1. The Global Capital Markets and How They Benefit You and Me Barry Mendelson, CFP® Financial Advisor & Partner 925-988-0330 x22 [email_address] As of June 30, 2011
2. Opinions expressed are those of Barry Mendelson, CFP® and Just Plans Etc. This presentation should not be construed as investment advice. The information contained in this presentation is compiled from sources believed to be reliable. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. The markets can remain irrational longer than you can remain solvent. Disclosures
3. Barry Mendelson, CFP® Local investment and personal finance professional. More than 15 years experience working for leading financial services companies including Charles Schwab, AXA Rosenberg, Neuberger Berman, and Franklin Templeton. Prior to joining Just Plans Etc. in 2010, was a Vice President in Charles Schwab & Co’s $250 billion investment management division. Certified Financial Planner™ certificate holder since 2008. B.A. in Business Economics & Accounting from U.C. Santa Barbara in 1995. Just Plans Etc. Founded in 1983 and based in Walnut Creek, California - Just Plans is a fee-only wealth management firm and SEC registered investment advisor. Just Plans provides investment management and financial planning services to more than 100 individuals, families, and companies. The firm specializes in tax-efficient investing and helping investors realize meaningful value from qualified retirement plans, concentrated stocks positions, stock options, and other forms of equity. As a fiduciary, the firm puts the interests of the client above all else. About
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6. Expanding Global Opportunities World Market Capitalization $35.6 Trillion as of December 31, 2010 In US dollars. Market cap data is free-float adjusted from Bloomberg Securities Data. Many small nations not displayed. Totals may not equal 100% due to rounding. Dimensional makes case-by-case determinations about the suitability of investing in each emerging market, making considerations that include local market accessibility, government stability, and property rights, before making investments. For educational purposes; should not be used as investment advice. 1. An example large cap stock provided for comparison. Capitalization Over Time ($ Trillions): Bloomberg Index Affiliation Developed Markets Emerging Markets Frontier Markets
7. International Economic and Demographic Data Source: FactSet, CIA, J.P. Morgan Securities, J.P. Morgan Asset Management. All GDP Growth data are from J.P. Morgan Economics and expressed as % change versus prior quarter annualized with the excepti on of India, which is from the India Ministry of Statistics & Programme Implementation and represents % change versus a year ago. All GDP Growth data are for 1Q11. India unemployment is from CIA estimates and is as of 2010, and Italy unemployment is as of 12/31/10. CPI Inflation is shown as % change versus a year ago and all data are for 1Q11. Unemployment rate for developed countries refers to May 2011 and comes from FactSet Economics, Eurostat and Statistics Canada. Demographic data provided by CIA World Factbook at CIA.gov. Data are as of 6/30/11. Economics Demographics GDP USD (B$s) GDP Per Capita GDP Growth Unempl. Rate Inflation (CPI) Population Population Growth Percent Age >65 Median Age Migration per 1000 Developed U.S. $15,018 $47,200 1.9% 9.1% 3.4% 313 mm 1.0% 13.1% 36.9 yrs +4.2 Canada 1,330 39,400 3.9 7.4 3.7 34 0.8 15.9 41.0 +5.7 U.K. 2,173 34,800 2.0 7.7 4.5 63 0.6 16.5 40.0 +2.6 Germany 2,940 35,700 6.1 7.0 2.3 81 -0.2 20.6 44.9 +0.5 France 2,145 33,100 3.9 9.7 2.0 65 0.5 16.8 39.9 +1.5 Japan 4,310 34,000 -3.5 4.7 0.3 126 -0.3 22.9 44.8 - Italy 1,774 30,500 0.4 8.5 3.0 61 0.4 20.3 43.5 +4.9 Emerging Russia 2,223 15,900 5.1 6.4 9.6 139 -0.5 13.0 38.7 +0.3 Mexico 1,567 13,900 2.1 5.2 3.2 114 1.1 6.6 27.1 -3.2 Brazil 2,172 10,800 5.4 6.4 6.6 203 1.1 6.7 29.3 -0.1 China 10,090 7,600 8.8 4.1 5.5 1,337 0.5 8.9 35.5 -0.3 India 4,060 3,500 8.3 10.8 9.1 1,189 1.3 5.5 26.2 -0.1
