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2013 05-14 separating mythsfromtruthsthestoryofinvestingpowerpointpresentation 2013 05-14 separating mythsfromtruthsthestoryofinvestingpowerpointpresentation Presentation Transcript

  • Copyright © 2013 Matson Money, Inc.SEPARATING MYTHSFROM TRUTHThe Story of InvestingAll investing involves risks and costs. Your advisor can provide you with more information about the risks and costs associated with specific programs. No investmentstrategy (including asset allocation and diversification strategies) can ensure peace of mind, assure profit, or protect against loss.This PowerPoint is based on the views of Matson Money. Other persons may analyze investments and the approach to investing from a different perspective than thatreflected in this PowerPoint. Nothing included herein is intended to infer that the approach to investing espoused in this PowerPoint will assure any particular results.
  • • Dispelling the TraditionalInvesting Myths• Telling the True Story of Investing• Opportunity to Achieve TrueInvesting Peace of MindSEPARATING MYTHS FROM TRUTH
  • Copyright © 2013 Matson Money, Inc.DISPELLINGTHE MYTHSMyth: A story made up to explain a phenomenonbeyond the science of the day.
  • TRADITIONAL INVESTING MYTHSMYTH 1:Stock SelectionMYTH 2:Track-Record InvestingMYTH 3:Market TimingMYTH 4:Costs of Investing
  • THE MYTH:Investment advisors can consistentlyand predictably add value by exercising“superior skill” in individual stock selection.Stock Selection:Choosing stocks based on a belief theywill do well in the future.MYTH 1: STOCK SELECTION
  • Year Number OfFundsNumber OfNew FundsNumber OfDead Funds1923 1 1 01924 4 3 01925 5 1 01926 6 1 01927 6 0 01928 10 4 01929 16 6 01930 17 1 01931 21 4 01932 37 16 01933 46 9 01934 48 2 01935 57 9 01936 59 2 01937 62 3 01938 71 9 01939 78 7 01940 86 8 01941 87 1 01942 87 0 01943 87 0 01944 93 6 01945 98 5 01946 103 5 01947 113 10 01948 117 4 01949 130 13 01950 137 7 01951 142 5 01952 152 10 01953 163 11 0SURVIVORSHIP BIASFor illustrative purposes only. Mutual fund data provided by CRSP Survivor Bias Free Mutual Fund Database. CRSP data providedby the Center for Research in Security Prices, University of Chicago. 12/31/2012PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.* There were 265 funds opened and 47 funds closed in which the year was undisclosed.YearNumber OfFundsNumber Of NewFundsNumber OfDead Funds1954 183 20 01955 186 3 01956 205 19 01957 222 17 01958 241 19 01959 267 26 01960 281 14 01961 273 25 331962 285 12 01963 296 11 01964 312 16 01965 331 19 01966 360 29 01967 390 30 01968 463 74 11969 555 100 81970 603 71 231971 619 48 321972 616 32 351973 609 29 361974 596 34 471975 590 25 311976 613 48 251977 639 53 271978 652 39 261979 678 51 251980 732 74 201981 862 146 161982 1043 205 241983 1231 213 25YearNumber OfFundsNumber OfNew FundsNumber OfDead Funds1984 1471 259 191985 1816 362 171986 2266 474 241987 2779 548 351988 3165 466 801989 3377 330 1181990 3682 491 1861991 4177 610 1151992 5061 1056 1721993 6756 1855 1601994 8739 2216 2331995 9890 1643 4921996 11205 1822 5071997 12903 2231 5331998 14398 2165 6701999 16069 2187 5162000 17993 2863 9392001 19448 2483 10282002 20603 2427 12722003 21264 1877 12162004 22264 1981 9812005 23525 2397 11362006 25234 2786 10772007 26353 2720 16012008 27562 2787 15782009 26721 1767 26082010 27537 2380 15642011 28319 2453 16712012 29152 2339 1506NotDefined 29370 265 47Total 29370 51905 22535Total Number of Funds Open201229,370Total Number Born51,905Total Number Killed22,535
  • -79.3%AVERAGE TOTAL RETURNTHE WORST 200 DEADMUTUAL FUNDSFor illustrative purposes only. Mutual fund data provided by 2012 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.
