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22 FEBRUARY 201823
Investment Corner
Many aspects of investing are unpredict-
able and therefore uncontrollable. When
and how much markets rise and fall are factors
completely out of the hands of investors. How-
ever, investors have the ability to control many
aspects of investing which can lead to a better
investment experience.
The following questions and answers use
data and reasoning to shed light on some key
principles that may help improve your odds of
investment success in the long run.
1.What are my chances of picking an
investment fund that survives and
outperforms?
Flip a coin and your odds of getting heads
or tails are 50/50. Historically, the odds of
selecting an investment fund that that simply
survives after 15 years are about the same.
Regarding outperformance, the odds are much
worse. The market’s pricing power works
against fund managers who try to outperform
through stock picking or market timing. Based
on research1
, only 17% of US equity mutual
funds and 18% of fixed income funds have
survived and outperformed their benchmarks
over the past 15 years.
2.What not just pick funds based on past
outperformance?
Some investors believe they can select the
best funds by making selections based on past
returns. However, research2
shows that most
funds in the top quartile (25%) of previous
five-year returns did not maintain a top-quar-
tile ranking in the following year. This lack of
persistent outperformance suggests that his-
torical excess returns are a result of luck rather
than skill and that portfolio managers do not
add enough value through security selection to
justify their fees.
3. Is there a better way to build a
portfolio?
Academic research has identified specific
equity and fixed income factors, which point
to differences in expected returns among
securities. Instead of attempting to outguess
market prices, investors can pursue higher
expected returns by structuring their portfolio
around these factors.
•	 Equity Premium – Stocks vs. Bonds
•	 Small Cap Premium – Small cap stocks vs.
Large cap stocks
•	 Value Premium – Value stocks vs. Growth
stocks
•	 Profitability Premium – High Profitability
stocks vs. Low Profitability stocks
•	 Term Premium – Longer term bonds vs.
Shorter term bonds
•	 Credit – Lower credit quality bonds vs.
Higher credit quality bonds
4. How does international investing
improve my portfolio?
Global diversification expands your invest-
ment opportunity set. By holding a globally
diversified portfolio3
, investors are well posi-
tioned to seek returns wherever they occur.
5. Should I try to predict which asset class
will perform best each year?
We can see in the chart4
how unpredictable as-
set class returns are from one year to the next.
The randomness of relative asset class returns
makes tactical strategies inherently risky. More
often than not, predictions will fail and leave
portfolio performance worse off compared to a
long-term strategic asset allocation strategy.
6. So, what should I be doing?
Discipline is what separates successful
investors from the rest. Focus on what you can
control and you’ll enjoy a better investment
experience.
•	 Create an investment plan to fit your needs
and risk tolerance.
•	 Structure a portfolio along the factors of
expected returns.
•	 Diversify globally.
•	 Minimize expenses, turnover, and taxes.
•	 Stay disciplined through market dips and
swings.
Fifth Set Investment Advisors LLC is a registered invest-
ment adviser. Information presented is for educational
purposes only and does not intend to make an offer or
solicitation for the sale or purchase of any specific securi-
ties product, service, or investment strategy. Investments
involve risk and unless otherwise stated, are not guar-
anteed. Be sure to first consult with a qualified financial
adviser, tax professional, or attorney before implement-
ing any strategy or recommendation discussed herein.
Larchmont resident Ian A. Post, is the Principal of Fifth Set Investment Advisors LLC. Fifth Set is the result of his evolution of thought in regard to
conventional investment management. His experience and education led to research for a smarter approach to portfolio management and
financial planning. Prior to Fifth Set, Ian conducted fundamental equity research at Citigroup, Credit Lyonnais and CIBC Oppenheimer. Ian earned
a BS in Engineering and Public Policy from Washington University and an MBA with concentrations in Finance and Statistics from NYU and is a
holder of the Charted Financial Analyst designation, a member of CFA Institute and a CERTIFIED FINANCIAL PLANNERTM
certificant.