8. U.S. and International Markets Perform Differently Rolling 12-month Variance (Jan 1972 – Dec 2010) International Outperforms U.S. Outperforms Past Performance is not indicative of future results. All investments involve risk. Foreign securities involve additional risks including foreign currency changes, taxes and different accounting and financial reporting methods. International market performance represented by the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia, Far East Index), comprised of over 1,000 companies representing the stock markets of Europe, Australia, New Zealand and the Far East, and is an unmanaged index. EAFE represents non-U.S. large stocks. U.S. market performance represented by the Standard & Poor's 500 Index, an unmanaged market value-weighted index of 500 stocks that are traded on the NYSE, AMEX and NASDAQ. The weightings make each company's influence on the index performance directly proportional to that company's market value. Global Market Capitalization Source: Center for Research in Security Prices (CRSP) January, 2011 *Source: Impact of an Aging Population on the Global Economy Jeremy J. Siegel CFA Institute Conference Proceedings Quarterly (09/07 ) 1970 _________________ U.S. 66% International 34% 2010 _________________ U.S. 40% International 60% 2050* (Projected)* _________________ U.S. 17% International 83% Expanding Global Opportunities
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11. Foreign Ownership of U.S. Treasuries Source: J.P. Morgan Asset Management, U.S. Treasury Department TIC. Data reflects most recently available information as of 6/30/11, published by the U.S. Treasury in April 2011 for the period ending 6/30/10. Based on long - term marketable securities less bills outstanding. Percentage of U.S. Treasuries Owned by Foreigners Foreign Holders of U.S. Treasuries Billions USD Source: J.P. Morgan Asset Management, U.S. Treasury Department TIC. Caribbean Banking Centers include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles and Panama. Oil countries include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya and Nigeria. Data on this page are updated annually each June to reflect revisions by Treasury. Data are as of June 2011 . All other $ 1,461 32% Japan $907 20% China $ 1,153 26% Brazil $207 5 % Oil countries $222 5 % Russia $125 3% Hong Kong $122 3% Caribbean $138 3% Taiwan $ 155 3 % 12% 14% 22% 19% 35% 41% 46% 51% 52% 52% 57% 61% 57% 53% 0% 10% 20% 30% 40% 50% 60% '78 '84 '89 '94 '00 '02 '03 '04 '05 '06 '07 '08 '09 '10
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13. Gold Year Troy Ounces Total Value 2000 83.3 mm $23 bn 2001 83.6 mm $23 bn 2002 82.0 mm $25 bn 2003 81.7 mm $30 bn 2004 77.8 mm $32 bn 2005 79.4 mm $35 bn 2006 76.2 mm $46 bn 2007 75.9 mm $53 bn 2008 73.6 mm $64 bn 2009 78.8 mm $77 bn World Gold Production '75 '80 '85 '90 '95 '00 '05 '10 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 Source: (Left chart) EcoWin , BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. (Right table) U.S. Geological Survey, World Gold Council, J.P. Morgan Asset Management. CPI adjusted gold values are calculated using month averages of gold spot prices div ided by the CPI value for that month. CPI is rebased to 100 at the start of the chart. Data reflect most recently available as of 6/30/11. Gold Prices Asset $ / oz Jun. 2011: $272.03 Jun. 2011: $1,505.50 Jan. 1980: $850.70 Jan. 1980: $326.41 Gold, Inflation adjusted Gold
