Wealth Engineering Power Point

994 views

Published on

Introduction to Wealth Engineering and how to maximize portfolio returns in the context of the clien\'ts personal cicumstance, goals and risk tolerancy.

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
994
On SlideShare
0
From Embeds
0
Number of Embeds
23
Actions
Shares
0
Downloads
1
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Wealth Engineering Power Point

  1. 2. Summit Portfolio Management <ul><li>Founded in 1984 by Timothy F. Bock </li></ul><ul><li>S.E.C. Registered Investment Advisor </li></ul><ul><li>State-of-the-Art Strategies- </li></ul><ul><li>“ Wealth Engineering” </li></ul><ul><li>Fee-only Financial Consulting Firm </li></ul><ul><li>Comprehensive Personal Financial Services </li></ul><ul><li>Offices in Los Angeles, Newport Beach, </li></ul><ul><li>Walnut Creek, and Las Vegas </li></ul>
  2. 3. Wealth Engineering <ul><li>Invest Using Scientific Evidence </li></ul><ul><li>Take Only Appropriate Risks </li></ul><ul><li>Measure Risk and Return </li></ul><ul><li>Coordinate Investing with Financial Planning </li></ul><ul><li>Limit and Control Costs </li></ul><ul><li>Limit Emotional Influence </li></ul><ul><li>Control Security and Fraud Risk </li></ul>
  3. 4. Fraud Protection <ul><li>Ponzi Schemes </li></ul><ul><li>Certain Life Products / Annuities </li></ul><ul><li>Partnerships / Hedge Funds </li></ul><ul><li>Packaged Financial Products </li></ul><ul><li>Commission Based Financial Advisors / Misleading Sales Tactics </li></ul><ul><li>Identity Theft </li></ul>
  4. 5. <ul><li>Who to Trust </li></ul><ul><li>Fear </li></ul><ul><li>Greed </li></ul><ul><li>When is Enough, Enough? </li></ul><ul><li>Loss Versus Decline </li></ul>Emotional and Psychological Distractions <ul><li>Claiming Losses </li></ul><ul><li>Sunk Cost </li></ul><ul><li>Hindsight Bias </li></ul><ul><li>Overconfidence </li></ul><ul><li>Probability vs. Possibility </li></ul>
  5. 6. Risk is Not Bad <ul><li>Taking Risk is What Produces Returns </li></ul><ul><li>Understand Risks </li></ul><ul><li>Control Risks </li></ul><ul><li>Measure Risks </li></ul><ul><li>Market Declines are Different Than Losses </li></ul><ul><li>Avoid Uncompensated Risk </li></ul>
  6. 7. Why Flip a Coin? Academic Research Provides Many Answers
  7. 8. Active vs. Passive <ul><li>Active Management </li></ul><ul><li>The belief that stock prices are often incorrect and can be exploited via market timing or stock picking </li></ul><ul><li>Passive Management </li></ul><ul><li>Market mechanisms price securities effectively ...Efficient Markets Hypothesis </li></ul>
  8. 9. Efficient Markets Hypothesis Eugene F. Fama, University of Chicago <ul><li>Prices incorporate all available information and expectations </li></ul><ul><li>Current prices are the best estimate of intrinsic value </li></ul><ul><li>Price changes are due to events/news </li></ul><ul><li>Mispricings do occur, but not predictably </li></ul>
  9. 10. Why Passive Management is Superior <ul><li>Competition Makes Capital Markets Efficient </li></ul><ul><li>Concentrated Portfolios Have Higher Risks and Costs, But Not Higher Returns </li></ul><ul><li>Superior Returns are Due to Lower Costs and Less Taxation </li></ul><ul><li>Less Than 1% of Active Managers add Value </li></ul><ul><li>Analyzing Track Records Doesn’t Help </li></ul><ul><li>Forecasting the Future Doesn’t Work </li></ul>
  10. 11. Predictability of Mutual Funds Returns Source: Morningstar (May 2009)
  11. 13. Structure Determines Returns <ul><li>96% Structured </li></ul><ul><li>Exposure to Factors </li></ul><ul><li>Market (Beta) </li></ul><ul><li>Size – Market Cap </li></ul><ul><li>Value/Growth </li></ul>4% Stock Picking and Market Timing
  12. 14. Small and Value “Tilts” Increased Expected Returns Total Stock Market Small Growth High P/B Value Low P/B Large
  13. 17. Fixed Income Strategies <ul><li>Bonds Should Provide Income and Safety </li></ul><ul><li>Limit Term Risk: Optimal 1-3 Years </li></ul><ul><li>Limit Credit Risk: Govt. and Inv. Grade Only </li></ul><ul><li>Currency Risk? High Volatility, Uncertain Benefit </li></ul><ul><li>Index Funds Better Solution than Active Funds or Individual Bonds </li></ul>
  14. 19. Rebalancing <ul><li>Maintains Desired Risk Level </li></ul><ul><li>Buy Low, Sell High </li></ul><ul><li>Avoids Timing Uncertainty </li></ul><ul><li>Time Based or % Based </li></ul><ul><li>Avoids Emotional Distraction </li></ul>
  15. 20. Dimensional Fund Advisors <ul><li>Academically Based Research </li></ul><ul><li>Created Many Firsts in “Index” Funds </li></ul><ul><li>Passive Management, Added Returns from Small and Value Companies </li></ul><ul><li>Fierce Attention to Keeping Costs Low </li></ul><ul><li>#1 Fund Family for Lending Revenue </li></ul><ul><li>Advisor-Only Network </li></ul>
  16. 21. Low High <ul><li>High Quality Short-Term Bonds </li></ul><ul><li>Fixed Annuities </li></ul><ul><li>CDs </li></ul><ul><li>Global Value Stocks </li></ul><ul><li>Real Estate </li></ul><ul><li>Private Equity and Hedge Funds </li></ul>Safe Assets Risk Assets Expected Returns 2% - 4.5% 12+% Expected Returns Where is Your Portfolio?
  17. 22. Timely Opportunities <ul><li>Is Your Equity Exposure Appropriate? </li></ul><ul><li>Value Stocks Tend to Lead Growth Out of Recessions: From March 9 th Low: </li></ul><ul><li>S&P 500: 40.74%, USV:58.50%, DC: 61.34%, EM: 79.14% </li></ul><ul><li>Limit Term Risk on Bonds </li></ul><ul><li>Portfolio Analysis: $500-$5,000 </li></ul><ul><li>Harvest Tax Losses </li></ul>
  18. 23. 7 Steps to a Better Investment Experience <ul><li>Manage Your Investment Risks, Don’t Speculate </li></ul><ul><li>Passive Management Means: Lower Costs, Less Taxation, Less Risk, Less Uncertainty and Better Returns </li></ul><ul><li>Focus on Return Sources: Market Cap, Relative Value </li></ul><ul><li>Control Risks: Diversification of Securities, Countries </li></ul><ul><li>Control Emotional and Psychological Influences </li></ul><ul><li>Get Expert Guidance if You’re Not an Expert </li></ul>
  19. 24. Toll Free: 800.683.5800 [email_address] www.SummitPortfolio.com
  20. 25. The Average Investor’s Mutual Fund Return Compared to Indexes 20 Years – 1989 to 2008 Sources: Dalbar QAIB Study 2009, Ibbotson Average Annualized Return 1.87% 5.05% 8.41%

×