  • Copyright © 2013 Matson Money, Inc.
  • $-$2,000,000.00$4,000,000.00$6,000,000.00$8,000,000.00$10,000,000.00$12,000,000.00$14,000,000.00Average All Mutual FundsAvg All Mutual Funds Aggressive Growth Moderate ConservativeAverage of all Mutual funds available in the CRSP Survivor- Bias Free U.S. Mutual Fund Database, data ending Dec. 2012Hypothetical Portfolios based on data in endnote 1. Past performance is no guarantee of future results and investors may experience a loss. Not actual investor results.Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performancedoes not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materiallydifferent. Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.$1,216,893$3,074,899$5,197,603$7,929,713$10,168,918
  • Track-Record Investing:The use of performance history to determinethe best investments for the future.THE MYTH:Finding funds that did well in the pastis a reliable method of indicatingwhich funds will do well in the future.MYTH 2: TRACK-RECORDINVESTING
  • TRACK RECORD INVESTINGTop 30 Funds Average ReturnAll Funds Average ReturnS&P 500 Index Average ReturnCRSP 1-10 Index Average ReturnTotal # of Funds 1993–2002Total # of Funds 2003–20121993–200225.6416.0011.1810.647252003–20120.182.838.849.783738For illustrative purposes only. Mutual funds data provided by CRSP Survivor-Bias Free Mutual Fund Database, includes funds that are U.S. Equity mutual funds. The S&P dataare provided by Standard & Poor’s Index Services Group. CRSP data provided by the Center for Research in Security Prices, University of Chicago. Indices are not available fordirect investment, therefore their performance does not reflect the expenses associated with the management of an actual portfolio.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
  • TRACK RECORD INVESTINGTop 30 Funds Average ReturnAll Funds Average ReturnS&P 500 IndexCRSP 1-10 IndexCRSP 9-10 IndexNumber of Funds2003–200723.071.8913.1514.2121.725,2372008–20125.062.734.535.3611.166,207For illustrative purposes only. Mutual funds data provided by CRSP Survivor-Bias Free Mutual Fund Database, includes funds that are U.S. Equity mutual funds. The S&P dataare provided by Standard & Poor’s Index Services Group. CRSP data provided by the Center for Research in Security Prices, University of Chicago. Indices are not available fordirect investment, therefore their performance does not reflect the expenses associated with the management of an actual portfolio.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
  • Copyright © 2013 Matson Money, Inc.A MANAGER’S ABILITY TO PICKSTOCKS IN THE PAST HASZERO CORRELATIONWITH HIS/HER ABILITY TO DOSO IN THE FUTURE.
  • Market Timing:Any attempt to alter or change the mix of assetsbased on a prediction or forecast about the future.THE MYTH:Money managers are able to utilizemarket timing to effectively predict up& down markets.MYTH 3: MARKET TIMING
  • DALBAR RESEARCH STUDYRESULTSAs the chart below clearly indicates,The Average Investor earns significantly lessthan the market indices, barely beating inflationover the period measured.CATEGORY1993-2012AnnualizedReturnS&P 500 Index 8.21%Average Equity Fund Investor 4.25%Inflation 2.43%Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Productsto compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012, the study utilizesmutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on thisbehavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respective indices. PASTPERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
  • WHY MARKET TIMING DOESN’T WORK$44,0877.70%$29,2585.51%$22,0504.03%$17,2572.77% $13,7471.60%$11,1230.53%$9,090-0.48%January 1, 1993 – December 31, 20125040 Trading DaysSource: ChartSource®, S&P Capital IQ Financial Communications. For the period from January 1, 1993, through December 31, 2012. Based on total returns ofStandard & Poors Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. It is not possibleto invest directly in an index. Past performance is not a guarantee of future results. Copyright © 2013, S&P Capital IQ Financial Communications. All rightsreserved. Not responsible for any errors or omissions.$6,183-2.38%