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15. Consumer Price Index '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 -3% 0% 3% 6% 9% 12% 15% Source: BLS, J.P. Morgan Asset Management. CPI values shown are % change vs. 1 year ago and reflect May 2011 CPI data. CPI component weights are as of May 2011 and 12 - month change reflects data through May 2011 . Core CPI is defined as CPI excluding food and energy prices . Data reflect most recently available as of 6/30/11. CPI and Core CPI 50 - yr . Avg. May 2011 Headline CPI: 4.1% 3.4% Core CPI: 4.1% 1.5% % chg vs. prior year, seasonally adjusted CPI Components Weight in CPI 12-month Change Food & Bev. 14.8% 3.4% Housing 41.5% 1.2% Apparel 3.6% 1.0% Transportation 17.3% 12.5% Medical Care 6.6% 3.0% Recreation 6.3% 0.0% Educ. & Comm. 6.4% 1.0% Other 3.5% 1.5% Headline CPI 100.0% 3.4% Less: Energy 9.1% 20.7% Food 13.7% 3.5% Core CPI 77.2% 1.5%
16. Economic Expansions and Recessions 0 25 50 75 100 125 1900 1912 1921 1933 1949 1961 1980 2001 The Great Depression and Post - War Recessions Length and severity of recession Great Depression: 26.7% decline in real GDP Most Recent Recession: 4.1% decline in real GDP Source: NBER, BEA, J.P. Morgan Asset Management. Bubble size reflects the severity of the recession, which is calculated as the decline in real GDP from the peak quarter to the trough quarter except in the case of the Great Depression, where it is calculated from the peak year (1929) to the trough year (1933), due to a lack of available quarterly data . Source: NBER, J.P. Morgan Asset Management. *Chart assumes current expansion started in July 2009 and continued through June 2011 . Data for length of economic expansions and recessions obtained from the National Bureau of Economic Research (NBER). These data can be found at www.nber.org/cycles/ and reflects information through June 2011 . For illustrative purposes only . Data reflect most recently available as of 6/30/11. Length of Economic Expansions and Recessions Average Length (months): Expansions: 44 months Recessions: 15 months * -3.2% -0.6% -2.2% -2.9% -1.6% -2.6% -3.7% -1.7% -1.4% -0.3% -4.1% -26.7% 0 yrs 1 yrs 2 yrs 3 yrs 4 yrs 5 yrs 1910 1930 1950 1970 1990 2010 Length of Recession in Years
17. Unemployment Rates Across the U.S. Source: BLS, J.P. Morgan Asset Management . Unemployment rates are as of May 2011. Data reflect most recently available as of 6/30/11. 9.1% 9.3% 11.7% 12.1% 9.4% 7.3% 9.1% 7.3% 6.0% 8.7% 6.9% 8.0% 5.3% 6.6% 4.1% 4.8% 3.2% 6.6% 6.0% 8.9% 7.8% 8.2% 9.6% 10.3% 9.8% 10.6% 9.7% 8.9% 7.4% 10.3% 8.2% 8.6% 9.8% 9.7% 6.0% 8.6% 7.4% 7.9% 6.8% 8.0% 9.4% 9.8% (DC) 10.9% 7.7% 5.4% 4.8% 7.6% 9.1% 10.0% Lowest Quintile Second Quintile Third Quintile Fourth Quintile Highest Quintile 7.4% 6.0%
18. Job Growth, Productivity, and the Labor Force '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 64% 65% 66% 67% 68% '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 -2% 0% 2% 4% 6% 8% Source: BLS, FactSet, J.P . Morgan Asset Management. Labor Productivity: Output per Hour Non - farm business productivity, % change year - over - year 20 Years – Net Job Creation Net change in millions of payroll jobs, sa 1Q11: 1.3% Source: BLS, FactSet, J.P . Morgan Asset Management. Data reflect most recently available as of 6/30/11. Labor Force Participation Rate % of population aged 16+ working or looking for work 20 - yr. average: 66.3% 20 - yr. average: 2.4% May 2011 : 64.2% - 5.4 0.8 1.2 1.1 2.8 4.0 4.0 6.5 7.0 - 6.0 - 4.0 - 2.0 0.0 2.0 4.0 6.0 8.0 Manufacturing Mining & Construction Other Services Government Trade & Retailing Leisure & Hospitality Education Fin. & Bus. Services Health Care
