- Inflation from 1973-2008 increased 500% while the S&P 500 and bonds ran out of money by 1990 and 1994 respectively when using a 5% withdrawal rate. - Diversifying across different asset classes with varying risk profiles can increase returns while lowering risks compared to being fully invested in stocks or bonds alone. - Rebalancing a portfolio periodically helps investors buy low and sell high, lowering risks and increasing returns over the long run.

1. Presented by Curtis Erickson, CPA, PFS & Lauren Vignec, Financial Advisor

2. Inflation from 1973-2008 increased by a cumulative 500% The S&P 500 runs out of money in 1990 Bonds run out of money in 1994 Withdrawals S&P 500 Bonds Conservative Balanced Growth Aggressive Begin $5,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 End $24,688 $0 $0 $157,443 $712,054 $1,334,545 $1,737,599 Return 4.55% (Inflation) 9.24% 7.93% 9.43% 10.78% 11.85% 12.45% Standard Deviation -- 18.87 5.6 6.46 10.59 15.47 19.66

3. Stocks are riskier than bonds and thus have higher expected returns. Some stock asset classes are riskier than others, and thus have higher expected returns. By combining asset classes with different risk/return profiles, that go up and down at different times, you can increase returns and lower risks.

4. 100% Stocks 0% Bonds 75% Stocks 25% Bonds 50% Stocks 50% Bonds 25% Stocks 75% Bonds 0% Stocks 100% Bonds 10 Years 5.83% 7.71% 8.62% 8.65% 7.95% 15 Years 4.38% 5.61% 6.07% 6.24% 4.93% 20 Years 3.93% 4.83% 5.12% 5.11% 3.58% 25 Years 3.67% 4.41% 4.62% 4.44% 2.87% 30 Years 3.55% 4.18% 4.34% 3.95% 2.41% 40 Years 3.46% 3.96% 4.22% 3.27% 1.84%

5. 4 basic steps to building a diversified portfolio. STEP 1: Begin with the S&P 500 Index. Annualized Returns (%) 9.24 Annualized Standard Deviation (%) 18.87 Number of Losses Greater than 5% 8

6. STEP 2: Combine Basic World Markets: US (S&P 500) International (EAFE) Fixed Income (Gov’t Portfolio & Fixed Income) Similar returns with much less risk Annualized Returns (%) 9.32 Annualized Standard Deviation (%) 11.81 Number of Losses Greater than 5% 5

7. STEP 3: Add Small Cap stocks, both US and International. Small Cap stocks are significantly riskier than Large Cap stocks. However, adding them increases annualized return while adding only a small amount of risk. Annualized Returns (%) 10.45 Annualized Standard Deviation (%) 12.59 Number of Losses Greater than 5% 5

8. STEP 4: Add US Small & Large Cap Value stocks. Value stocks are riskier than growth stocks. However, due to diversification the value stocks actually increase returns and decrease risk. Annualized Returns (%) 11.04 Annualized Standard Deviation (%) 12.29 Annual Losses Greater than 5% 4

9. Annualized Returns (%) 9.24 Annualized Standard Deviation (%) 18.87 Investment Period: 1973 -2008 At a withdrawal rate of 5% the S&P 500 runs out in 1990. Annualized Returns (%) 11.04 Annualized Standard Deviation (%) 12.29 Investment Period: 1973-2008 At a withdrawal rate of 5% the diversified portfolio never runs out and grows with inflation.

10. The past does NOT predict the future. After Inflation 1801-1900 1901-2000 Stocks 6.76% 6.45% Bonds 5.23% 1.57%

11. Loss Gain Necessary -10% 11.1% -20% 25% -50% 100% -90% 900% Average Annual Return Annualized Return .55% 0% 2.5% 0% 25% 0% 405% 0%

12. Average Annual Returns – Volatility {Standard Deviation^2/2}= Annualized Returns

13. 6 8 10 12 14 16 18 20 6 8 10 12 14 16 One Year Standard Deviation (Volatility) Annualized Compound Return Growth Aggressive S&P 500 Conservative Balanced

14. Through diversification, everyone can be made better off. Quarters of Negative Returns: S&P 500 – 50 MSCI Japan 63 60/40 Mix - 46

15. #1: Failing to Plan “ There is nothing wrong with a strategy to avoid the payment of taxes. The Internal Revenue Code doesn’t prevent that.” -William H. Rehnquist

16. Key to financial defense Guarantee results

17.  Add Taxable Income  minus Adjustments to Income  minus Deductions  times Tax Bracket  minus Tax Credits Rate Single HoH Joint 10% 0 0 0 15% 8,351 11,951 16,701 25% 33,951 45,501 67,901 28% 82,251 117,451 137,051 33% 171,551 190,201 208,851 35% 372,951 372,951 372,951