  • ―Tactical Asset Allocation‖is Market Timing in DisguiseBEWARE: MARKET TIMINGTactical Asset Allocation (Def.) – An active management portfolio strategy that rebalances the percentage ofassets held in various categories in order to take advantage of market pricing anomalies or strong marketsectors.Market Timing (Def.) – The practice of switching among mutual fund asset classes in an attempt to profitfrom the change in their market outlook.Definitions provided by investodpedia.com
  • “The evidence oninvestment managers’success with markettiming is impressive – andoverwhelmingly negative.”Charles D. Ellis,Investment Policy, 1993Charles D. Ellis is a managingpartner of Greenwich Associates,a leading consulting firmspecializing in financialservices worldwide.B.A. Yale, M.B.A (with distinction)Harvard and Ph.D. New YorkUniversityCHARLES D. ELLIS
  • Costs of Investing:Fees incurred by investors to buy, sell, andown stocks or mutual funds.THE MYTH:What you don’t see can’t hurt you.MYTH 4: COSTS OF INVESTING
  • Bid/Ask SpreadMutual FundsTHE COSTS OF INVESTING
  • BID/ASK SPREADMarket Maker$.50SpreadBUY Price$50.00SELL Price$49.50
  • US data as of November 8, 2012. Data provided by Instinet. © 2013, Instinet Incorporated and its subsidiaries. All rights reserved. International and emergingmarkets data as of November 15, 2012. Data provided by Bloomberg. The bid/ask spread is generally regarded as an indication of the cost of liquidity.The Bid/Ask Spread as a percent of price is a conservative estimate of actualtrading costs. This estimate is almost 30 times as great for the smallest marketsegment as for the largest market segment (1.77 vs. 0.06).Market Cap Range($Millions)Market Cap(%)Percent Spread> 5,000 85.3 0.061,500 – 5,000 9.9 0.12500 – 1,500 3.4 0.23200 - 500 1.0 0.5850 - 200 0.4 1.77BID/ASK SPREADCosts That You May Not Be Told About
  • “The key question under the new rulesof the game is this: How much bettermust a[n]...[actively trading]...manager be to at least recover thecost of...[portfolio turnover]? Theanswer is daunting.”- Charles D. Ellis1. 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
  • The Myths–Stock Selection–Track-Record Investing–Market Timing–Costs of InvestingNext…–The TruthSO FAR…
  • Copyright © 2013 Matson Money, Inc.THE STORY OFINVESTING:FREE MARKETPORTFOLIO THEORY
  • Free Market Portfolio Theory is:• An investment approach firmlygrounded in the academic researchof the last 50 years.• A disciplined approach to capturingmarket returns while managingvolatility.WHAT IS FREE MARKET PORTFOLIO THEORY?
  • THE COMPONENTS OFFREE MARKET PORTFOLIO THEORYCOMPONENT 1:Free Markets WorkCOMPONENT 3:The Three-Factor ModelCOMPONENT 2:Modern Portfolio Theory
  • LEADING ACADEMICS WHO CONTRIBUTE TOFREE MARKET PORTFOLIO THEORY• Harry Markowitz:Nobel Prize Laureate, 1990, University of Chicago• Merton H. Miller:Nobel Prize Laureate, 1990 - Robert R. McCormick DistinguishedService, University of Chicago• Rex Sinquefield:Co-author Stocks, Bonds, Bills and Inflation, MBA, University ofChicago, BA, St. Louis University• Roger G. Ibbotson:Co-author Stocks, Bonds, Bills and Inflation, Professor ofFinance, School of Organization and Management, Yale University• Eugene F. Fama:Robert R. McCormick Distinguished Service, Graduate School ofBusiness, University of Chicago• Kenneth French:Professor of Finance at the Tuck School of Business,Dartmouth College
  • Free Markets Work“In [a free] market at any point in timethe actual price of a security will be agood estimate of its intrinsic value.”- Eugene F. Fama, “Random Walks in Stock Market Prices,”Financial Analysts Journal, September/October 1965.COMPONENT 1:
  • • The market fails to price goods and servicesappropriately.• It is possible for some individuals to identify inadvance which prices are inaccurate.• Underpriced or overvalued markets can beforecasted or predicted.• By taking advantage of these mispricings, either instocks or market sectors, it is possible to bothincrease returns and avoid losses in investments.• People with this view would utilize traditionalinvestment myths and speculate with their assets.BELIEFS THAT FREE MARKETS FAIL
