal from their 401(k)

10% have taken a loan against their retirement savings

Thinking about changes for your own finances? Our representatives are available to speak with Homestead Funds investors. Call us anytime.

¹ NerdWallet, “Survey: How the Pandemic Alters Americans’ Financial Habits”² Homestead Funds calculation³ TD Ameritrade, “Covid-19 & Retirement Survey”

Homestead Funds | Horizons 3Q | 2020 | homesteadfunds.com 3

Active Investing: Picking the Right Pears for Your PurposeImagine that you are at your local farmers’ market, and you’re sizing up the table full of fall pears. Suppose that the pears, on average, are ripe today, though of course there are variations when you look at each pear. Up come three shoppers with three different goals:

Shopper 1 would like very ripe pears to bake in her Fabulously Sweet Pear Cake that evening.

Shopper 2 would like barely ripe pears for his children’s afternoon snacks that week.

Shopper 3 would like not-quite-ripe pears to serve as part of a dinner party salad several days away.

Each of these shoppers will choose the pears that best suit their needs.

In a nutshell, that’s what active investing is — choosing a curated selection of investments to suit particular goals.

Consider the stock market. In the U.S., there are about 3,600 public companies¹ listed on stock exchanges. In actively invested mutual funds, the portfolio management team will curate their best picks, carefully selected for their goals. One mutual fund may be conservatively invested in dividend-paying steady-Eddie kinds of companies while another one picks riskier rising stars in technology.

Stocks: Our Active Investing StyleAt Homestead, we have eight different actively invested mutual funds, four of which are stock funds. While they’re all different, there are a few commonalities in the way that portfolio managers choose investments:

• High-quality companies. Among stocks, managers tend to prefer the stocks of companies that have good balance sheets; a sturdy, competitive advantage; and stable, talented management teams.

• Avoiding win-or-lose situations. For certain industries, there’s a winner-take-all dynamic that makes investing more like betting on a horse — very small pharmaceutical companies, for instance. Managers tend to avoid those.

• Sensitive to the price tag. Valuation is an important input to any investment decision.

Bonds: Our Active Investing StyleAmong bonds, the defining characteristics differ somewhat from those that distinguish stocks. Here are key themes of our investing style:

• High-quality borrowers. Bonds are issued by many kinds of borrowers, including companies, governments, government-backed agencies, municipalities and more. We look for evidence that the issuer is credit-worthy, whatever its purpose.

• A thoughtful approach to duration. Duration is a measure of a bond’s maturity: Bonds can range from one-month “commercial paper” issues to 30-year Treasuries.

• Active sector weights. We tend to position our bond funds to take advantage of trends in sectors. For instance, one quarter we might be “overweight” in mortgage bonds, while in another quarter we add more exposure to corporate bonds.

What Active Investing Is NotThe term “active” might imply that we are frequently trading and repositioning our mutual funds, which is not the case. We are dedicated long-term investors, aiming to capture growth and improving fundamentals in investments rather than turning quick profits.

¹ Bloomberg, “Where Have All the Public Companies Gone?”

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PASSIVE or INDEX FUNDholds all of the benchmark stocks or tries to mimic the

benchmark exactly

All of the stocks in the BENCHMARK

ACTIVE MUTAL FUNDhand-picks selected stocks

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ALL ABOUT THE BENCHMARKAll mutual funds get measured against a benchmark — usually an index that represents their universe of investments, such as large-cap stocks or short-term bonds. While the index shows the broad performance and characteristics of the universe, a mutual fund will differ at times because of its curated investments.

ACTIVE FUNDS CURATE INVESTMENTS

Homestead Funds | Horizons 3Q | 2020 | homesteadfunds.com 4

4 Ways We’re Actively Serving YouAs you and your family cope with the steep challenges of life in 2020, we are always looking for ways we can actively serve you. Here are some of the resources and activities we offer, aiming to give you educational materials, market updates, investment guidance and tips for keeping your financial life healthy, rain or shine.

Ways to watchAt homesteadfunds.com/videos, you’ll find a number of videos offering guidance on particular

financial challenges (such as Saving for Life’s Events), education about financial concepts (such as Compounding Interest or Managing Volatility) and reviews of recent investment performance (such as our quarterly Market Review videos).

Updates to readYou’ll also find lots of content to read at homesteadfunds.com/latest-news. While we always

post quarterly updates and newsletter articles, you’ll also find periodic updates on our investment thinking.

Fun ways to follow Are you among the 70% of American adults¹ who are on Facebook? Follow us for financial tips and

lifestyle tidbits that are decidedly more fun than a quarterly market update. While you’re at it, find us on LinkedIn too!

Always up for talkingWe love hearing from our investors, and we’re here to help you to work through financial decisions. Our

team members can help with investment guidance or even the day-to-day budgeting changes that you’re thinking about.