18.  Add Taxable Income  minus Adjustments to Income  minus Deductions  times Tax Bracket  minus Tax Credits Pre-Tax Dollars After-Tax Dollars

19. Plan Type 401k, 403b IRA Consolidate Accounts No Yes Investment flexibility No Yes “ Stretch” distributions No Yes “ Net Unrealized Appreciation” No Yes Trust beneficiary No Yes

20. IRA Balance - Federal Estate Tax - State Estate Tax - Federal income tax - State income tax =Net to family

21. Solutions: Roth Conversions “ Stretch” IRA Trust Beneficiary Charitable Beneficiary Life Insurance Trust

22. Based on Dec. 31 balance Start by April 1 of the year after reaching 70½ Waiting can means two distributions in first year Taxed as ordinary income Included in “provisional income” 50% penalty tax Life Expectancy Age Period 70 27.4 75 22.9 80 18.7 85 14.8 90 11.4 95 8.6

23. IRA Type Regular Roth Taxable withdrawals? Yes No Included in provisional income? Yes No Required minimum distributions? Yes No Income taxed to beneficiaries? Yes No

24. Can you? “ MAGI” < $100,000 If Married, Joint Filer Should you? Tax Rates? Where will you find the money to pay the tax? Age 59½? How long can you let the account grow?

25. True Tax Planning Written Tax Plan Family, Home & Job Business Investments Review Returns We will do this ALL with our Tax Coach Service

26. Rebalancing is how you stay in control of your portfolio. When you start your portfolio, you have a certain percentage in each asset class. As time goes on, those percentages change. Rebalancing means returning to the original percentages. This can be done by adding new money or by selling assets that did well and buying ones that did not do as well. Rebalancing means buying low and selling high. You can rebalance every year, every quarter or even every day.

27. By 2007 it is a totally different portfolio! Loses 44.6% in 2008 Way outside the risk tolerance of some one who just wants a 50/50 portfolio.

28. Rebalanced Portfolio: Returns: 9.45% Standard Deviation: 10.48% Portfolio without Rebalancing: Returns: 8.98% Standard Deviation: 14.50% Take a simple 50/50 portfolio, with half stocks in US and half in international – 1972-2008. You lost 0.5% per year, and the risk goes higher.

29. According to the DALBAR study, the average investor earns significantly less than the market indices, and investors that time the market actually lose money over the period measured. Category 1989-2009 Annualized Returns S&P 500 Index 8.64% Average Equity Fund Investor 1.87% Systematic Equity Fund Investor 2.7% Market Timer Equity Fund Investor (-0.83%) Inflation 2.98%

30. Seeing the whole portfolio as one portfolio Dealing with fear, greed, and envy Overconfidence Predictions make us feel we are in control Sunk Costs

31. January 1, 1989 – December 31, 2008 5,040 Trading Days Return of S&P 500 Index Growth of $10,000 Investment Stay Fully Invested 8.43% $50,455 Missed the 5 Best Days 6.27% $33,720 Missed the 10 Best Days 4.89% $26,006 Missed the 15 Best Days 3.65% $20,500 Missed the 20 Best Days 2.58% $16,630 Missed the 25 Best Days 1.57% $13,654 Missed the 30 Best Days 0.61% $11,283

32. Finance Professors Brad Barber and Terrence Odean found that women’s investment returns beat men’s on a risk-adjusted basis by almost 1% per year. Women traded less. Women suffer from less over-confidence. This study is one of many that shows the losses suffered because of market timing.

33. Fidelity study of 502 married couples: Only 38% make decisions together. Only 15% confident that either spouse is prepared for financial responsibility. 60% don’t agree on retirement age. 44% don’t agree on whether they will work in retirement.

34. Commissions necessarily lead to conflicts of interest. Risky investments pay high commissions. Unfortunately, the industry sells complexity and confusion instead of simplicity and diversification.

35. $ 907,084 $2,567,531 $3,986,548 $5,628,943 $6,836,400

36. Inflation from 1973-2008 increased by a cumulative 500% The S&P 500 runs out of money in 1990 Bonds run out of money in 1994 Withdrawals S&P 500 Bonds Conservative Balanced Growth Aggressive Begin $5,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 End $24,688 $0 $0 $157,443 $712,054 $1,334,545 $1,737,599 Return 4.55% (Inflation) 9.24% 7.93% 9.43% 10.78% 11.85% 12.45% Standard Deviation -- 18.87 5.6 6.46 10.59 15.47 19.66

37. Are you ready to shift your personal experience of money and investing from a scarcity mode to an abundance mode?

38. Thank you for joining us!