  • • Based on supply and demand the free market isthe best determinant of market prices.• All available information is factored into thecurrent price.• Only new and unknowable information and eventschange pricing.• The randomness of the market makes itimpossible for any individual or entity toconsistently predict market movements andcapture additional returns unrelated to risk.• People with this view would utilize free marketinvestment strategies.BELIEFS THAT FREE MARKETS WORK
  • BELIEFS DICTATE ACTIONFREE MARKETS WORK• Focus on capturingmarket returns• Utilize asset-class orstructured funds• Diversify prudently• Identify your risk tolerance• Eliminate traditionalinvestment strategies• Work with a financialcoach who shares yourmarket beliefFREE MARKETS FAIL• Pursue traditional investmentstrategies• Stay connected to all sourcesof financial information• Read every investment articleyou can find• Work with a financialprofessional who sharesyour market belief
  • Modern Portfolio TheoryDiversification WorksNobel Prize Winners, 1990Harry MarkowitzWilliam SharpeMerton MillerCOMPONENT 2:
  • As a graduate student ineconomics at the Universityof Chicago in the 1950s,Dr. Markowitz won acclaimfor his studies on portfoliodesign and risk reduction.These concepts were latercrucial for the developmentof Modern Portfolio Theory. Nobel Prize Winner 1990DR. HARRY MARKOWITZ
  • 6 8 10 12 14 16 18 206810121416One Year Standard Deviation (Volatility)AnnualizedCompoundReturnGrowthAggressiveS&P 500ConservativeModerateMARKOWITZ EFFICIENT FRONTIERMaximizing Expected Returns for Any Level of VolatilityFor Illustrative purposes only.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
  • DETERMINANTS OFPORTFOLIO PERFORMANCE1.82.14.691.51.82.14.691.5
  • TimeValueInvestment AInvestment BPortfolio50/50CombinedPortfolioASSET CLASS CORRELATIONExample Portfolio
  • Source: DFA Returns Software 12/12.Annualized Return(%)Simplified Example Of Low Correlation BenefitsJanuary 1970–December 2012 (Quarterly Data in $US)INCREASE RETURNSAND REDUCE VOLATILITYLarge U.S.100% S&P500 Index9.9417.05Annualized StandardDeviation70% S&P 50030% EAFELarge U.S.EAFE16.7410.1170% S&P 50020% EAFE10% Intl SmallLarge U.S.EAFEInt’l Small16.6510.61Past performance is no guarantee of future results and investors may experience a loss. See Endnote 1. These hypothetical investment results are for illustrativepurposes only and should not be deemed a representation of past or future results. actual investment results may be more or less than shown. This does notrepresent any specific product or service. Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, the index isunmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actualportfolio. Actual results of accounts under Matson Money’s management may have been materially different. Performance results and comparative indices assumereinvestment of dividends and income plus capital appreciation.
  • The Three-Factor ModelSource: Fama, Eugene F., and Kenneth R. French, 1992 “The cross-section of Expected Stock Returns”,Journal of Finance 47 (June), 427-465COMPONENT 3:Eugene Fama&Kenneth FrenchFactor 1: The Market FactorFactor 2: The Size FactorFactor 3: The ―Value‖ Factor
  • 012345678910AnnualizedReturnS&P 500T-Bills• Equities are riskier than fixedincome.• Equities historically provide ahigher rate of return.1926–2012 S&P 500 T-BillsAnnualized Return 9.84 3.53Standard Deviation 20.18 3.10Source: DFA Returns Software, 12/12.FACTOR 1: THE MARKET FACTORPast performance is no guarantee of future results and investors may experience a loss. See Endnote 1. Index performance returns do not reflect anymanagement fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performance does notreflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may havebeen materially different. Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.
