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SEPARATING MYTHSSEPARATING MYTHSFROM TRUTHFROM TRUTH
The Story of Investing
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
Dispelling the Traditional Investing MythsDispelling the Traditional Investing Myths
Telling the True Story of InvestingTelling the True Story of Investing
OpportunityOpportunity to Achieve True Peace of to Achieve True Peace of MindMind
SEPARATING MYTHS FROM TRUTH
© 2001-2007 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
DISPELLING THE MYTHSDISPELLING THE MYTHS
Myth: A story made up to explain a phenomenon beyond the science of
the day.
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TRADITIONAL INVESTING MYTHS
MYTH 1:Stock Selection
MYTH 2:Track-Record
InvestingMYTH 3:
Market Timing
MYTH 4:Costs of Investing
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THE MYTH:Investment advisors can consistently
and predictably add value by exercising “superior skill” in individual
Stock selection.
Stock Selection: Choosing stocks based on a belief they will do well in the
future.
MYTH 1: STOCK SELECTION
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Average U.S. Equity Mutual Fund
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Avg. US MutualFund S&P 500
Average of all US Equity funds available in the CRSP Survivor- Bias Free US Mutual Fund Database, data ending Dec. 2007S&P 500 Index and CRSP Market Index data obtained from DFA Returns software 12/07Past performance is no guarantee of future results and investors may experience a loss.
$3,824,323
$2,436,299
Wealth Lost to Active Stock Picking
$1,388,024
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$6,358,777
$3,813,099
$1,242,204
Average of all mutual funds available in the CRSP Survivor- Bias Free US Mutual Fund Database, data ending Dec. 2007Hypothetical Portfolios based on data in endnote 8. Past performance is no guarantee of future results and investors may experience a loss.
8
$2,168,746
$9,134,358
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
Year Number of
Funds
Number of New Funds
Number of Dead Funds
1980 727 73 20
1981 828 117 16
1982 993 189 24
1983 1162 194 25
1984 1398 255 19
1985 1707 326 17
1986 2120 437 24
1987 2542 457 35
1988 2826 364 80
1989 2959 251 118
1990 3230 457 186
1991 3670 555 115
1992 4451 955 174
1993 5946 1655 160
1994 7689 1977 234
1995 8631 1440 498
1996 9756 1632 507
1997 11,169 1950 537
1998 12,518 1838 489
1999 14,267 1805 56
2000 15,587 2185 865
2001 16,391 1806 1002
2002 17,232 1860 1019
2003 17,683 1532 1081
2004 18,408 1576 851
2005 19,188 1847 1067
2006 20,276 2062 974
2007 20,316 1258 1218
YearNumber of Funds
Number of New Funds
Number of Dead Funds
1923 1 1 0
1924 4 3 0
1925 5 1 0
1926 6 1 0
1927 6 0 0
1928 10 4 0
1929 16 6 0
1930 17 1 0
1931 20 3 0
1932 35 15 0
1933 46 11 0
1934 48 2 0
1935 57 9 0
1936 59 2 0
1937 62 3 0
1938 71 9 0
1939 78 7 0
1940 86 8 0
1941 87 1 0
1942 87 0 0
1943 87 0 0
1944 93 6 0
1945 98 5 0
1946 103 5 0
1947 113 10 0
1948 117 4 0
1949 131 14 0
1950 138 7 0
1951 143 5 0
Year Number of Funds
Number of New Funds
Number of Dead Funds
1952 153 10 0
1953 166 13 0
1954 186 20 0
1955 189 3 0
1956 207 18 0
1957 227 20 0
1958 245 18 0
1959 270 25 0
1960 287 17 0
1961 280 26 33
1962 293 13 0
1963 303 10 0
1964 319 16 0
1965 344 25 0
1966 383 39 0
1967 421 38 0
1968 496 76 1
1969 586 98 8
1970 622 59 23
1971 635 45 32
1972 629 29 35
1973 621 28 36
1974 606 32 47
1975 599 24 31
1976 630 56 25
1977 642 39 27
1978 648 32 26
1979 674 51 25
Total Number of Funds Open 2007
20,316
Total Number Born
32,076
Total Number Killed
11,760
Survivorship Bias
For illustrative purposes only. Mutual fund data provided by CRSP Survivor Bias Free Mutual Fund Database. CRSP data provided by the Center for Research in Security Prices, University of Chicago.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
For illustrative purposes only. Mutual fund data provided by CRSP Survivor Bias Free Mutual Fund Database. CRSP data provided by the Center for Research in Security Prices, University of Chicago.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
-73.9%AVERAGE RETURN
The Worst 200 Dead Mutual Funds
For illustrative purposes only. Mutual fund data provided by CRSP Survivor Bias Free Mutual Fund Database. CRSP data provided by the Center for Research in Security Prices, University of Chicago.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
Track-Record Investing:The use of performance history to determine
the best investments for the future.