19. The Aftermath of the Housing Bubble '95 '00 '05 '10 3 4 5 6 7 8 9 1 2 3 4 5 6 10% 15% 20% 25% 30% 35% 40% '75 '80 '85 '90 '95 '00 '05 '10 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 $0 $3,000 $6,000 $9,000 $12,000 $15,000 '95 '00 '05 '10 80 100 120 140 160 180 200 220 240 Home Price Changes: 1 - year: - 5% 3 - years: - 20% 5 - years: - 26% 10 - years: 9% $ thousands, seasonally adjusted Home Equity Billions USD, saar Sources: (Top left) National Association of Realtors, FactSet, J.P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom left) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. (Bottom right) Census Bureau, FRB, BEA, J.P. M org an Asset Management . Home price based on median sales price of existing homes and are cumulative, not annualized. Home sales includes both new and existing home sales. Existing home sales include single - family, townhomes , condominiums and co - ops. Note: Calculation for bottom right chart assumes a 20% down payment, a 30 - year fixed rate mortgage, excludes property tax and homeowners’ insurance and is expressed as a percent of pre - tax income. Data reflect most recently available as of 6/30/11. Affordability: Mortgage Payment on Average New Home % of average household personal income Median Existing Home Prices 10 - years 5 - years 3 - years 1 - year May 2011 : 12.1% Home Sales and Inventories Millions, annual rate, seasonally adjusted May 2011: 3.8 1Q11: $6,124 1Q06: $13,504 Home Sales Inventories May 2011 : 5.1
20. Global Commodities '02 '03 '04 '05 '06 '07 '08 '09 '10 0 50 100 150 200 250 300 350 400 450 500 0 500 1000 1500 2000 2500 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 Source: Dow Jones/UBS, FactSet, J.P. Morgan Asset Management. Commodity prices represented by the appropriate DJ/UBS Commodity sub - index. Data reflect most recently available as of 6/30/11. Source: USDA, BP Statistical Review of World Energy, J.P. Morgan Asset Management. Data are as of 6/30/11. Asset Commodity Prices Weekly index prices rebased to 100 Precious metals Industrial metals Energy Livestock Grains Oil Demand: Emerging Markets Share Emerging markets as % of total global oil consumption Grain Demand: Emerging vs. Developed Markets Millions of metric tons Emerging Markets Developed Markets 30% 32% 34% 36% 38% '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
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23. Highest Return Lowest Return The Need for Diversification Asset Class Index Performance 1996-2010 Diversification does not guarantee a profit or protect against a loss. Data Sources: Center for Research in Security Prices (CRSP), BARRA Inc. and Morgan Stanley Capital International, January 2011. All investments involve risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Past performance is not indicative of future performance. Treasury bills are guaranteed as to repayment of principal and interest by the U.S. government. This information does not constitute a solicitation for sale of any securities. CRSP ranks all NYSE companies by market capitalization and divides them into 10 equally-populated portfolios. AMEX and NASDAQ National Market stocks are then placed into deciles according to their respective capitalizations, determined by the NYSE breakpoints. CRSP Portfolios 1-5 represent large-cap stocks; Portfolios 6-10 represent small caps; Value is represented by companies with a book-to-market ratio in the top 30% of all companies. Growth is represented by companies with a book-to-market ratio in the bottom 30% of all