This document introduces five key concepts for financial success according to Timothy J. Russell of The Life Financial Group. The concepts are: 1) Leverage diversification to reduce risk, 2) Seek lower volatility to enhance returns, 3) Use global diversification to enhance returns and reduce risk, 4) Use different investment approaches in different markets, and 5) Design efficient portfolios. The document advocates taking a comprehensive approach to wealth management that includes investment consulting, advanced planning, and relationship management.

1. [C1] fivekeyconceptsforfinancialsuccessJohnAdvisorABCAdvisoryFirmIntelligentInvesting
Timothy J. Russell
FIVE KEY CONCEPTS
FOR
FINANCIAL SUCCESS

2. LetterfromtheAdvisorManypeopletodayarefacingdifficultchoicesinachievingtheirfinancialgoalsand,aswelltheyshould,areaskingseriousquestions.OurgoalwithIntelligentInvestingistohelpyouseethroughthenoiseofthemarketplaceinordertosystematicallymakesmartdecisionsaboutyourmoney. Becauseeducatedinvestorsarethemostsuccessfulinvestors,wehavecreatedIntelligentInvestingtoshowyouaNobelPrize–winningapproachcraftedtooptimizeyourinvestmentportfolioovertime.Wehavedesigneditspecificallytonotonlysupportyouinyoureffortstopreservewhatyoualreadyhave,buttoalsoefficientlycapturethemarket’sreturnsforyourinvestments. Inaddition,becausewerecognizethatreachingyourfinancialgoalsrequiresmorethanjustgoodinvestmentmanagement,wehavealsodescribedanapproach—comprehensivewealthmanagement—thatsystematicallyaddressesyourentirerangeoffinancialissues. Webelieveinempoweringpeopletomakethebestdecisionsforthemselvesor,iftheywish,toastutelychooseafinancialadvisorwhocanimplementsoundwealthmanagementprinciples.Andwebelieveinsharingourownfinancialknowledgewitheveryonewhowantstomakewisedecisionsabouthisorhermoney. ABCAdvisoryFirmispleasedtopresentIntelligentInvestingtoourclientsandprospectiveclients.Wesincerelyhopethatitwillprovideyouwithaframeworkforanintelligentapproachtomakingfinancialdecisionsthatwillhelpyoutoachieveallyourmostimportantdreams. Sincerely, JohnAdvisorTitleABCAdvisoryFirm
Letter from Tim Russell
Many people today are facing difficult choices in achieving their financial goals and, as well they should, are asking serious questions. Our goal with Intelligent Investing is to help you see through the noise of the marketplace in order to systematically make wise decisions about your money.
Because educated investors are the most successful investors, we have created Intelligent Investing to show you a Nobel Prize–winning approach crafted to optimize your investment portfolio over time. We have designed it specifically to not only support you in your efforts to preserve what you already have, but to also efficiently capture the market’s returns for your investments.
In addition, because we recognize that reaching your financial goals requires more than just good investment management, we have also described an approach—comprehensive wealth management—that systematically addresses your entire range of financial issues.
We believe in empowering people to make the best decisions for themselves or, if they wish, to astutely choose a financial advisor who can implement sound wealth management principles. And we believe in sharing our own financial knowledge with everyone who wants to make wise decisions about his or her money.
The Life Financial Group is pleased to present Intelligent Investing to our clients and prospective clients. We sincerely hope that it will provide you with a framework for an intelligent approach to making financial decisions that will help you to achieve all your most important dreams.
Sincerely,
Timothy J. Russell
Wealth Manager
The Life Financial Group
Tim@TheLifeGroup.org
The Life Financial Group, Inc • 978 Ben Franklin Hwy E • Douglassville, PA 19518
(610) 385-4500 • www.TheLifeGroup.org

3. Table of Contents
Taking a Comprehensive Approach to Your Financial Life.....................................................2
Rising Above the Noise..............................................................................................4
Five Key Concepts for Financial Success.........................................................................7
Concept One: Leverage Diversification to Reduce Risk........................................................................7
Concept Two: Seek Lower Volatility to Enhance Returns......................................................................8
Concept Three: Use Global Diversification to Enhance Returns and Reduce Risk................................9
Concept Four: Use Different Investment Approaches in Different Markets...........................................9
Concept Five: Design Efficient Portfolios............................................................................................10
Your Next Steps.....................................................................................................12
About Tim Russell..................................................................................................15
About The Life Financial Group...................................................................................15
Important Information and Disclosures:
This material is provided for general information only and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however no warranty can be made as to its accuracy or completeness. The information is provided for illustrative purposes only and does not represent, guarantee or imply that services, strategies or methods of analysis offered can or will predict future results, identify market tops or bottoms or insulate investors from losses. The material is neither an offer to sell nor a solicitation of an offer to buy any securities or participate in any investment or trading strategy. Before acting on any of the information, please consult your Financial Advisor for individual financial advice based on your personal circumstances. The opinions expressed are solely those of the author(s).
Asset allocation and global diversification do not ensure a profit or protect against loss in a declining market. Past performance is not a guarantee of future results. Securities and Investment Advisory Services offered through Geneos Wealth Management, Inc. Member FINRA and SIPC
Intelligent Investing: Five Key Concepts for Financial Success
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The information contained herein is accurate to the best of the publisher’s knowledge; however, the publisher can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof.