THE MYTH:Finding funds that did well in the past
is a reliable method of indicating which funds will do well in the future.
MYTH 2: TRACK-RECORD INVESTING
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Track Record Investing
Top 30 Funds Average Return
All Funds Average Return
S&P 500 Index
CRSP 1-10 Index
Total Funds 1988-1997
Total Funds 1998-2007
1988-1997
23.13
15.82
18.86
18.60
572
1998-2007
6.20
6.98
7.23
7.68
2228
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Track Record Investing
Top 30 Funds Average Return
All Funds Average Return
S&P 500 Index
CRSP 1-10 Index
No. of Funds
1990-1994
18.77
9.40
8.69
9.04
569
1995-1999
21.66
22.24
28.55
27.42
1,524
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A manager’s ability to pick stocks in the past has ZERO CORRELATION with his/her
ability to do so in the future.
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Market Timing:Any attempt to alter or change the mix of assets based on
a prediction or forecast about the future.
THE MYTH: Money managers are able to utilize market timing to effectively predict
up & down markets.
MYTH 3: MARKET TIMING
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As the chart below clearly indicates – The Average Investor earns significantly less than the market indices, and investors that time the market actually lose money over the period measured.
CATEGORY1988-2007
Annualized Return
S&P 500 Index 11.81%
Average Equity Fund Investor 4.48%
Systematic Equity Fund Investor 5.83%
Market Timer Equity Fund Investor (-1.35%)
Inflation 3.04%
•DALBAR, Inc., Quantitative Analysis of Investor Behavior, 2008
DALBAR Research Study Results
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Return of Growth of $10,000 S&P 500 Index Investment *
Fully Invested 8.33% $22,252Missed 10 best days 3.32% $13,864Missed 20 best days -0.46% $9,548Missed 30 best days -3.71% $6,649Missed 40 best days -6.42% $5,148Missed 60 best days -10.98% $3,125
*Fact Set Research Systems Based on initial investment of $10,000
January 1, 1996 – December 31, 2006
WHY MARKET TIMING DOESN’T WORK
2,520 Trading Days
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“Tactical Asset Allocation” is Market Timing in Disguise
BEWARE: MARKET TIMING
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“The evidence on investment managers’
success with market timing is impressive - and overwhelmingly
negative.”
Charles D. Ellis, Investment Policy, 1993
Charles D. Ellis is a managing partner of
Greenwich Associates, the leading consulting
firm specializing in financial services
worldwide.
B.A. Yale, M.B.A (with distinction) Harvard and Ph.D. New York
University
CHARLES D. ELLIS
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Costs of Investing: Fees incurred by investors to buy, sell, and
own stocks or mutual funds.
THE MYTH: What you don’t see can’t hurt
you.
MYTH 4: COSTS OF INVESTING
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Bid/Ask Spread
Mutual Funds
THE COSTS OF INVESTING
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BUY Price
$50.00
Market Maker
$.50 Sprea
d
Bid/Ask Spread
SELL Price
$49.50
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.Source: Reuters Trading Systems (Apr. 30, 2007)
The Bid/Ask Spread as a percent of price is a conservative estimate of actual trading costs. This estimate is almost 80 times as great for
the smallest market segment as for the largest market segment (2.40 vs 0.03).
The Bid/Ask Spread as a percent of price is a conservative estimate of actual trading costs. This estimate is almost 80 times as great for
the smallest market segment as for the largest market segment (2.40 vs 0.03).
Market Cap Range ($Millions)
Average Price Percent Spread
25,456-446,994 62.86 0.03
4,454-25,456 58.72 0.05
1,800-4,454 51.32 0.06
521-1,800 31.11 0.11
163-521 17.92 0.24
0-163 7.95 2.40
BID/ASK SPREADWhat Your Broker Won’t Tell You
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“The key question under the new rules of the game is this: How much better must
a[n]...[actively trading]... manager be to at least recover the cost of...[portfolio turnover]? The answer is daunting.”