companies. S&P 500 Index is the Standard & Poor’s 500 Index. The S&P 500 Index measures the performance of large-capitalization U.S. stocks. The S&P 500 is an unmanaged market value-weighted index of 500 stocks that are traded on the NYSE, AMEX and NASDAQ. The weightings make each company’s influence on the index performance directly proportional to that company’s market value. The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia, Far East Index) is comprised of over 1,000 companies representing the stock markets of Europe, Australia, New Zealand and the Far East, and is an unmanaged index. EAFE represents non-U.S. large stocks. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes and different methods of accounting and financial reporting. Consumer Price Index (CPI) is a measure of inflation. REITs, represented by the NAREIT Equity REIT Index, is an unmanaged market cap-weighted index comprised of 151 equity REITS. Emerging Markets index represents securities in countries with developing economies and provide potentially high returns. Many Latin American, Eastern European and Asian countries are considered emerging markets. Indexes are unmanaged baskets of securities without the fees and expenses associated with mutual funds and other investments. Investors cannot directly invest in an index. Asset Class Performance
24. Diversification and the Average Investor 20 - year Annualized Returns by Asset Class (1991 – 2010) (Top) Indexes and weights of the traditional portfolio are as follows: U.S. stocks: 55% S&P 500, U.S. bonds: 30% Barclays Capital Aggregate. International stocks: 15% MSCI EAFE. Portfolio with 25% in alternatives is as follows: U.S. stocks: 22.1% S&P 500, 8.8% Russell 2000; International Stocks: 4.4% MSCI EM, 13.2% MSCI EAFE; U.S. Bonds: 26.5% Barclays Capital Aggregate; Alternatives: 8.3% CS/Tremont Equity Market Neutral, 8.3% DJ/UBS Commodities, 8.3% NAREIT Equity REIT Index. Return and standard deviation calculated using Zephyr. Charts are shown for illustrative purposes only. Past returns are no guarantee of future results. Diversification does not guarantee investment returns and does not eliminate risk of loss. Data are as of 6/30/11. (Bottom) Indexes used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Barclays Capital U.S. Aggregate Index, Homes: median sale price of existing single - family homes, Gold: USD/troy oz, Inflation: CPI. Average asset allocation investor return is based on an analysis by Dalbar Inc. which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20 - year period ending 6/30/11 to match Dalbar’s most recent analysis. Traditional Portfolio More Diversified Portfolio Return: 6.86% Standard Deviation: 11.12% Return: 7.92% Standard Deviation: 9.99% Maximizing the Power of Diversification (1994 – 2010) 55% 15% 30% S&P 500 MSCI EAFE Barclays Agg. 8% 8% 8% 22% 9% 13% 4% 26% Equity Mkt. Neutral Commodities REIT S&P 500 Russell 2000 MSCI EAFE MSCI EM Barclays Agg. 10.5% 8.0% 7.7% 7.2% 6.1% 4.7% 2.8% 2.6% 2.4% 0% 2% 4% 6% 8% 10% 12% REITS Oil S&P 500 Gold Bonds EAFE Homes Average Investor Inflation
25. S&P 500 Index (USD) Daily Returns: January 1, 1926 - December 31, 2010 Bull and Bear Markets Indices are not available for direct investment; its performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. The S&P data are provided by CRSP (January 1, 1926–August 31, 2008) and Bloomberg (September 1, 2008–present). Returns include reinvested dividends. Bull and bear markets are defined in hindsight using cumulative daily returns. A bear market (1) begins with a negative daily return, (2) must achieve a cumulative return less than or equal to -10%, and (3) ends at the most negative