CALL US

800.258.3030, then press:

1: Account information, assistance and transactions

2: Investment education, choosing account types and fund selection

3: Assistance with cooperative-owned accounts

¹ Pew Research Center, “10 facts about Americans and Facebook”

ARE YOU A CO-OP EMPLOYEE?If you’re one of the Homestead Funds shareholders who are part of our network of rural electric co-operatives, did you know that we can visit with your team? Our real-life travel may be on hold for the time being, but we’re still connecting with co-ops and their employees virtually. Interested in learning more? Reach out to your HR team.

of Americans are uncomfortable talking about their personal

finances with someone else

56%

1/4of Americans use a

financial advisor

20%would rather

SPEND AN HOUR IN JAIL than build a five-year

financial plan

LESS THAN

Homestead Funds | Horizons 3Q | 2020 | homesteadfunds.com 5

Reactivate Your ResolutionsThe year 2020 isn’t done and gone just yet. It was not the year that anyone expected, but we can’t live in crisis mode forever. It might actually help to return to some sense of normalcy in the zones of your life where that’s possible — like your New Year’s resolutions!

For many, this year is about staying on track rather than achieving perfection. Still, keeping your finances on track is a key ingredient to managing a stressful economy. See if you can check back in with these monthly goals and make small improvements to your finances to finish the year strong!

¹ USA Today, “How does the average American spend their paycheck? See how you compare”

Goal setting! Sit down, with your other half if you’re in a relationship, and set concrete financial goals on paper. Pick one to work toward this month.

Brainstorm ways to trim your second-biggest monthly expense, typically transportation. Could you limit errands to one day a week? Compare insurance rates?

Think ahead on holiday budgets. Aim to nip impulse purchases from here to the end of 2020.

Brainstorm ways to trim your biggest monthly expense, typically housing.¹ Can you refinance your mortgage? Do more of your own maintenance? Turn the thermostat down a couple degrees?

Debt checkup: Do a mid-year assessment of your debt status. If you’ve managed to trim it down, celebrate!

Check in on your emergency fund. If you’ve got a significant balance, consider putting some of the savings into higher-risk, potentially higher-return investments like stock funds.

Automate, automate, automate. Take 15 minutes to automate whatever you can — deposits to an emergency fund, a bigger contribution to your retirement fund, whatever is available to you.

Check on your retirement accounts to get a sense of where you are compared with your goals.

Trim the subscriptions. Do an inventory of all your monthly services, from internet providers to shopping clubs. Cut what you can.

Check on your investments. Make sure that you’re not leaving idle cash in portfolios!

Come up with strategies for trimming food expenses. Weekly meal planning can be an effective tool, and meal prepping can help you avoid buying food away from home.

Revel in your progress!

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homesteadfunds.com 800.258.3030

Investing in mutual funds involves risk, including the possible loss of principal. Past performance does not guarantee future results. Investors should carefully consider fund objectives, risks, charges and expenses before investing. The prospectus contains this and other information about the funds and should be read carefully before investing. To obtain a prospectus, call 800.258.3030 or visit homesteadfunds.com. The views expressed are those of the individuals as of July 31, 2020, and may have changed since that date. The opinions stated may contain forward-looking statements and may discuss the impact of domestic and foreign markets, industry and economic trends, and governmental regulations of the funds and their holdings. Such statements are subject to uncertainty, and the impact on the funds might be materially different from what is described here.Homestead Funds’ investment advisor and/or administrator, RE Advisers Corporation, and distributor, RE Investment Corporation, are indirect wholly owned subsidiaries of NRECA. RE Investment Corporation, Distributor 9/20HRZNNEWSPHOTO CREDITS: PAGE 1: TOP PHOTO © ISTOCK /ANDRESR. AFTER THE STORM, TAKING STOCK ILLUSTRATION © ISTOCK/KATES_ILLUSTRATIONS. PAGE 3: PEAR © ISTOCK / HEIN NOUWENS. YARDSTICK © ISTOCK / LYUBCHIK PROKOPCHUK. PAGE 4: © HOMESTEAD FUNDS. PAGE 5: ICONS © ISTOCK. SEPTEMBER © ANNAFRAJTOVA. OCTOBER © ILYALIREN. NOVEMBER © BORTONIA. DECEMBER © JIRIPERINA.

News Briefs

Homestead Funds Pearl Anniversary

The traditional 30th anniversary gift is a pearl. The pearl symbolizes wisdom gained through experience. Through every life experience, strength is gained, which makes us wiser and stronger.

In November, Homestead Funds will celebrate 30 years of providing investment guidance to investors. Over the past 30 years, our client-focused approach has grown organically from our roots in the co-op community to gaining recognition from major publications, such as Barron’s.

We’ve learned a lot over the past 30 years and are looking forward to the next 30. Thank you to all our shareholders for your continued support. It is our pleasure to serve you.

We’re Here for You

During these unprecedented times, we’re here for you — ready to listen, provide guidance and help you navigate through this.

Our employees have been working remotely since March, but please know that we are still available to speak with you and help with your accounts in the same ways as before.

Give us a call and let us help with your questions. We can be reached at 800.258.3030, option 2.

A Penny Saved Is a Penny Earned

In this issue, we focus on taking an active approach to financial health. If you need an incentive to get started, October 12 is National Savings Day!

National Savings Day is a day to think about your saving (and spending) habits and what you can do to improve if you’re not quite saving enough.

Saving doesn’t have to be painful. Take this opportunity to start small and take our 52-Week Challenge. By the end of the challenge, you will see your small amounts each week start to add up. Start the challenge today: www.homesteadfunds.com/wp-content/uploads/52-week-challenge.pdf