Source: Charles D. Ellis, Investment Policy - How to Win the Loser's Game, 1985
1. Mutual fund trading plus bid/ask spread cost taken from Investment Policy - How to Win the Loser’s Game, 2nd Edition by Charles D. Ellis (1993) p.8-9.
CONSUMER “NO LOAD” MUTUAL FUNDS
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• The Myths– Stock Selection– Track-Record Investing– Market Timing– Costs of Investing
• Next…– The Truth
SO FAR…
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THE STORY OF INVESTING:THE STORY OF INVESTING:FREE MARKET PORTFOLIO FREE MARKET PORTFOLIO
THEORYTHEORY
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Free Market Portfolio Theory is: • An investment approach firmly grounded
in the academic research of the last 50 years.
• A disciplined approach to capturing market returns while managing volatility.
WHAT IS FREE MARKET PORTFOLIO THEORY?
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THE COMPONENTS OFFREE MARKET PORTFOLIO THEORY
COMPONENT 1:Free Markets Work
COMPONENT 3:The Three-Factor
Model
COMPONENT 2:Modern Portfolio
Theory
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LEADING ACADEMICS WHO CONTRIBUTE TO FREE MARKET
PORTFOLIO THEORY• Harry Markowitz:
Nobel Prize Laureate, 1990, University of Chicago• Merton H. Miller:
Nobel Prize Laureate, 1990 - Robert R. McCormick Distinguished Service, University of Chicago
• Rex Sinquefield: Co-author Stocks, Bonds, Bills and Inflation, MBA, University of Chicago, BA, St. Louis University
• Roger G. Ibbotson: Co-author Stocks, Bonds, Bills and Inflation, Professor of Finance, School of Organization and Management, Yale University
• Eugene F. Fama: Robert R. McCormick Distinguished Service, Graduate School of Business, University of Chicago
• Kenneth French: Professor of Finance at the Tuck School of Business, Dartmouth College
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Free Markets Work
“In [a free] market at any point in time the actual price of a security
will be a good estimate of its intrinsic value.”
-Eugene F. Fama, “Random Walks in Stock Market Prices,” Financial Analysts Journal, September/October
1965.
COMPONENT 1:
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• The market fails to price goods and services appropriately.
• It is possible for some individuals to identify in advance which prices are inaccurate.
• Underpriced or overvalued markets can be forecast or predicted.
• By taking advantage of these mispricings either in stocks or market sectors, it is possible to both increase returns and avoid losses in investments.
• People with this view would utilize traditional investment myths and speculate with their assets.
FREE MARKETS FAIL
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• Based on supply and demand the free market is the best determinant of market prices.
• All available information is factored into the current price.
• Only new and unknowable information and events change pricing.
• The randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns unrelated to risk.
• People with this view would utilize free market investment strategies.
FREE MARKETS WORK
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BELIEFS DICTATE ACTION
FREE MARKETS WORK• Focus on capturing
market returns• Utilize asset-class or
structured funds• Diversify prudently• Identify your risk
tolerance• Eliminate traditional
investment strategies• Work with a financial
coach who shares your market belief
FREE MARKETS FAIL• Pursue traditional
investment strategies• Stay connected to all
sources of financial information
• Read every investment article you can find
• Work with a financial professional who shares your market belief
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Modern Portfolio TheoryDiversification Works
Nobel Prize Winners, 1990
Harry MarkowitzWilliam SharpeMerton Miller
COMPONENT 2:
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As a graduate student in economics at the University of Chicago in the 1950's, Dr. Markowitz won acclaim for his studies on portfolio design and risk reduction. These concepts were later crucial for the development of Modern Portfolio Theory. Nobel Prize Winner 1990
DR. HARRY MARKOWITZ
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6 8 10 12 14 16 18 20
6
8
10
12
14
16
One Year Standard Deviation (Volatility)
Ann
uali
zed
Com
poun
d R
etur
n
Growth
Aggressive
S&P 500
Conservative
Moderate
MARKOWITZ EFFICIENT FRONTIERMaximizing Expected Returns for Any Level of
Volatility
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DETERMINANTS OFPORTFOLIO PERFORMANCE
1.8
2.1
4.6
91.5
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Time
Valu
e Investment A
Investment B
Portfolio
50/50 Combin
ed Portfoli
o
ASSET CLASS CORRELATIONExample Portfolio
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Source: DFA Returns Software 12/07
Return(%)
Simplified Example Of Low Correlation BenefitsJanuary 1971 - December 2007 (in $U.S.)