cumulative return prior to achieving a positive cumulative return. All data points which are not considered part of a bear market are designated as a bull market. Performance data represents past performance and does not predict future performance. Average Duration Bull Market: 413 Days Bear Market: 220 Days Average Return Bull Market: 58% Bear Market: -21% 220% -13% -85% 20% -16% -39% 119% 87% 27% -15% -10% -13% 100% 44% -53% 25% 40% -13% -14% 26% -25% 22% -11% 23% -33% 83% -11% 99% -26% 19% -11% -16% 26% 53% 91% -13% 121% -11% 26% -13% 18% 69% -21% -11% 44% -27% 15% 96% -11% 59% -27% -10% -21% -32% 56% -12% 38% -45% 22% -13% 50% -13% 38% -15% 27% -13% 26% -10% 21% -16% 48% -20% 78% -11% 156% -33% 73% -10% 16% -19% 303% -12% 37% 50% -19% -12% 23% -11% 13% -47% 21% -14% 113% 03/09/2009 -55% 12/31/2010 -13% 1% 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
27. Asset Class Returns 10-yrs 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD 2Q11 '01 - '10 REITs DJ UBS Cmdty MSCI EME REITs MSCI EME REITs MSCI EME Barclays Agg MSCI EME REITs REITs REITs MSCI EME 13.9% 23.9% 56.3% 31.6% 34.5% 35.1% 39.8% 5.2% 79.0% 28.0% 10.6% 2.9% 350.0% Market Neutral Barclays Agg Russell 2000 MSCI EME DJ UBS Cmdty MSCI EME MSCI EAFE Market Neutral MSCI EAFE Russell 2000 Russell 2000 Market Neutral REITs 9.3% 10.3% 47.3% 26.0% 17.6% 32.6% 11.6% 1.1%* 32.5% 26.9% 6.2% 2.3% 178.0% Barclays Agg Market Neutral MSCI EAFE MSCI EAFE MSCI EAFE MSCI EAFE DJ UBS Cmdty Asset Alloc. REITs MSCI EME S&P 500 Barclays Agg Russell 2000 8.4% 7.4% 39.2% 20.7% 14.0% 26.9% 11.1% -23.8% 28.0% 19.2% 6.0% 2.3% 84.8% Russell 2000 REITs REITs Russell 2000 REITs Russell 2000 Market Neutral Russell 2000 Russell 2000 DJ UBS Cmdty Market Neutral MSCI EAFE Asset Alloc. 2.5% 3.8% 37.1% 18.3% 12.2% 18.4% 9.3% -33.8% 27.2% 16.7% 5.8% 1.8% 80.2% MSCI EME Asset Alloc. S&P 500 Asset Alloc. Asset Alloc. S&P 500 Asset Alloc. DJ UBS Cmdty S&P 500 S&P 500 MSCI EAFE Asset Alloc. Market Neutral -2.4% -5.4% 28.7% 12.5% 8.0% 15.8% 7.3% -36.6% 26.5% 15.1% 5.4% 0.7% 76.9% . Asset Alloc. MSCI EME Asset Alloc. S&P 500 Market Neutral Asset Alloc. Barclays Agg S&P 500 Asset Alloc. Asset Alloc. Asset Alloc. S&P 500 Barclays Agg -3.4% -6.0% 25.2% 10.9% 6.1% 14.9% 7.0% -37.0% 22.5% 12.7% 4.5% 0.1% 76.3% S&P 500 MSCI EAFE DJ UBS Cmdty DJ UBS Cmdty S&P 500 Market Neutral S&P 500 REITs DJ UBS Cmdty MSCI EAFE Barclays Agg MSCI EME MSCI EAFE -11.9% -15.7% 22.7% 7.6% 4.9% 11.2% 5.5% -37.7% 18.7% 8.2% 2.7% -1.0% 47.1% MSCI EAFE Russell 2000 Market Neutral Market Neutral Russell 2000 Barclays Agg Russell 2000 MSCI EAFE Barclays Agg Barclays Agg MSCI EME Russell 2000 DJ UBS Cmdty -21.2% -20.5% 7.1% 6.5% 4.6% 4.3% -1.6% -43.1% 5.9% 6.5% 1.0% -1.6% 41.7% DJ UBS Cmdty S&P 500 Barclays Agg Barclays Agg Barclays Agg DJ UBS Cmdty REITs MSCI EME Market Neutral Market Neutral DJ UBS Cmdty DJ UBS Cmdty S&P 500 -22.3% -22.1% 4.1% 4.3% 2.4% -2.7% -15.7% -53.2% 4.1% -2.5% -2.6% -6.7% 15.1% Asset Source: Russell, MSCI, Dow Jones, Standard and Poor’s, Credit Suisse, Barclays Capital, NAREIT, FactSet, J.P . Morgan Asset Management. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAF E, 5% in the MSCI EMI, 30% in the Barclays Capital Aggregate, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data except commodities represent total return for stated peri od. Past performance is not indicative of future returns. Data are as of 6/30/11, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 5/31/11. “ 10 - yrs” returns represent cumulative total return and are not annualized. These returns reflect the period from 1/1/01 – 12/31/ 10. Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures. Data are as of 6/30/11.