  • 9.51010.51111.51212.513AnnualizedReturnS&P 500U.S.Small Co.• Small companies are riskierthan large companies.• Small companies historicallyprovide a higher return thanlarge companies.1926–2012 S&P 500 U.S. Small Co.(CRSP 6-10)Annualized Return 9.84 11.38Standard Deviation 20.18 30.54FACTOR 2: THE SIZE FACTORSource: DFA Returns Software, 12/12.Past performance is no guarantee of future results and investors may experience a loss. See Endnote 1. Index performance returns do not reflect anymanagement fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performance does notreflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may havebeen materially different. Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.
  • 99.51010.51111.512AnnualizedReturnS&P 500U.S. Lg.Value• High book-to-market (value)stocks are riskier than lowbook-to-market (growth)stocks.• High book-to-marketstocks historically providehigher return than lowbook-to-market stocks.July 1926–2012 S&P 500 U.S. Lg.ValueAnnualized Return 9.92 11.67Standard Deviation 19.10 25.07FACTOR 3: THE VALUE FACTORSource: DFA Returns Software, 12/12.Past performance is no guarantee of future results and investors may experience a loss. See Endnote 1. Index performance returns do not reflect anymanagement fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performance does notreflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may havebeen materially different. Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.
  • Free Markets Work+ Modern Portfolio Theory+ The Three-Factor Model= Free Market Portfolio TheoryTHE TRUTH
  • Copyright © 2013 Matson Money, Inc.BUILDING A BETTERPORTFOLIOAVERAGE INVESTOR EQUITY PERFORMANCE
  • Portfolio 1 100%Average Equity Mutual Funds1993–2012Portfolio 1* 4.25 19.70AnnualizedReturn(%)AnnualizedStandardDeviation (%)60%40%Average 100% EquityMutual Fund InvestorResultsDalbar Investor ResultsResearch for period1993-2012CREATING A DIVERSIFIEDPORTFOLIO*Portfolio Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital IndexProducts to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012, the studyutilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based onthis behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respective indices. Pastperformance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.
  • 1. Average Holding Period—3.31 Years*2. Track-Record Investing—Chasingthe Market1. Hyperactive Stock Picking2. Market TimingWHY ARE THE RETURNS SO LOW?*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays CapitalIndex Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012, thestudy utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “averageinvestor.” Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns ofrespective indices. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.
  • S&P 500 Index1970–2012AnnualizedReturn(%)AnnualizedStandardDeviation (%)Portfolio 1 100%Portfolio 2 100%Avg. Equity Mutual Funds100%S&P 500CREATING A DIVERSIFIED PORTFOLIOBasic Passively Invested PortfolioPortfolio 1* 3.49 19.58Portfolio 2 9.94 17.55*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays CapitalIndex Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012,the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.”Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respectiveindices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannotinsure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations,political/economic stability and differences in accounting standards.
  • AnnualizedReturn(%)1970–201260%20%20%AnnualizedStandardDeviation (%)S&P500IndexPortfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Avg.EquityMutualFunds5-YearGovernmentPortfolioOne-YearFixedIncomeCREATING A DIVERSIFIED PORTFOLIOIncluding Fixed Income Assets in the PortfolioPortfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays CapitalIndex Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012,the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.”Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respectiveindices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannotinsure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations,political/economic stability and differences in accounting standards.