INCREASE RETURNSAND REDUCE VOLATILITY
Large U.S.
100% S&P 500 Index1,7
11.27
16.78Standard Deviation
70% S&P 5001,7 30%
EAFE1,5
Large U.S. EAFE
16.35
11.61
70% S&P 5001,7 20%
EAFE1,5 10% Int'l Small1,3,4
Large U.S. EAFE
Small Int'l
16.28
12.32
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The Three-Factor Model
Source: Fama, Eugene F., and Kenneth R. French, 1992 “The cross-section of Expected Stock Returns”, Journal of Finance 47 (June), 427-465
COMPONENT 3:
Eugene Fama &
Kenneth French
Factor 1: The Market Factor Factor 2: The Size FactorFactor 3: The “Value” Factor
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0
2
4
6
8
10
12
AnnualizedReturn
S&P 500
T-Bills
• Equities are riskier than fixed income.
• Equities historically provide a higher rate of return.
1926-2007 S&P 5001,7 T-Bills
Annualized Return 10.36 3.73
Standard Deviation 19.97 3.09
Source: DFA Returns Software, 12/07
FACTOR 1: THE MARKET FACTOR
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9.5
10
10.5
11
11.5
12
12.5
13
AnnualizedReturn
S&P 500
U.S.SmallCo.
• Small companies are riskier than large companies.
• Small companies historically provide a higher return than large companies.
Source: DFA Returns Software, 12/07
1926-2007 S&P 5001,7 U.S. Small Co.
Annualized Return 10.36 12.49
Standard Deviation 19.97 38.83
FACTOR 2: THE SIZE FACTOR
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9
9.5
10
10.5
11
11.5
12
12.5
AnnualizedReturn
S&P 500
U.S. Lg.Value
• High book-to-market (value) stocks are riskier than low book-to-market (growth) stocks.
• High book-to-market stocks historically provide higher return than low book-to-market stocks.
Source: DFA Returns Software, 12/07
July 1926-2007 S&P 5001,7 U.S. Lg. Value1,2
Annualized Return 10.45 12.48
Standard Deviation 19.10 25.09
FACTOR 3: THE VALUE FACTOR
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Free Markets Work+ Modern Portfolio Theory+ The Three-Factor Model= Free Market Portfolio Theory
THE TRUTH
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BUILDING A BETTER PORTFOLIOBUILDING A BETTER PORTFOLIOAVERAGE INVESTOR EQUITY AVERAGE INVESTOR EQUITY
PERFORMANCEPERFORMANCE
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
Portfolio 1 100%
Equity Mutual Funds
1988-2007
Portfolio 1 4.48 15.79
Annualized
Return(%)
AnnualizedStandard
Deviation (%)
60%
40%
Actual Investor Results100%
Equity Mutual Funds
Dalbar Investor Results
Research for period1988-2007
CREATING A DIVERSIFIED PORTFOLIO
Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007Past performance is no guarantee of future results.
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
1. Average Holding Period – 3.0 Years *2. Track-Record Investing – Chasing the
Market3. Hyperactive Stock Picking4. Market Timing
WHY ARE THE RETURNS SO LOW?
*Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007, 20-year period
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
S&P 500 Index
1973-2007
Annualized
Return(%)
AnnualizedStandard
Deviation (%)
Portfolio 1* 4.48 15.79Portfolio 2 10.97 17.23
Portfolio 1 100%Portfolio 2 100%
Equity Mutual Funds
100%
S&P 500
CREATING A DIVERSIFIED PORTFOLIOBasic Passively Invested Portfolio
•Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007; 1985-2007.Return and Standard Deviation data from DFA Returns Software updated through 12/31/06Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
1973-2007Annualize
dReturn
(%)
60%
20%
20%
AnnualizedStandard
Deviation (%)
Portfolio 1* 4.48 15.79Portfolio 2 10.97 17.23Portfolio 3 10.12 10.78
S&P 500
Index
Portfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%
Equity Mutual Funds
5-Year Government Portfolio
One-Year Fixed
Income
CREATING A DIVERSIFIED PORTFOLIOIncluding Fixed Income Assets in the Portfolio
•Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007; 1985-2007.Return and Standard Deviation data from DFA Returns Software updated through 12/31/06.Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against loss.
