JFK University Presentation

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This is the presentation I gave on August 17 as a guest lecturer at JFK University in Pleasant Hill.

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JFK University Presentation

  1. 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. 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. 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
  4. 4. What is “Capital” and a “Market?” <ul><li>Debt – Characteristics </li></ul><ul><ul><li>A bond – a loan, rights to interest payments and return of principal at maturity. </li></ul></ul><ul><li>Equity – Characteristics </li></ul><ul><ul><li>Stocks. Claim on a company’s future cash flow. Ownership. </li></ul></ul><ul><li>Other </li></ul><ul><li>Market and/or Exchanges </li></ul><ul><ul><li>Network of individuals, companies, institutions, and/or governments. Ex, NYSE, NASDAQ, Nikkei </li></ul></ul><ul><ul><li>Reduces costs of money for borrowers. </li></ul></ul>
  5. 5. Expanding Global Capital Markets <ul><li>Information Technology – Inexpensive high speed internet, mobile technology. Read “The World is Flat” by Thomas Friedman </li></ul><ul><li>Deregulation </li></ul><ul><li>Financial instruments – securitization. For example, REITs, Mortgage Backed Securities </li></ul><ul><li>Privatization of national companies. For example, Telefonical del Peru – adds equity to financial markets. In theory (and often practice), privately run companies are more efficient than nationalized (government run) companies. </li></ul>
  6. 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. 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. 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
  9. 9. “ Sell Side” & “Buy Side” <ul><li>The Sell Side: Investment Banks help companies and government raise capital by issuing and selling securities. </li></ul><ul><li>The Buy Side: Investors (institutions – government entities, companies, investment companies; and individual investors) purchase these securities. </li></ul><ul><li>Bid/Ask spreads. </li></ul>
  10. 10. Currencies <ul><li>The Euro: €, EUR. </li></ul><ul><ul><li>Official currency of the Eurozone. 17 of the 23 member states of the European Union. </li></ul></ul><ul><ul><li>Adopted in 1995, officially introduced in 1999. </li></ul></ul><ul><ul><li>Coins & Banknotes </li></ul></ul><ul><ul><li>Purchasing Power Parity </li></ul></ul><ul><ul><li>Second Largest Reserve Currency </li></ul></ul><ul><ul><li>Implications for investments and business </li></ul></ul>
  11. 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
  12. 12. The Gold Standard <ul><li>Till 1944 and the Bretton Woods Agreement </li></ul><ul><li>Bretton Woods Agreement </li></ul><ul><ul><li>Created World Bank and IMF. </li></ul></ul><ul><ul><li>Many countries fixed their currency to that of the U.S. dollar. </li></ul></ul>
  13. 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
  14. 14. Inflation <ul><li>Rise in the price of goods and services in economy over time. </li></ul><ul><ul><li>Positives </li></ul></ul><ul><ul><li>Negatives </li></ul></ul><ul><li>Reflects an erosion of purchasing power. </li></ul><ul><li>Affects “Real Interest Rates.” Real Interest Rate = Nominal Interest Rate – Inflation </li></ul><ul><li>Deflation – Fall in the prices of good and services </li></ul>
  15. 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. 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. 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. 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. 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. 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
  21. 21. Market Views <ul><li>Inefficient Market View </li></ul><ul><ul><li>Fundamental Analysis </li></ul></ul><ul><ul><li>Technical Analysis </li></ul></ul><ul><li>Efficient Market View </li></ul><ul><ul><li>Average Investor Performance = Performance for entire market – transaction costs </li></ul></ul><ul><ul><li>Therefore, lowering transaction costs may be the simplest and easiest thing to do to improve investment performance. </li></ul></ul>
  22. 22. <ul><ul><li>Active Money Managers Have Difficulty Beating the Market </li></ul></ul><ul><ul><li>Mutual Fund Manager Performance from 2006 – 2010 </li></ul></ul>Source: Standard and Poor’s Index Versus Active Group, March 2011 Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. The fund returns used are net of fees, excluding loads. Returns are based upon equal-weighted fund counts. The data assumes reinvestment of income and does not account for taxes or transaction costs. The risks associated with stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. Bonds are subject to risks, including interest rate risk which can decrease the value of a bond as interest rates rise. Investing in foreign securities may involve certain additional risks, including exchange rate fluctuations, less liquidity, greater volatility, different financial and accounting standards and political instability. Passive money management, like active money management, cannot guarantee a profit or protect against a loss. Past performance is not a guarantee of future results. Efficient Market View
  23. 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. 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. 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
  26. 26. Monthly: January 1926 - December 2010 CRSP data provided by the Center for Research in Security Prices, University of Chicago. The S&P data are provided by Standard & Poor's Index Services Group. US long-term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). $8,201 Small Cap (CRSP 6-10 Index) $2,590 Large Cap (S&P 500 Index) $85 Long-Term Government Bonds Index $20 Treasury Bills $12 Inflation (CPI) $10,000 $1,000 $100 $10 $1 $0 1926 1936 1946 1956 1966 1976 1986 1996 2006 2010 Growth of Wealth
  27. 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. 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
  29. 29. Conclusion and Q&A <ul><li>Be a student of the global financial markets. </li></ul><ul><li>Simpler is often better. </li></ul><ul><li>Don’t invest in anything you don’t fully understand. </li></ul><ul><li>Collaborate and network with others. </li></ul>
  30. 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

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