By Ian A. Post, CFA, CFP®
Sources:
1
Mutual Fund Landscape 2017, Dimensional Fund Advisors.
2
Mutual Fund Landscape 2017, Dimensional Fund Advisors. During the period from 2007–2016, among the 25% best performing funds from the previous five years, 77% of equity
funds and 73% of fixed income funds underperformed their benchmarks.
3
Number of holdings for the US based S&P 500 is 500 and for the Global Market Index (MSCI ACWI All Country World Index Investable Market Index (IMI) there are 8,628
stocks covering 46 different countries. Data as of December 31, 2016. The S&P data is provided by Standard & Poor’s Index Services Group. MSCI data ©MSCI 2017, all rights
reserved.
4
US Large Cap is the S&P 500 Index. US Large Cap Value is the Russell 1000 Value Index. US Small Cap is the Russell 2000 Index. US Small Cap Value is the Russell 2000 Value
Index. US Real Estate is the Dow Jones US Select REIT Index. International Large Cap Value is the MSCI World ex USA Value Index (net dividends). International Small Cap
Value is the MSCI World ex USA Small Cap Value Index (net dividends). Emerging Markets is the MSCI Emerging Markets Index (net dividends). Five-Year US Government
Fixed is the Bloomberg Barclays US TIPS Index 1–5 Years.
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Six Key Questions for the Long-Term Investor

  • 1. 22 FEBRUARY 201823 Investment Corner Many aspects of investing are unpredict- able and therefore uncontrollable. When and how much markets rise and fall are factors completely out of the hands of investors. How- ever, investors have the ability to control many aspects of investing which can lead to a better investment experience. The following questions and answers use data and reasoning to shed light on some key principles that may help improve your odds of investment success in the long run. 1.What are my chances of picking an investment fund that survives and outperforms? Flip a coin and your odds of getting heads or tails are 50/50. Historically, the odds of selecting an investment fund that that simply survives after 15 years are about the same. Regarding outperformance, the odds are much worse. The market’s pricing power works against fund managers who try to outperform through stock picking or market timing. Based on research1 , only 17% of US equity mutual funds and 18% of fixed income funds have survived and outperformed their benchmarks over the past 15 years. 2.What not just pick funds based on past outperformance? Some investors believe they can select the best funds by making selections based on past returns. However, research2 shows that most funds in the top quartile (25%) of previous five-year returns did not maintain a top-quar- tile ranking in the following year. This lack of persistent outperformance suggests that his- torical excess returns are a result of luck rather than skill and that portfolio managers do not add enough value through security selection to justify their fees. 3. Is there a better way to build a portfolio? Academic research has identified specific equity and fixed income factors, which point to differences in expected returns among securities. Instead of attempting to outguess market prices, investors can pursue higher expected returns by structuring their portfolio around these factors. • Equity Premium – Stocks vs. Bonds • Small Cap Premium – Small cap stocks vs. Large cap stocks • Value Premium – Value stocks vs. Growth stocks • Profitability Premium – High Profitability stocks vs. Low Profitability stocks • Term Premium – Longer term bonds vs. Shorter term bonds • Credit – Lower credit quality bonds vs. Higher credit quality bonds 4. How does international investing improve my portfolio? Global diversification expands your invest- ment opportunity set. By holding a globally diversified portfolio3 , investors are well posi- tioned to seek returns wherever they occur. 5. Should I try to predict which asset class will perform best each year? We can see in the chart4 how unpredictable as- set class returns are from one year to the next. The randomness of relative asset class returns makes tactical strategies inherently risky. More often than not, predictions will fail and leave portfolio performance worse off compared to a long-term strategic asset allocation strategy. 