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
1973-2007Annualize
dReturn
(%)
30%
20%
20%
30% AnnualizedStandard
Deviation (%)
Portfolio 1* 4.48 15.79Portfolio 2 10.97 17.23Portfolio 3 10.12 10.78Portfolio 4 10.16 10.62
S&P 500
Index
Portfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%
Equity Mutual Funds
5-Year Governm
ent Portfolio
One-Year Fixed
IncomeEAFE Index
CREATING A DIVERSIFIED PORTFOLIOIncluding International Assets in the Portfolios
•Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007; 1985-2007.Returns and Standard Deviation data from DFA Returns Software updated through 12/31/06.Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
1973-2007Annualize
dReturn
(%)
20%
15%
20%
15%15%
15%
AnnualizedStandard
Deviation (%)
Portfolio 1* 4.48 15.79Portfolio 2 10.97 17.23Portfolio 3 10.12 10.78Portfolio 4 10.16 10.62Portfolio 5 11.48 11.31
S&P 500
Index
Portfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%Portfolio 5 15% 20% 20% 15% 15% 15%
Equity Mutual Funds
5-Year Governm
ent Portfolio
One-Year Fixed
IncomeEAFE Index
U.S. 9-10
Small Co.
Int’l Small Cap
Stocks
CREATING A DIVERSIFIED PORTFOLIOAdding Small Cap Stocks
•Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007; 1985-2007.Return and Standard Deviation data from DFA Returns Software updated through 12/31/06Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
Annualized
Return(%)
20%
20%
7.5%15%
7.5%
7.5%
15%
7.5%
AnnualizedStandard
Deviation (%)
Portfolio 1* 4.48 15.79Portfolio 2 10.97 17.23Portfolio 3 10.12 10.78Portfolio 4 10.16 10.62Portfolio 5 11.48 11.31Portfolio 6 12.06 10.98
S&P 500
Index
Portfolio 1100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%Portfolio 5 15% 20% 20% 15% 15% 15%Portfolio 6 7.5% 20% 20% 15% 7.5% 15% 7.5% 7.5%
Equity Mutual Funds
5-Year Governm
ent Portfolio
One-Year Fixed
IncomeEAFE Index
U.S. 9-10
Small Co.
Int’l Small Cap
Stocks
U.S. Small Cap
Value
U.S. Large Cap
Value
CREATING A DIVERSIFIED PORTFOLIOAdding High Book-to-Market [Value] Stocks
1973-2007
•Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007; 1985-2007.Return and Standard Deviation data from DFA Returns Software updated through 12/31/06Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.
© 2001-2007 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
Directions:Answer each question “Yes” or “No.”
Your Answer must be 100% “Yes” to qualify as “Yes.”
THE 20 MUST-ANSWER THE 20 MUST-ANSWER QUESTIONS FOR YOUR QUESTIONS FOR YOUR
JOURNEY TOWARDJOURNEY TOWARDPEACE OF MINDPEACE OF MIND
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QUESTION 1
Have you discovered your True Purpose for Money, that which is
more important than money itself?
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Are you invested in the Market?
QUESTION 2
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Do you know how markets work?
QUESTION 3
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Have you defined yourInvestment Philosophy?
QUESTION 4
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Have you identified your personal
risk tolerance?
QUESTION 5
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Do you know how to measure diversification in your portfolio?
QUESTION 6
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Do you consistently and predictably
achieve market returns?
QUESTION 7
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Have you measured the total amount of commissions and
costs in your portfolio?
QUESTION 8
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Do you know where you fall on the Markowitz Efficient Frontier?
QUESTION 9
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When it comes to building your investment portfolio, do you
know exactly what you are doing and why?
QUESTION 10
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Are you working with a financial coach versus a financial planner?
QUESTION 11
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Do you have a customized lifelong game plan to guide all of
your investing and spending decisions?
QUESTION 12
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Do you have an Investment Policy Statement?
QUESTION 13
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Have you devised a clear-cut method
for measuring the success or failure of
your portfolio?
QUESTION 14
© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.
Do you fully understand the implications and applications of
diversification inyour portfolio?
QUESTION 15
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Do you have a system to measure
portfolio volatility?
QUESTION 16
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Are you aware of the incentives brokerage firms and the financial
community have when selling commission-based products?
QUESTION 17
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Do you know the three warning signs that you are gambling and
speculating with your money versus prudently investing it?
QUESTION 18
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Can you identify the cultural messages and personal mind-sets about money that destroy
your peace of mind?