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4. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[2] TakingaComprehensiveApproachtoYourFinancialLifeMoneymeansdifferentthingstodifferentpeople. Eachofushasdifferentdreams.¶Youmaywanttoachievefinancialfreedomsothatyouneverhavetoworkagain—evenifyouplanonworkingtherestofyourlife.Youmaywanttomakeatop-flightcollegeeducationpossibleforyourchildrenorgrand- children.Youmightwanttoprovidetheseedcapitalthatwillgiveyourchildrenorgrandchil- drenagreatstartinlife,whetherthat’swithahomeorabusiness.Youmaydreamofavaca- tionhomeonthebeachorinthemountains.Oryoumayhaveachievedtremendoussuccessthroughoutyourcareerandwanttoleavebehindanenduringlegacythatwillenableyourfavoritecharitytocontinueitswork. Whateveryourdreamsare,youneedaframe- workformakingwisedecisionsaboutyourmoneythatwillhelpenableyoutoachieveallthatisimportanttoyou.Chancesaregoodthatyouhaveawiderangeoffinancialgoals,aswellasdiversefinancialchallenges. Commonsensetellsusthatsuchabroadrangeofissuesrequiresabroad,comprehensiveoutlook.It’sforthisreasonthatmostaffluentclientswanttheirfinancialadvisorstohelpthemwithmorethanjustinvestments.Theywantrealwealthmanagement—acompleteapproachtoaddressingtheirentirefinanciallives. Asyou’veprobablynoticed,manyfinancialfirmsthesedayssaythattheyofferwealthman- agement.Thetroubleisthatmanyofthesefirmsjustprovideinvestmentmanagementandofferacoupleofextraservices—suchascollegeedu- cationplanningandestateplanning—andcallthatwealthmanagement.Sothechallengeforanyonewhowantshelpaddressingallhisorherfinancialneedsisfindingafirmthatprovidestruewealthmanagement. Wedefinewealthmanagementasaformula: WM=IC+AP+RMInvestmentconsulting(IC)istheastuteman- agementofinvestmentsovertimetohelpachievefinancialgoals.Itrequiresadvisorstodeeplyunderstandtheirclients’mostimportant

5. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[3] challengesandthentodesignaninvestmentplanthattakestheirclients’timehorizonsandtoleranceforriskintoaccountandthatdescribesanapproachthatwillmaximizeclients’proba- bilityofachievingtheirgoals.Italsorequiresadvisorstomonitorboththeirclients’portfoliosandtheirfinanciallivesovertimesothattheycanmakeadjustmentstotheinvestmentplanasneeded. Advancedplanning(AP)goesbeyondinvest- mentstolookatalltheotheraspectsthatareimportanttoyourfinanciallife.Webreakitdownintofourparts:wealthenhancement, wealthtransfer,wealthprotectionandcharita- blegiving.Inourexperience,veryfewfinancialadvisorsoffertheseservices. Relationshipmanagement(RM)isthefinalelement.Truewealthmanagersarefocusedonbuildingrelationshipswithinthreegroups.Thefirstandmostobviousgroupistheirclients.Toaddresstheirclients’needseffectively,theymustfostersolid,trustedrelationshipswiththem.Sec- ond,wealthmanagersmustmanageanetworkoffinancialprofessionals—expertstheycancallintoaddressspecificclientneeds.Finally,wealthmanagersmustbeabletoworkeffectivelywiththeirclients’otherprofessionaladvisors,suchastheirattorneysandaccountants. Ourfocusinthisresourceguidewillbeonthefirstelementofwealthmanagement—invest- mentconsulting.Butbearinmindthatmanag- ingyourinvestmentsisjustonepartofacom- prehensiveapproachtoyourfinanciallife.Attheendofthisguide,we’lldescribewhatyoushouldexpectfromatruewealthmanagersothatyoucanmakeaninformeddecisionwhenchoosingwhichfinancialprofessionaltoworkwith. Let’sturnnowtoourdiscussionofthecon- ceptsthatcanmakeyouamoresuccessfulinvestor.

6. Butinvestingisactuallynotthatcomplicated. We’llexplorethreedifferentmethodsthatinvestorsusetomakedecisionsabouttheirmoney,andwe’lltalkaboutwhereyoushouldbewithyourownapproachtoyourportfolio. Exhibit1classifiespeopleaccordingtohowtheymakeinvestingdecisions.Thefirstmethodisthenoisemethod.It’susedbyinvestorswhogetcaughtupinthenoiseofthedayandlettheiremotionsdictatetheiractions.Theychaseafterhotstocksandmarketsectorsthatareduetofall,ignoreinvestmentsthatareundervaluedandpoisedtoriseand,asaresult,oftenearnpoorreturnsthatfailtogetthemtotheirmostimportantfinancialgoals. Unfortunately,it’seasytogetcaughtupinallthenoisethat’soutthere.Mostofthepublicusesthenoisemethod,andmuchofthefinan- cialmediafuelsthismethodofinvestingasittriestosellnewspapers,magazinesandtelevi- sionshows.Forthemedia,it’sallaboutgettingyoutoreturntothemtimeandtimeagain. Giventhesheeramountofinvestingnoiseintoday’sworld,it’snotsurprisingthatmanyinvestorsendupmakingtheirdecisionsbasedonnoise.Whydotheseinvestorssoconsistentlymakethewrongdecisions?Becausenoisedrivesemotions,andmakinginvestmentdecisionsbasedonemotionsrarelyhasapositiveout- come.TohelpyouunderstandtheemotionsofINTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESSRisingAbovetheNoiseSomeinvestmentprofessionalsworkhardtomaketheirworkconfusing.Theybelievetheyhaveavestedinterestincreatinginvestorconfusion.Theyusejargonthatcanintimidateandmakeitdifficultforyoutounderstandrelativelystraightforwardconcepts. [4] EXHIBIT1THREEINVESTMENTDECISIONMETHODSMethod#1NOISEMethod#2Strategic(INSTITUTIONAL) Method#3Tactical(INSTITUTIONAL) Source:CEGWorldwide.

7. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[5] investingandwhymostinvestorssystematicallymakethewrongdecisions,let’slookforamomentatwhathappenswhenyougetahottiponastock. Ifyou’relikemostinvestors,youdon’tbuythestockrightaway.You’veprobablyhadtheexperienceoflosingmoneyonaninvestment— anddidnotenjoytheexperience—soyou’renotgoingtoraceoutandbuythatstockrightawaybasedonahottip.You’recautious,soyoudecidetofollowitforawhiletoseehowitdoes.Sureenough,itstartstrendingupward. Youfollowitforawhileasitrises.What’syouremotion?Confidence.Youhopethatthismightbetheoneinvestmentthathelpsyoumakealotofmoney.Let’ssayitcontinuesitsupwardtrend.Youstartfeelinganewemotionasyoubegintoconsiderthatthisjustmightbetheone. Whatisthenewemotion?It’sgreed.Youdecidetobuythestockthatday. Youknowwhathappensnext.Ofcourse,soonafteryoubuyit,thestockstartstogodown,andyoufeelanewcombinationofemotions—fearandregret.You’reafraidyoumadeaterriblemis- take.Youpromiseyourselfthatifthestockjustgoesbackuptowhereyouboughtit,youwillneverdoitagain.Youdon’twanttohavetotellyourspouseorpartneraboutit.Youdon’tcareaboutmakingmoneyanymore. Nowlet’ssaythestockcontinuestogodown. Youfindyourselfwithanewemotion.Whatisit? It’spanic.Yousellthestock.Andwhathappensnext?Alltoooften,newinformationcomesoutandthestockracestoanall-timehigh.(SeeExhibit2.) We’reallpoorlywiredforinvesting.Emotionsarepowerfulforcesthatcauseyoutodoexactlytheoppositeofwhatyoushoulddo.Thatis,youremotionsleadyoutobuyhighandselllow.Ifyoudothatoveralongperiodoftime,you’llcauseseriousdamagenotjusttoyourportfolio, butmoreimportant,alsotoyourfinancialdreams. ThegoodnewsisthattherearesuperiormethodsyoucanusetotuneoutthatnoiseandbuildaninvestmentplanthatwillenableyoutoEXHIBIT2THEEMOTIONALCURVEOFINVESTINGSource:CEGWorldwide. Greed/BuyPanic/SellHope/IdeaFearDisappointment

8. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[6] achieveconsistentinvestmentsuccess.Thesemethodsaretheonesusedbytheworld’sbestinstitutionalmoneymanagementfirmstoservetheirclients—whichincludeFortune500com- paniesandendowmentswithbillionsofdollarstoinvest.Atourfirm,webelievethatindividualinvestorssuchasyoushouldhaveaccesstothesameinstitutional-classinvestmentapproachesasthesecompaniesandendowmentsenjoy. AsExhibit1shows,therearetwoinstitu- tional-classapproaches.Thefirstisthestrategicmethodofmakinginvestmentdecisions.Strate- gicinvestorsuseaprocessbasedonNobelPrize–winningresearchtobuildportfoliosthatprovidethebestpossiblereturnsforagivenlevelofinvestmentrisk.Strategicinvestorsrebalancethoseportfoliosonadisciplinedquar- ter-by-quarterbasistoensurethattheycon- stantlymaintaintheoptimalcombinationofreturnandrisk. Thesecondinstitutional-classapproachisthetacticalmethod.TacticalinvestorsalsobasetheirportfoliodecisionsonNobelPrize–winningaca- demicresearch.However,theymanagetheirportfoliosdifferently.Insteadofregularlyrebal- ancingeachquarter,tacticalinvestorslooktoaddvaluebyemphasizingcertainassetclassesormarketsectorsthattheirresearcheffortstellthemareundervaluedandofferanabove-aver- agepotentialforstrongreturns.Tacticalinvestorsthende-emphasizethoseassetclassesorsectorsoncetheybecomefairlyvaluedbythemarketplace.Tacticalinvestorsarethereforemoreopportunisticthanstrategicinvestors. Thestrategicandtacticalapproachesarewheremostoftheacademiccommunityreside, asdothetopinstitutionalinvestors.Investorswhousestrategicandtacticalinvestmentmeth- odsdispassionatelyresearchwhatworksandthenfollowarationalcourseofactionbasedonempiricalevidence.Thisallowsthemtoignorethenoisecreatedbythemedia. Ourpassionistohelpinvestorsmakesmartdecisionsabouttheirmoney.Toaccomplishthis, wehelpinvestorsmovefromthenoisetomak- ingsmartdecisionsabouttheirmoneybyusingtheseprudentinvestmentstrategies:1)strategicinvesting,2)tacticalinvestingor3)acombina- tionofthetwoapproaches.Webelievethatthesestrategieswillhelpyoumaximizetheprobabil- ityofachievingallyourfinancialgoals.

9. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESSWhileinvestingcanattimesseemover- whelming,theacademicresearchcanbebrokendownintowhatwecalltheFiveKeyConceptsforFinancialSuccess.Ifyouexamineyourownlife, you’llfindthatitisthesimplerthingsthatcon- sistentlywork.Successfulinvestingisnodiffer- ent.However,itiseasytohaveyourattentiondrawntothewrongissues.Thesewrongissues— thenoise—canderailyourjourney. Inthissection,we’llwalkthroughthesefiveconceptsandthenexplainhowinstitutionalinvestorsincorporateeachoftheseconceptsintotheirinvestmentplans,nomatterwhichdirectionthemarketsaregoingatthatmoment. Theseplansbothmeettheirfiduciaryresponsi- bilitiesandachievetheirfinancialgoals.Youoweyourselfandyourfamilynothinglessthanwhattheinstitutionalinvestorshave. It’simportanttonoteherethatwhiletheseconceptsaredesignedtomaximizereturn,nostrategycaneliminaterisk,whichisinherentinallinvestments.Wheneveryouinvest,youhavetoacceptsomerisk.It’salsoimportanttorememberthatyou’reresponsibleforreview- ingyourportfolioandrisktoleranceandforkeepingyourfinancialadvisorcurrentonanychangesineitheryourrisktoleranceoryourlifethatmightaffectyourinvestmentobjectives. ConceptOne: LeverageDiversificationtoReduceRiskMostpeopleunderstandthebasicconceptofdiversification:Don’tputallyoureggsinonebasket.That’saverysimplisticviewofdiversifi- cation,however.Itcanalsogetyoucaughtinadangeroustrap—onethatyoumayalreadyhavefallenintoForexample,manyinvestorshavealargepartoftheirinvestmentcapitalintheiremployers’stocks.Eventhoughtheyunderstandthattheyareprobablytakingtoomuchrisk,theydon’tFiveKeyConceptsforFinancialSuccessBeforeyoucandeterminewhichinstitutionalinvestmentmethodisrightforyou,it’susefultotakeastepbackandexaminetheconceptsthatwillempoweryoutoachieveconsistent,long-terminvest- mentsuccess.Thesearetheconceptsthatwillguideyouregardlessofwhichinstitutionalapproachyouselect. [7]

10. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[8] doanythingaboutit.Theyjustifyholdingthepositionbecauseofthelargecapitalgainstaxtheywouldhavetopayiftheysold,ortheyimaginethatthestocksarejustaboutreadytotakeoff.Often,investorsaresoclosetopar- ticularstocksthattheydevelopafalsesenseofcomfort. Otherinvestorsbelievethattheyhaveeffec- tivelydiversifiedbecausetheyholdanumberofdifferentstocks.Theydon’trealizethattheyareinforanemotionalroller-coasterrideiftheseinvestmentssharesimilarriskfactorsbybelong- ingtothesameindustrygrouporassetclass. “Diversification”amongmanyhigh-techcom- paniesisnotdiversificationatall. Buttrulydiversifiedinvestors—thosewhoinvestacrossanumberofdifferentassetclasses—canlowertheirrisk,withoutnecessar- ilysacrificingreturn.Becausetheyrecognizethatit’simpossibletoknowwithcertaintywhichassetclasseswillperformbestincomingyears, diversifiedinvestorstakeabalancedapproachandstickwithitdespitevolatilityinthemarkets. ConceptTwo: SeekLowerVolatilitytoEnhanceReturnsIfyouhavetwoinvestmentportfolioswiththesameaverageorarithmeticreturn,theportfoliowithlessvolatilitywillhaveagreatercompoundrateofreturn. Forexample,let’sassumeyouareconsideringtwomutualfunds.Eachofthemhashadanaver- agearithmeticrateofreturnof8percentoverfiveyears.Howwouldyoudeterminewhichfundisbetter?Youwouldprobablyexpecttohavethesameendingwealthvalue. However,thisistrueonlyifthetwofundshavethesamedegreeofvolatility.Ifonefundismorevolatilethantheother,thecompoundreturnsandendingvalueswillbedifferent.Itisamathematicalfactthattheonewithlessvolatilitywillhaveahighercompoundreturn. YoucanseehowthisworksfromExhibit3. Twoequalinvestmentscanhavethesamearith- meticrateofreturnbuthaveverydifferentend- ingvaluesbecauseofvolatility.YouwanttoEXHIBIT3LESSVOLATILITY=GREATERWEALTHConsistentInvestmentVolatileInvestmentYearRateofReturnEndingValueRateofReturnEndingValue18%$108,00030%$130,00028%$116,640-20%$104,00038%$125,97125%$130,00048%$136,049-20%$104,00058%$146,93325%$130,000Arithmeticannualreturn8%8% Compoundannualreturn8%5.39% Source:CEGWorldwide.
do anything about it. They justify holding the position because of the large capital gains tax they would have to pay if they sold, or they imagine that the stocks are just about ready to take off. Often, investors are so close to particular stocks that they develop a false sense of comfort.
