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Invest Well Seminar
- 2. ©2014 Wealthfront Inc.
• Rising Market
• Declining Market
• Indifferent
2
When would you prefer to invest?
Investment Seminar for Airbnb
- 3. ©2014 Wealthfront Inc.
• Rising Market
• Declining Market
• Indifferent
3
When would you prefer to sell?
Investment Seminar for Airbnb
- 4. Actual Behavior
Investment Seminar for Airbnb
©2014 Wealthfront Inc.
4
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
$400
$300
$200
$100
$0
-$100
-$200
-$300
-$400
Equity funds net New Cash Flow ($B)
12 month S&P 500 Index Return
- 5. Slow and Steady Wins the Race
©2014 Wealthfront Inc. 5
Investment Seminar for Airbnb
- 6. Which market behavior would you prefer?
Investment Seminar for Airbnb
©2014 Wealthfront Inc.
6
500
100
Today + 30 Years
500
100
Today + 30 Years
500
100
Today + 30 Years
- 8. ©2014 Wealthfront Inc.
• The one that previously performed the best
• The one that previously performed the worst
• It doesn't matter
8
Which investment would you prefer?
Investment Seminar for Airbnb
- 11. Which investment would you prefer?
Asset Class Expected Return
Standard
Deviation
US Stocks 6% 17%
Foreign Stocks 5% 18%
Bonds 3% 6%
Risk Adjusted
Return
0.35
0.28
0.50
Optimal Mix 4% 7% 0.55
©2014 Wealthfront Inc. 11
Investment Seminar for Airbnb
- 13. ©2014 Wealthfront Inc.
• Buy more of the winners
• Buy more of the losers
• Do nothing
13
How do you maintain your ideal risk/reward?
Investment Seminar for Airbnb
- 14. Natural Progression of Risk
100%
75%
50%
25%
Investment Seminar for Airbnb
©2014 Wealthfront Inc.
14
20%
15%
10%
5%
0%
0%
% Equity Standard Deviation
- 16. ©2014 Wealthfront Inc.
• Great mutual fund with 1% management fee
• Index fund with 0.05% fee
16
Which investment would you prefer?
Investment Seminar for Airbnb
- 17. ©2014 Wealthfront Inc.
• Research says both will generate market return
• Therefore, index fund will likely outperform by 0.95%
17
Returns Net of Fees
Investment Seminar for Airbnb
- 19. Which investment would you prefer?
Asset Class Expected Return
Standard
Deviation
Risk Adjusted
Return
US Stocks 6% 17% 0.35
Real Estate 7% 18% 0.39
©2014 Wealthfront Inc. 19
Investment Seminar for Airbnb
- 20. ©2014 Wealthfront Inc.
• US Stocks:
• Real Estate:
20
After Tax Returns
Investment Seminar for Airbnb
6%*75%*(1-.25) + 6%*25%*(1-.25) = 4.5%
7%*50%*(1-.25) + 7%*50%*(1-.4) = 4.375%
- 21. Risk Adjusted Returns
Asset Class
Pre-Tax Risk
Adjusted Return
After Tax Risk
Adjusted Return
US Stocks 0.35 0.26
Real Estate 0.39 0.24
©2014 Wealthfront Inc. 21
Investment Seminar for Airbnb
- 23. ©2014 Wealthfront Inc.
• Different allocations for taxable & IRA accounts
• Use index funds
• Rebalance with dividends
• Tax loss harvest
23
Ways to minimize taxes
Investment Seminar for Airbnb
- 24. ©2014 Wealthfront Inc.
• Invest steadily
• Ignore the market
• Don't chase returns
• Diversify
• Rebalance
• Minimize fees
• Minimize taxes
24
Summary
Investment Seminar for Airbnb