Why Asset Allocation? The 3 DON’Ts of Investing: Don’t invest on emotion. Don’t guess which asset class you should invest in. Don’t over diversify. Bear Markets 1970-2002 DO... Invest for the long term. Allocate your assets. Emotions make you want to buy at market peaks (labeled A).... and sell at lows (labeled B)
Timing the Market Has Led to Earning Less Than Inflation! DALBAR’s Quantitative Analysis of Investor Behavior Study shows equity fund investors earned a paltry 2.57% annually, compared to inflation of 3.14% and the 12.22% that the S&P 500 earned annually over the same 19-year period. Solution: You are better off following a disciplined asset allocation strategy under the guidance of your financial adviser. Don’t try to time the market and chase returns! The S&P 500 index is an unmanaged, broad-based, price-weighted index of 500 stocks. The performance information above is for illustrative purposes only and does not guarantee future results. You cannot invest directly into an index. Disciplined Asset Allocation
Past performance is no guarantee of future results.
Historically, the rewards of the stock market occur in a few explosive periods: If you take out 23 of the best performing months of the 153 month long bull run… Source: JPMorgan Fleming. Past performance is not indicative of future returns. The S&P 500 index is an unmanaged, broad-based, price-weighted index of 500 stocks. The performance information above is for illustrative purposes only and does not guarantee future results. You cannot invest directly into an index. The Longest Bull Run in History S&P 500 Cumulative returns 12/11/87 – 8/31/00 153 months 130 months 194% 817%
Market timing is difficult due to the rapid movements of the market. The Fallacy of Market Timing And market-timing strategies can be equally unproductive. Consider the hypothetical scenario of an annual $10,000 investment over 20 years (Figure 1) in three different defined scenarios - two that are based on timing the market, and one that follows a disciplined simplified asset allocation strategy. As you can see, the latter asset allocation-influenced strategy provided superior returns Performance data quoted represents past performance and is no guarantee of future results. The above illustrative strategies utilize the ten indices comprising the Table of Periodic Investment Returns as shown on slide 12, each representing a major asset class. All funds, once invested, remain invested in that asset class and dividends are reinvested when possible. Index performance is hypothetical and not indicative of any mutual fund investment. You cannot invest directly into an index. Asset Allocation does not guarantee a profit, nor does it protect against loss .
A simple solution to asset allocation. Diversification of management styles. Attention to style drift. World Class Managers. Their best ideas. Ongoing monitoring of the managers Ongoing portfolio rebalancing.* One investment. One NAV. One Statement. Asset allocation does not guarantee a profit, nor does it protect against against loss. *Ongoing portfolio rebalancing using cash flows. Quarterly rebalancing using exchanges at the underlying fund level if necessary (annual rebalancing using exchanges for Focused Multi-Asset Strategy). SunAmerica’s Asset Allocation Strategies
“ High conviction buys” -- The very best investment ideas If a top pick is successful, it has a greater impact on overall fund performance; Decreased performance dilution from less successful selections Managers can more easily research and develop more in-depth knowledge of 10-20 stocks than 135 stocks 1 Source: Morningstar; 2 Because focused mutual funds are less diversified than typical mutual funds, the performance of each holding in a focused fund has a greater impact upon the overall portfolio, which increases risk The Best Ideas Only Traditional Mutual Fund Average of 135 stocks 1 Focused Mutual Funds Up to 30 stocks 2
RISK NUMBER OF STOCKS IN A PORTFOLIO Security Selection Risk Market Risk Illustration is hypothetical and for illustrative purposes only. Risk represents portfolio variance. Source: Portfolio Selection, 2nd Edition. 1991. As cited in A Random Walk Down Wall Street . Malkiel, Burton. Norton and Company. 1999. Because focused mutual funds are less diversified than typical mutual funds, the performance of each holding in a focused fund has a greater impact upon the overall portfolio, which increases risk “ Modern Portfolio Theory shows that once the number of securities in a portfolio exceeds 20 to 30 stocks, the non-market risk which can be lowered by diversification is very limited.” -Tom Marsico Marsico Capital Management Risk and Focused Investing
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