Other investors believe that they have effectively diversified because they hold a number of different stocks. They don’t realize that they are in for an emotional roller-coaster ride if these investments share similar risk factors by belonging to the same industry group or asset class. “Diversification” among many high- tech companies is not diversification at all.
But truly diversified investors—those who invest across a number of different asset classes— can lower their risk, without necessarily sacrificing return. Because they recognize that it’s impossible to know with certainty which asset classes will perform best in coming years, diversified investors take a balanced approach and stick with it despite volatility in the markets.
If you have two investment portfolios with the same average or arithmetic return, the portfolio with less volatility will have a greater compound rate of return.
For example, let’s assume you are considering two investments. Each of them has had an average arithmetic rate of return of 8 percent over five years. How would you determine which investment is better? You would probably expect to have the same ending wealth value.
However, this is true only if the two investments have the same degree of volatility. If one investment is more volatile than the other, the compound returns and ending values will be different. It is a mathematical fact that the one with less volatility will have a higher compound return.
You can see how this works from Exhibit 3. Two equal investments can have the same arithmetic rate of return but have very different

11. designyourportfoliosothatithasaslittlevolatilityasnecessarytoachieveyourgoals. Exhibit4showstwoportfolioswiththesameaveragereturn.Asaprudentinvestor,youwantthesmootherrideofPortfolioA,notonlybecauseithelpsyourideouttheemotionalcurve,butmoreimportant,alsobecauseyouwillcreatemorewealthtoreachyourfinancialgoals. ConceptThree: UseGlobalDiversificationtoEnhanceReturnsandReduceRiskInvestorshereintheU.S.tendtofavorstocksandbondsofU.S.-basedcompanies.Formany, it’smuchmorecomfortableemotionallytoinvestinfirmsthattheyknowandwhoseprod- uctstheyusethanincompanieslocatedonanothercontinent. Unfortunately,theseinvestors’emotionalreactionsarecausingthemtomissoutononeofthemosteffectivewaystoincreasetheirreturns. That’sbecausetheU.S.financialmarket,whilethelargestintheworld,stillrepresentslessthanhalfofthetotalinvestablecapitalmarketworld- wide.1Bylookingtooverseasinvestments,yougreatlyincreaseyouropportunitytoinvestinsuperiorglobalfirmsthatcanhelpyougrowyourwealthfaster. Globaldiversificationinyourportfolioalsoreducesitsoverallrisk.Americanequitymar- ketsandinternationalmarketsgenerallydonotmovetogether.Individualstocksofcompaniesaroundtheworldwithsimilarriskhavethesameexpectedrateofreturn.However,theydon’tgetthereinthesamemanneroratthesametime.Thepricemovementsbetweeninter- nationalandU.S.assetclassesareoftendissim- ilar,soinvestinginbothcanincreaseyourport- folio’sdiversification. ConceptFour:UseDifferentInvestmentApproachesinDifferentMarketsInthestockmarket,extendedperiodsofupwardpricemovementsarecalledsecularbullmar- kets.Lengthyperiodsofdownwardmovementsarecalledsecularbearmarkets. Regardlessofwhetherthemarketisinasec- EXHIBIT4TWOPORTFOLIOSWITHTHESAMEAVERAGERETURNSource:CEGWorldwide. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[9] PortfolioBPortfolioA1McKinseyGlobalInstitute,MappingtheGlobalCapitalMarket2006.
ending values because of volatility. You want to design your portfolio so that it has as little volatility as necessary to achieve your goals.
Exhibit 4 shows two portfolios with the same average return. As a prudent investor, you want the smoother ride of Portfolio A, not only because it helps you ride out the emotional curve, but more important, also because you will create more wealth to reach your financial goals.
EXHIBIT4TWOPORTFOLIOSWITHTHESAMEAVERAGERETURNSource:CEGWorldwide. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[MappingtheGlobalCapitalMarket2006. Investors here in the U.S. tend to favor stocks and bonds of U.S.-based companies. For many, it’s much more comfortable emotionally to invest in firms that they know and whose products they use than in companies located on another continent.
Unfortunately, these investors’ emotional reactions are causing them to miss out on one of the most effective ways to increase their returns. That’s because the U.S. financial market, while the largest in the world, still represents less than half of the total investable capital market worldwide.1 By looking to overseas investments, you greatly increase your opportunity to invest in superior global firms that can help you grow your wealth faster.