QUESTION 19
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Are you ready to shift your personal experience of money and investing from a scarcity mode to an abundance mode?
QUESTION 20
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85-100: Amazing Investor Congratulations! You are among the most educated, diligent and confident investors. You have experience in the investment markets and understand what it takes to be successful. Now is the time to support your current knowledge with discipline and educational reinforcement.
65-80: Better Investor As a Better Investor, you have been around the block a time or two and maybe had some less than successful investing experiences. Now is the time to expand your knowledge about investing and begin to make some solid choices about your financial future. To achieve this, seek answers to the questions you missed.
45-60: Common Investor You are not alone. Like many investors, you may frequently find yourself uncertain and confused about how to make the right investment choices. If you don’t already have an Investor Coach that you trust completely, now is the time to build a relationship to last a lifetime.
25-40: Discouraged Investor It’s easy to feel discouraged when you have been doing what you thought were the right things with your money without success. You may have followed all of the advice that you’ve read in financial magazines and newspapers, yet you are not getting the exponential results you had expected.
0-20: Frustrated Investor Flustered and confused, you may wonder where to begin – how is it even possible to wade through all of the information that you are being bombarded with on a daily basis. Sort through the chaos and find a path that is right for you.
Give yourself 5 points for every “Yes” answer.SCORING:
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Learn more about what this means for you
THE OPPORTUNITYTHE OPPORTUNITY
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1. No reinvestment of dividends or other earnings were included in the calculations. No commissions or fees have been deducted from the market performance figures because the intent is to show the benefits of diversification of asset classes and not to indicate the results Matrix would have achieved if it managed a client’s funds. If an investor invested in mutual funds designed to reflect asset class performance, the investor would, in effect, be paying an advisory fee to the mutual fund manager and brokerage commissions because these fees and commissions would be relected in the mutual fund’s expenses that are deducted from the value of each share of the mutual fund. If, in addition, an investor engaged an investment advisor to manage the assets, the investor would pay an investment advisory fee to this manager. If an investor also utilized the services of a separate custodian, the investor would pay additional fees to the custodian. The returns of the hypothetical asset class mixes frequently exceeded the results of Matrix clients’ portfolios with similar investment objectives for the period Matrix has managed clients’ funds from 1991 to present. This difference is due to differing allocations over the time periods shown. These allocations differed because of different asset classes used, new research applied, and because of deduction of commission. Also, it is not possible to invest in an index. Past performance of markets is no guarantee of future performance and clients may experience a loss.
2. US Large Value = U.S. Large Cap Value Portfolio:
• July 1926-March 1993: Fama-French Large Cap Value Strategy. Simulates Dimensional’s hold range and estimated trading costs. Courtesy of Fama-French and CRSP: deciles 1-5 size, (.7) BtM.
• April 1993-Present: U.S. Large Cap Value Portfolio net of all fees.3. DFA International Small Company Strategy/DFA International Large Company Strategy:
• January 1970-June 1998: 50% DFA Japanese Portfolio, 50% DFA U.K. Portfolio net of all fees.• July 1998-September 1989: 50% DFA Japanese Portfolio, 20% DFA UK Portfolio, 30% DFA Continental Portfolio net of all
fees.• October 1989-March 1990: 40% DFA Japanese Portfolio, 30% DFA Continental Portfolio, 20% DFA UK Portfolio, 10% DFA
Asia/Australia Portfolio net of all fees.• April 1990-December 1992: 40% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 10% DFA
Asia/Australia Portfolio net of all fees.• January 1993-March 1997: 35% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 15% DFA
Asia/Australia Portfolio net of all fees.• April 1997-March 1998: 30% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 20% DFA
Asia/Australia Portfolio net of all fees.• April 1998-Present: 25% DFA Japanese Portfolio, 40% DFA Continental Portfolio, 20% DFA UK Portfolio, 15% DFA
Asia/Australia Portfolio net of all fees.
4. DFA International Small Company Portfolio:
• January 1970-September 1996: DFA International Small Company Strategy.• October 1996-Present: DFA International Small Company Portfolio net of all fees.
5. EAFE Index: Courtesy of Morgan Stanley Capital International. Europe, Australia, and Far East Index net dividends ($).
• January 1969-Present: EAFE Index Including gross dividends ($).6. US Small Co = CRSP 9-10 Index: Courtesy of Center for Research in Security Prices, University of Chicago. Small Company Universe Returns (Deciles 9 &10) all Exchanges.