28. Historical Returns by Holding Period Historical Returns by Holding Period - 37% - 8% - 15% - 2% - 2% 1% - 1% 1% 2% 6% 1% 5% 51% 43% 32% 28% 23% 21% 19% 16% 17% 18% 12% 14% - 40% - 30% - 20% - 10% 0% 10% 20% 30% 40% 50% 60% 1 - yr. 5 - yr. rolling 10 - yr. rolling 20 - yr. rolling Annual total returns, 1950 – 2010 Range of Stock, Bond and Blended Total Returns Asset Sources: Barclays Capital, FactSet, Robert Shiller , Strategas /Ibbotson, Federal Reserve, J.P. Morgan Asset Management. Data are as of 6/30/11. 50/50 Portfolio 9.0% $559,744 Bonds 6.2% $336,138 Stocks 10.9% $792,519 Annual Avg. Total Return 50/50 Portfolio Bonds Stocks Growth of $100,000 over 20 years
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30. More articles at: www.justplans-etc.blogspot.com Barry Mendelson, CFP® Financial Advisor & Partner 925-988-0330 ext. 22 1399 Ygnacio Valley Rd, Suite 24 [email_address] Walnut Creek, CA 94598 www.JustPlans-Etc.com Contact info
Editor's Notes
While the U.S. stock market is one of the world’s largest, if you invest only in America, you are only getting half (actually 40% ) of the story. From automobile manufacturers to electronics to pharmaceuticals, some of the biggest companies in the world are headquartered outside the United States. By 2050, experts predict the United States will account for only 17% of global market capitalization. In addition, as you can see on the right, international markets and asset classes within those markets have not—historically—moved in unison with the U.S. market. When the U.S. is underperforming, international may outperform…and vice versa. This means that incorporating both international and domestic equities into a portfolio potentially increases diversification and lowers volatility.
Experience shows that even highly-experienced, highly-compensated mutual fund managers have a hard time beating the market. As you can see, the majority of managers have failed to beat their indices. [Read chart on slide]
The world may be unstructured, but investing does not have to be. This chart shows the returns (from highest to lowest) for major asset classes over the last two decades. It is impossible to find any kind of pattern or trend in these results. One year an asset class is the top performer, the next year it is the worst. Instead of trying to guess which asset classes will and won’t do well, we believe it is important instead to diversify widely across multiple asset classes.
This graph documents bull and bear market periods in the S&P 500 Index from January 1, 1926 to March 2010. The market cycles are identified in hindsight using historical cumulative daily returns. All observations are performed after the fact. A bear market is identified in hindsight when the market experiences a negative daily return followed by a cumulative loss of at least 10%. The bear market ends at its low point, which is defined as the day of the greatest negative cumulative return before the reversal. A bull market is defined by data points not considered part of a bear market. The rising trend lines in blue designate the bull markets occurring since 1926, and the falling trend lines in red document the bear markets. The bars that frame the trend lines help to describe the length and intensity of the gains and losses. The numbers above or below the bars indicate the duration (in calendar days) and cumulative return percentage of the bull or bear market. Keep in mind that this graph does not show total compounded returns or growth of wealth since 1926. Once the cycle is established in retrospect, the first day of that cycle resets the performance baseline to zero. Investors may draw a number of lessons from this graph. First, since 1926, bull markets in the S&P 500 Index have lasted longer than bear markets and delivered price gains that are disproportionately greater than the bear market losses. Second, fluctuating performance within each trend illustrates that volatility and uncertainty occur even within established market cycles: bull markets may have short-term dips, and bear markets may have short-term advances. The immediate trend is not readily apparent to market observers, and in fact, may become clear only in hindsight. This illustrates the difficulty of accurately predicting and timing market cycles. Finally, the graph suggests the importance of maintaining a disciplined investment approach that views market events and trends from a long-term perspective. Investors who react emotionally to short-term movements are at risk of making ill-timed decisions that compromise long-term performance.
Markets throughout the world have a history of rewarding investors for the capital they supply. Their expected returns offer compensation for bearing systematic risk—or risk that cannot be diversified away. An efficient market or equilibrium view assumes that competition in the marketplace quickly drives securities prices to fair value, ensuring that investors can only expect greater average returns by taking greater systematic risk in their portfolios. This graph documents compounded performance of fixed income and equity asset classes from 1926 to 2009, based upon growth of a dollar. It shows that US equities have offered higher compounded returns than fixed income investments. Within the equity asset classes, small cap stocks have outperformed large cap stocks, resulting in higher returns and greater wealth accumulation. Capital markets reward investors based on the risk they assume. Rather than trying to outguess the markets, investors should identify the risks they are willing to take, then position their portfolios to capture these risks through broad diversification in the capital markets.