Global diversification in your portfolio also has the potential to reduce its overall risk. American equity markets and international markets generally do not move together. Individual stocks of companies around the world with similar risk have the same expected rate of return. However, they don’t get there in the same manner or at the same time. The price movements between international and U.S. asset classes are often dissimilar, so investing in both may increase your portfolio’s diversification.
designyourportfoliosothatithasaslittlevolatilityasnecessarytoachieveyourgoals. Exhibit4showstwoportfolioswiththesameaveragereturn.Asaprudentinvestor,youwantthesmootherrideofPortfolioA,notonlybecauseithelpsyourideouttheemotionalcurve,butmoreimportant,alsobecauseyouwillcreatemorewealthtoreachyourfinancialgoals. ConceptThree: UseGlobalDiversificationtoEnhanceReturnsandReduceRiskInvestorshereintheU.S.tendtofavorstocksandbondsofU.S.-basedcompanies.Formany, it’smuchmorecomfortableemotionallytoinvestinfirmsthattheyknowandwhoseprod- uctstheyusethanincompanieslocatedonanothercontinent. Unfortunately,theseinvestors’emotionalreactionsarecausingthemtomissoutononeofthemosteffectivewaystoincreasetheirreturns. That’sbecausetheU.S.financialmarket,whilethelargestintheworld,stillrepresentslessthanhalfofthetotalinvestablecapitalmarketworld- wide.1Bylookingtooverseasinvestments,yougreatlyincreaseyouropportunitytoinvestinsuperiorglobalfirmsthatcanhelpyougrowyourwealthfaster. Globaldiversificationinyourportfolioalsoreducesitsoverallrisk.Americanequitymar- ketsandinternationalmarketsgenerallydonotmovetogether.Individualstocksofcompaniesaroundtheworldwithsimilarriskhavethesameexpectedrateofreturn.However,theydon’tgetthereinthesamemanneroratthesametime.Thepricemovementsbetweeninter- nationalandU.S.assetclassesareoftendissim- ilar,soinvestinginbothcanincreaseyourport- folio’sdiversification. ConceptFour:UseDifferentInvestmentApproachesinDifferentMarketsInthestockmarket,extendedperiodsofupwardpricemovementsarecalledsecularbullmar- kets.Lengthyperiodsofdownwardmovementsarecalledsecularbearmarkets. Regardlessofwhetherthemarketisinasec- EXHIBIT4TWOPORTFOLIOSWITHTHESAMEAVERAGERETURNSource:CEGWorldwide. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[9] PortfolioBPortfolioA1McKinseyGlobalInstitute,MappingtheGlobalCapitalMarket2006.
In the stock market, extended periods of upward price movements are called secular bull markets. Lengthy periods of downward movements are called secular bear markets.

12. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[10] ularbullorasecularbearperiod,investorsstillneedtoachievetheirmostimportantgoals. Theyneedawaytosucceedconsistentlyduringboththegoodtimesandthebad.Atfirstglance, itmayseemimpossibleforyoutoachievesuc- cessduringaprotractedperiodwhenstockpricesaredown. Thekeytosuccessfullynavigatingtheever- changingmarketenvironmentistoadaptyourinvestmentapproachtotakeadvantageofthespecificforcesatworkduringsecularbullandbearmarkets. Let’slookfirstatwhatworksduringsecularbullmarkets.Inthesemarkets,therisingtideofstockpricesliftsallboats.Successcomesmainlybybeinginvestedinthebroadmarketthroughindexfundsorexchange-tradedfunds,forinstance,that“ownthemarket.”Theseinvest- mentstypicallyoutperformmanagerstryingtoaddvaluethroughsuperiorstockselectionandotherformsoffundamentalresearch. Duringsecularbullmarkets,you’lllikelybebestservedbyusingthestrategicmethodofinvesting,takingabuy-and-holdapproachandkeepingturnoverlow—essentiallygettingonthehorse,grabbingthereinsandridingashardasyoucan. Andwhatdoesittaketosucceedwhenthemarketisgrippedbyalong-termsecularbearmarket?Asecularbearcallsforafundamentallydifferentapproach.Whenthebroadmarketisinadeepslump,there’snorisingtidetoliftallboats.Successrequiressuperioractiveresearchandmanagementeffortstouncoverthoseinvestmentscapableofswimmingagainstthetideanddeliveringstrongreturns. Webelievethatthebestactiveapproachtotakeduringsecularbearmarketsistohaveaconcentratedbutstillwell-diversifiedportfolioconsistingofapproximately30to50individ- ualstocks.That’sbecausethevaluethatcomesfromactivemanagementgets“boileddown” intoaninvestor’sverybestideas.Byfocusingonthoseinvestmentsthatcandowellintoughtimesandsidesteppingtherest,concentratedportfolioshaveadistinctadvantage. Atacticalapproachtoassetallocationisanotherkeytosecularbearsuccess.That’sbecausecertainmarketsegmentsandassetclassestendtostayhealthyevenwhenthebroadermarketisill.Havingthefreedomtoemphasizethoseareasofthemarketthatofferthebestprospectswillhelpkeepyourinvest- mentplanontrackduringasecularbear. Theverybestinstitutionalinvestors,whichrecognizethevariousforcesatworkinsecularbullandsecularbearmarkets,donotrelyononeinvestmentapproach.Instead,theyadoptbothstrategicandtacticalstrategiesandusethemaccordinglytoeffectivelymanagerisk, enhancereturnsandbuildgreaterwealthovertime. ConceptFive: DesignEfficientPortfoliosHowdoyoudecidewhichinvestmentstouseandinwhatcombinations?Since1972,majorinstitutionshavebeenusingamoneymanage- mentconceptknownasModernPortfolioThe- ory.ItwasdevelopedattheUniversityofChicagobyHarryMarkowitzandMertonMillerandlaterexpandedbyStanfordprofessorWilliamSharpe.Markowitz,MillerandSharpesubsequentlywontheNobelPrizeinEconomicSciencesfortheircontributiontoinvestmentmethodology. Theprocessofdevelopingastrategicportfo- liousingModernPortfolioTheoryismathe-
INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[10] ularbullorasecularbearperiod,investorsstillneedtoachievetheirmostimportantgoals. Theyneedawaytosucceedconsistentlyduringboththegoodtimesandthebad.Atfirstglance, itmayseemimpossibleforyoutoachievesuc- cessduringaprotractedperiodwhenstockpricesaredown. Thekeytosuccessfullynavigatingtheever- changingmarketenvironmentistoadaptyourinvestmentapproachtotakeadvantageofthespecificforcesatworkduringsecularbullandbearmarkets. Let’slookfirstatwhatworksduringsecularbullmarkets.Inthesemarkets,therisingtideofstockpricesliftsallboats.Successcomesmainlybybeinginvestedinthebroadmarketthroughindexfundsorexchange-tradedfunds,forinstance,that“ownthemarket.”Theseinvest- mentstypicallyoutperformmanagerstryingtoaddvaluethroughsuperiorstockselectionandotherformsoffundamentalresearch. Duringsecularbullmarkets,you’lllikelybebestservedbyusingthestrategicmethodofinvesting,takingabuy-and-holdapproachandkeepingturnoverlow—essentiallygettingonthehorse,grabbingthereinsandridingashardasyoucan. Andwhatdoesittaketosucceedwhenthemarketisgrippedbyalong-termsecularbearmarket?Asecularbearcallsforafundamentallydifferentapproach.Whenthebroadmarketisinadeepslump,there’snorisingtidetoliftallboats.Successrequiressuperioractiveresearchandmanagementeffortstouncoverthoseinvestmentscapableofswimmingagainstthetideanddeliveringstrongreturns. Webelievethatthebestactiveapproachtotakeduringsecularbearmarketsistohaveaconcentratedbutstillwell-diversifiedportfolioconsistingofapproximately30to50individ- ualstocks.That’sbecausethevaluethatcomesfromactivemanagementgets“boileddown” intoaninvestor’sverybestideas.Byfocusingonthoseinvestmentsthatcandowellintoughtimesandsidesteppingtherest,concentratedportfolioshaveadistinctadvantage. Atacticalapproachtoassetallocationisanotherkeytosecularbearsuccess.That’sbecausecertainmarketsegmentsandassetclassestendtostayhealthyevenwhenthebroadermarketisill.Havingthefreedomtoemphasizethoseareasofthemarketthatofferthebestprospectswillhelpkeepyourinvest- mentplanontrackduringasecularbear. Theverybestinstitutionalinvestors,whichrecognizethevariousforcesatworkinsecularbullandsecularbearmarkets,donotrelyononeinvestmentapproach.Instead,theyadoptbothstrategicandtacticalstrategiesandusethemaccordinglytoeffectivelymanagerisk, enhancereturnsandbuildgreaterwealthovertime. ConceptFive: DesignEfficientPortfoliosHowdoyoudecidewhichinvestmentstouseandinwhatcombinations?Since1972,majorinstitutionshavebeenusingamoneymanage- mentconceptknownasModernPortfolioThe- ory.ItwasdevelopedattheUniversityofChicagobyHarryMarkowitzandMertonMillerandlaterexpandedbyStanfordprofessorWilliamSharpe.Markowitz,MillerandSharpesubsequentlywontheNobelPrizeinEconomicSciencesfortheircontributiontoinvestmentmethodology. Theprocessofdevelopingastrategicportfo- liousingModernPortfolioTheoryismathe-
Regardless of whether the market is in a secular bull or a secular bear period, investors still need to achieve their most important goals. They need a way to succeed consistently during both the good times and the bad. At first glance, it may seem impossible for you to achieve success during a protracted period when stock prices are down.
The key to successfully navigating the ever- changing market environment is to adapt your investment approach to take advantage of the specific forces at work during secular bull and bear markets.
Let’s look first at what works during secular bull markets. In these markets, the rising tide of stock prices lifts all boats. Success comes mainly by choosing investments which seek to follow the broad market. While history is no guarantee of the future, the broad market has out-performed many managers trying to add value through superior stock selection and other forms of fundamental research.
During secular bull markets, you’ll likely be best served by using the strategic method of investing, taking a buy-and-hold approach and keeping turnover low—essentially getting on the horse, grabbing the reins and riding as hard as you can.
And what does it take to succeed when the market is gripped by a long-term secular bear market? A secular bear calls for a fundamentally different approach. When the broad market is in a deep slump, there’s no rising tide to lift all boats. Success requires superior active research and management efforts to uncover those investments capable of swimming against the tide and delivering strong returns.
We believe that the best active approach to take during secular bear markets is to have a
How do you decide which investments to use and in what combinations? Since 1972, major institutions have been using a money management concept known as Modern Portfolio Theory. It was developed at the University of Chicago by Harry Markowitz and Merton Miller and later expanded by Stanford professor William Sharpe. Markowitz, Miller and Sharpe subsequently won the Nobel Prize in Economic Sciences for their contribution to investment methodology.