  • 1970–2012AnnualizedReturn(%)30%20%20%30%AnnualizedStandardDeviation (%)S&P 500IndexPortfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%5-YearGovernmentPortfolioOne-YearFixedIncomeEAFEIndexCREATING A DIVERSIFIED PORTFOLIOIncluding Non-U.S. Assets in the PortfolioPortfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97Portfolio 4 9.19 11.16*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays CapitalIndex Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012,the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.”Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respectiveindices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannotinsure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations,political/economic stability and differences in accounting standards.Avg.EquityMutualFunds
  • 1970–2012AnnualizedReturn(%)20%15%20%15%15%15%AnnualizedStandardDeviation (%)S&P 500IndexPortfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%Portfolio 5 15% 20% 20% 15% 15% 15%5-YearGovernmentPortfolioOne-YearFixedIncomeEAFEIndexU.S. 9-10Small Co.Int’l SmallCap StocksCREATING A DIVERSIFIED PORTFOLIOAdding Small Cap StocksPortfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97Portfolio 4 9.19 11.16Portfolio 5 10.25 12.17*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays CapitalIndex Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012,the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.”Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respectiveindices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannotinsure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations,political/economic stability and differences in accounting standards.Avg.EquityMutualFunds
  • AnnualizedReturn(%)20%20%7.5%15%7.5%7.5%15%7.5%AnnualizedStandardDeviation (%)S&P 500IndexPortfolio 1 100%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%5-YearGovernmentPortfolioOne-YearFixedIncomeEAFEIndexU.S. 9-10Small Co.Int’l SmallCap StocksU.S. SmallCap ValueU.S. LargeCap ValueCREATING A DIVERSIFIED PORTFOLIOAdding High Book-to-Market Stocks1970–2012Portfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97Portfolio 4 9.19 11.16Portfolio 5 10.25 12.17Portfolio 6 10.76 11.84*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays CapitalIndex Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012,the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.”Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respectiveindices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannotinsure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations,political/economic stability and differences in accounting standards.Avg.EquityMutualFunds
  • Copyright © 2013 Matson Money, Inc.Directions:Answer each question ―Yes‖ or ―No.‖Your Answer must be 100% ―Yes‖ to qualify as ―Yes.‖THE 20 MUST-ANSWER QUESTIONSFOR YOUR JOURNEY TOWARDINVESTING PEACE OF MIND
  • QUESTION 1Have you discovered yourTrue Purpose for Money,that which is more importantthan money itself?
  • Are you investedin the Market?QUESTION 2
  • Do you know howmarkets work?QUESTION 3
  • Have you defined yourInvestment Philosophy?QUESTION 4
  • Have you identified yourpersonal risk tolerance?QUESTION 5
  • Do you know how tomeasure diversificationin your portfolio?QUESTION 6
  • Do you consistently andpredictably achievemarket returns?QUESTION 7
  • Have you measured thetotal amount of commissionsand costs in your portfolio?QUESTION 8
  • Do you know whereyou fall on theMarkowitz Efficient Frontier?QUESTION 9
  • When it comes tobuilding your investmentportfolio, do you knowexactly what you aredoing and why?QUESTION 10
  • Are you working with afinancial coach versusa financial planner?QUESTION 11
  • Do you have a customizedlifelong game plan to guideall of your investing andspending decisions?QUESTION 12
  • Do you have anInvestment Policy Statement?QUESTION 13
  • Have you devised aclear-cut method formeasuring the successor failure of your portfolio?QUESTION 14
  • Do you fully understand theimplications and applicationsof diversification inyour portfolio?QUESTION 15
  • Do you have asystem to measureportfolio volatility?QUESTION 16
  • Are you aware ofthe incentives brokeragefirms and the financialcommunity have when sellingcommission-based products?QUESTION 17
  • Do you know the threewarning signs that youare gambling and speculatingwith your money versusprudently investing it?QUESTION 18
  • Can you identify thecultural messages andpersonal mind-sets aboutmoney that destroy yourpeace of mind?QUESTION 19
  • Are you ready to shiftyour personal experienceof money and investingfrom a scarcity mode toan abundance mode?QUESTION 20
  • Copyright © 2013 Matson Money, Inc.THE OPPORTUNITYLearn more about what this means for you.