• January 1926-June 1962: NYSE, rebalanced semi-annually.• July 1962-December 1972: CRSP Database, NYSE & AMEX, rebalanced quarterly.• January 1973-September 1988: CRSP Database, NYSE, AMEX & OTC, rebalanced quarterly.• October 1988-Present: CRSP Index (NYSE & AMEX & OTC).
7. S&P 500: Courtesy of Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: The Past and the Future, Dow Jones, 1989. Ibbotson Associates, Chicago, annually updates work by Roger Ibbotson and Rex A. Sinquefield. Used with Permission. All rights reserved. The S&P 500 is an unmanaged market value-weighted index which measures the change in aggregate market value of 500 stocks relative to the base period 1941-1943. This index does not incur fees and charges typically associated with investing and values would be lower if such fees and charges were taken into consideration. Individuals may not invest directly in an index. Past performance is not a guarantee of future results.
ENDNOTES
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6. US Small Co = CRSP 9-10 Index: Courtesy of Center for Research in Security Prices, University of Chicago. Small Company Universe Returns (Deciles 9 &10) all Exchanges.• January 1926-June 1962: NYSE, rebalanced semi-annually.• July 1962-December 1972: CRSP Database, NYSE & AMEX, rebalanced quarterly.• January 1973-September 1988: CRSP Database, NYSE, AMEX & OTC, rebalanced quarterly.• October 1988-Present: CRSP Index (NYSE & AMEX & OTC).
7. S&P 500: Courtesy of Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: The Past and the Future, Dow Jones, 1989. Ibbotson Associates, Chicago, annually updates work by Roger Ibbotson and Rex A. Sinquefield. Used with Permission. All rights reserved. The S&P 500 is an unmanaged market value-weighted index which measures the change in aggregate market value of 500 stocks relative to the base period 1941-1943. This index does not incur fees and charges typically associated with investing and values would be lower if such fees and charges were taken into consideration. Individuals may not invest directly in an index. Past performance is not a guarantee of future results.
8. 35- Year performance figures taken from Dimensional Fund Advisor, Inc. (DFA) Returns software 12/07. Some data provided to DFA by the Center for Research & Security Pricing (CRSP), University of Chicago. Asset Classes defined as: Consumer Price Index for inflation, CRSP 30 day bill index for Treasury Bills, CRSP Long-term U.S. Government Bond Index for Long-Term Government Bonds, S&P 500 Index for U.S. large stocks, CRSP 9-10 Index for U.S. small stocks, Morgan Stanley Europe, Australia, Far East (EAFE) Index for international large stocks, and the international small stock index created by DFA using CRSP data. CONSERVATIVE, MODERATE, GROWTH, & AGGRESSIVE These results are based on the performance of 30 day T-Bills, Dimensional’s One-Year Fixed Strategy [1972- July 1983 – Simulated CD Fixed Income Strategy (maximum maturity 1 year) Aug. 1983 – DFA Fixed Income Portfolio returns net of all fees (weighted average maturity under 1 year)], Dimensional’s Five-Year Government Portfolio [Average maturity: Under Five Years, 1953-May 1987 – Simulation using U.S. Government Instruments (maximum maturity five years) June 1987 – DFA Five Year Government Portfolio net of all fees], S&P 500 Index, CRSP Large Value Index, CRSP (Center for Research & Security Pricing) 9-10, CRSP 6-10, CRSP Small Value Index, EAFE Index, and Dimensional’s Small International Index (1970-June 1988 – 50% Japan, 50% United Kingdom. July 1988- September 1989 – 50% Japan, 30% Continental, 20% United Kingdom, October 1989 – March 1990 -40% Japan, 40% Continental, 20% United Kingdom, 10% Asia-Australia. April 1990 – December 1992 – 40% Japan, 35% Continental, 15% United Kingdom, 10% Asia-Australia. January 1993 to present – 35% Japan, 35% Continental, 15% United Kingdom, 15% Australia.], and assume the asset allocation among these indices as shown under “Conservative”, “Moderate”, “Growth”, and “Aggressive” in the chart entitled Allocation of Sample Asset Class Mixes.
All investing involves risk and costs. Your advisor can provide you with more information about the risks and costsassociated with specific programs. No investment strategy (including asset allocation and diversification strategies) canensure peace of mind, assure profit, or protect against loss.
ENDNOTES