6. So, what should I be doing? Discipline is what separates successful investors from the rest. Focus on what you can control and you’ll enjoy a better investment experience. • Create an investment plan to fit your needs and risk tolerance. • Structure a portfolio along the factors of expected returns. • Diversify globally. • Minimize expenses, turnover, and taxes. • Stay disciplined through market dips and swings. Fifth Set Investment Advisors LLC is a registered invest- ment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securi- ties product, service, or investment strategy. Investments involve risk and unless otherwise stated, are not guar- anteed. Be sure to first consult with a qualified financial adviser, tax professional, or attorney before implement- ing any strategy or recommendation discussed herein. Larchmont resident Ian A. Post, is the Principal of Fifth Set Investment Advisors LLC. Fifth Set is the result of his evolution of thought in regard to conventional investment management. His experience and education led to research for a smarter approach to portfolio management and financial planning. Prior to Fifth Set, Ian conducted fundamental equity research at Citigroup, Credit Lyonnais and CIBC Oppenheimer. Ian earned a BS in Engineering and Public Policy from Washington University and an MBA with concentrations in Finance and Statistics from NYU and is a holder of the Charted Financial Analyst designation, a member of CFA Institute and a CERTIFIED FINANCIAL PLANNERTM certificant. By Ian A. Post, CFA, CFP® Sources: 1 Mutual Fund Landscape 2017, Dimensional Fund Advisors. 2 Mutual Fund Landscape 2017, Dimensional Fund Advisors. During the period from 2007–2016, among the 25% best performing funds from the previous five years, 77% of equity funds and 73% of fixed income funds underperformed their benchmarks. 3 Number of holdings for the US based S&P 500 is 500 and for the Global Market Index (MSCI ACWI All Country World Index Investable Market Index (IMI) there are 8,628 stocks covering 46 different countries. Data as of December 31, 2016. The S&P data is provided by Standard & Poor’s Index Services Group. MSCI data ©MSCI 2017, all rights reserved. 4 US Large Cap is the S&P 500 Index. US Large Cap Value is the Russell 1000 Value Index. US Small Cap is the Russell 2000 Index. US Small Cap Value is the Russell 2000 Value Index. US Real Estate is the Dow Jones US Select REIT Index. International Large Cap Value is the MSCI World ex USA Value Index (net dividends). International Small Cap Value is the MSCI World ex USA Small Cap Value Index (net dividends). Emerging Markets is the MSCI Emerging Markets Index (net dividends). Five-Year US Government Fixed is the Bloomberg Barclays US TIPS Index 1–5 Years. Join us at the Chef’s Table Enjoy a special five course dinner prepared by Chef Antonio Selendic based on the freshest catch of the day and the freshest herbs and vegetables from our garden. Chef Selendic will come and explain each dish and discuss the origins of each ingredient as well as its history of Croation cuisine. Reservations required. Dubrovnik Restaurant was founded with the goal of providing classic Croation cuisine in a warm friendly atmosphere. Dubrovnik is the first authentic Croation restaurant in Westchester. We feature the best of Croation cuisine, including succulent roasts and fresh grilled fish. Come experience Croatia... you won't need a passport! 914.637.3777 dubrovnikny.com 721 Main Street New Rochelle, NY 10802 Open 7 days for lunch and dinner A Dental Visit Can Be Fun! Now offering General Anesthesia for our patients that need it! NEWLASER TECHNOLOGY Your kids CAN have their cavities fixed without an injection, without pain and without a numb lip after- wards (inmostcases) NEW STATE OF THE ART FACILITY • Special Custom Game Rooms • HomeTheater with Large-ScreenTV • Adult Coffee Bar • Environmentally Conscious Setting Voted 6 years in a row one of Westchester’sTop Pediatric Dentists2009,2010,2011,2012, 2013,2014and 2015 byWestchester Magazine Located inTuckahoe, we have one of the most innovative & modern offices around! Swim over & become part of the exciting DentalWorld at Main Street Pediatric Dentistry! Penny Resnick-Graulich, D.M.D Francisca Ceron, D.D.S. MAIN STREET PEDIATRIC DENTISTRY 115 Main Street, Suite 302, Tuckahoe (914)633-4440 • www.mainstreetpediatricdentistry.com