  • ENDNOTES1. 42 Year Performance figures taken from Dimensional Fund Advisor, Inc. (DFA) Returns software 12/12. Some data provided to DFA by the Center for Research & Security Pricing(CRSP), Universityof Chicago. 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 resultsMatson Money, Inc. 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 anadvisory fee to the mutual fund manager and brokerage commissions because these fees and commissions would be reflected in the mutual fund’s expenses that are deducted from the value of each shareof 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 theservices 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 Matson Money, Inc. clients’portfolios with similar investment objectives for the period Matson Money, Inc. has managed clients’ funds from 1991 to present. This difference is due to differing allocations over the time periodsshown. 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 ofmarkets is no guarantee of future performance and clients may experience a loss. Asset Classes are defined below.U.S. 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 ofFama-French and CRSP: deciles 1-5 size, (.7) BtM. April 1993-Present: U.S. Large Cap Value Portfolio net of all fees.DFA International Small Company Strategy/DFA International Large Company Strategy:January 1970-June 1998: 50% DFA Japanese Portfolio, 50% DFA UK 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.January1993-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.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.EAFE Index: Courtesy of Morgan Stanley Capital International. Europe, Australia, and Far East Index net dividends ($).January 1969-Present: EAFE Index Including gross dividends ($).U.S. 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).U.S. Large Company Stocks - 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 marketvalue-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 typicallyassociated with investing and values would be lower if such fees and charges were taken into consideration. Individuals may not invest directly in an index.DFA One-Year Fixed Income Portfolio:August 1983-Present: DFA One-Year Fixed Income PortfolioNovember 1971-July 1983: Stimulation Using CD ReturnsDFA Five-Year Government Portfolio:June 1987-Present: DFA Five-Year Government Fixed Income PortfolioJuly 1952-May 1987: Stimulation Using U.S. Government InstrumentsLehman Brothers Government/Credit Bond Index 1-30+ Years:January 1973-Present: Lehman Brothers Government/Credit Bond Index Range 1-30+ Years
  • 1. Cont’d CONSERVATIVE, MODERATE, GROWTH, & AGGRESSIVEThese results are based on the performance of the Indices defined above, using the below mixes.The objective of allocation for each asset class shown in the charts is to reduce the likelihood that different assets move together in tandem. The asset class mixes shown in these charts were rebalancedannually in order to continually preserve the original investment allocations. No reinvestment of dividends or other earnings were included in the calculations. No commissions or fees have beendeducted from the market performance figures shown in the charts because the intent is to show the benefits of diversification of asset classes and not to indicate the results Matson Money, Inc. wouldhave achieved if Matson Money, Inc. had 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 anadvisory fee to the mutual fund manager and brokerage commissions. These fees and commissions would be reflected in the mutual fund’s expenses that are deducted from the value of each share of themutual fund. If, in addition, an investor engaged an investment advisor to manage the assets, the investor would also pay an investment advisory fee to this manager. If an investor also utilized theservices of a separate custodian, the investor would pay additional fees to the custodian. Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, theindex is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio.PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE.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
  • ENDNOTES2. Some data provided to DFA by the Center for Research & Security Pricing (CRSP), University of Chicago. Asset Classes defined as:U.S. Large Company Stocks - S&P 500 IndexU.S. Small Company Stocks - CRSP (Center for Research & Security Pricing) 9-10 IndexInternational Large Company Stocks - Morgan Stanley (MSCI) Europe, Australia, Far East (EAFE) Index (Gross Div)International Small Company Stock - index created by DFA using CRSP data, 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.]U.S. Small Company Value Stocks - Fama/French US Small Value Research indexU.S. Large Company Value Stocks - Fama/French US Large Value Research index5 Year Government Portfolio - Dimensional’s Five-Year Government Portfolio [Average maturity: Under Five Years, 1953-May 1987 - Simulation using U.S. GovernmentInstruments (maximum maturity fie years) June 1987- DFA Five Year Government Portfolio net of all fees]One Year Fixed Income - Dimensional’s One-Year Fixed Strategy [1972 - July 1983 - Simulated CD Fixed Income Strategy (maximum maturity 1 year) Aug. 1983 - DFA FixedIncome Portfolio returns net of all fees (weighted average maturity under 1 year)]