The process of developing a strategic portfolio using Modern Portfolio Theory is mathe-
concentrated but still well-diversified portfolio. That’s because the value that comes from active management gets “boiled down” into an investor’s very best ideas. By focusing on those investments that can do well in tough times and sidestepping the rest, concentrated portfolios can have a distinct advantage.
A tactical approach to asset allocation is another key to secular bear success. That’s because certain market segments and asset classes tend to stay healthy even when the broader market is ill. Having the freedom to emphasize those areas of the market that offer the best prospects will help keep your investment plan on track during a secular bear.
The very best institutional investors, which recognize the various forces at work in secular bull and secular bear markets, do not rely on one investment approach. Instead, they adopt both strategic and tactical strategies and use them accordingly to effectively manage risk, enhance returns and build greater wealth over time.

13. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[11] maticalinnatureandcanappeardaunting.It’simportanttorememberthatmathisnothingmorethananexpressionoflogic,soasyouexaminetheprocess,youcanreadilyseethecommonsenseapproachthatittakes—whichiscounter-intuitivetoconventionalandovercom- mercializedinvestmentthinking. Markowitzstatedthatforeverylevelofrisk, thereissomeoptimumcombinationofinvest- mentsthatwillgivethehighestrateofreturn. Thecombinationsofinvestmentsexhibitingthisoptimalrisk/rewardtrade-offformtheeffi- cientfrontierline.Theefficientfrontierisdeter- minedbycalculatingtheexpectedrateofreturn,standarddeviationandcorrelationcoef- ficientforeachassetclassandusingthisinfor- mationtoidentifytheportfoliowiththehighestexpectedreturnateachincrementallevelofrisk. Byplottingeachinvestmentcombination,orportfolio,representingagivenlevelofriskandexpectedreturn,weareabletodescribemathe- maticallyaseriesofpoints,or“efficientportfo- lios.”Thislineformstheefficientfrontier. Mostinvestorportfoliosfallsignificantlybelowtheefficientfrontier.PortfoliossuchastheS&P500,whichisoftenusedasaproxyforthemarket,fallbelowthelinewhenseveralassetclassesarecompared.Investorscanhavethesameratesofreturnwithanassetclassportfoliowithmuchlessrisk,orhigherratesofreturnforthesamelevelofrisk. Exhibit5illustratestheefficientfrontierrel- ativetothe“market.”Rationalandprudentinvestorswillrestricttheirchoiceofportfoliostothosethatappearontheefficientfrontierandtothespecificportfoliosthatrepresenttheirownrisktolerancelevel.Ourjobistomakesurethatforwhateverrisklevelyouchoose,youhavethehighestpossiblereturnontheefficientfrontiersothatwecanmaximizetheprobabilityofachievingyourfinancialgoals. KEYDEFINITIONSExpectedrateofreturnistypicallycalculatedastherisk-freerateofreturnplustheriskpremiumassociatedwiththatequityinvestment. Standarddeviationisadescriptionofhowfarfromthemean(average)thehistoricalperform- anceofaninvestmenthasbeen.Itisameasureofaninvestment’svolatility. Correlationcoefficientsmeasurethedissimilarpricemovementsamongassetclassesbyquantify- ingthedegreetowhichtheymovetogetherintime,degreeanddirection. EXHIBIT5THERANGEOFEFFICIENTPORTFOLIOSSource:CEGWorldwide. ExpectedReturnEfficientPortfolios•S&P500•TreasuryBillsStandardDeviation

14. includingwealthenhancement,wealthtransfer, wealthprotectionandcharitablegiving. Suchawiderangeoffinancialneedsrequiresawiderangeoffinancialexpertise.Becausenoonepersoncanbeanexpertinallthesesubjects,thebestwealthmanagersworkwithnetworksofexperts—financialprofessionalswithdeepexperienceandknowledgeinspecificareas. Effectivewealthmanagers,then,areexpertsatrelationshipmanagement—firstbuildingrelationshipswiththeirclientsinordertofullyunderstandtheiruniqueneedsandchallengesandthencoordinatingtheeffortsoftheirexpertteamsinordertomeetthoseneedsandchal- lenges.Wealthmanagersmustalsoworkwiththeirclients’otheradvisors—suchasattorneysandaccountants—inordertoensureoptimaloutcomes. Manyinthefinancialservicesindustrytodaycallthemselveswealthmanagersbutofferlittlemorethaninvestmentmanagement.Howthenwillyouknowwhetheryouaredealingwithatruewealthmanager? First,theadvisorshouldofferafullrangeoffinancialservices,includingthefourareasofadvancedplanningthatwementionedabove. Aswe’vesaid,thewealthmanagershouldbebackedupbyanetworkofexpertstoprovidetheseservices. Second,thewealthmanagershouldworkwithyouonaconsultativebasis.Thisallowsthewealthmanagertouncoveryourtruefinancialneedsandgoals,tocraftalong-rangewealthmanagementplanthatwillmeetthoseneedsandgoals,andtobuildanongoingrelationshipwithyouthatensuresthatyourneedscontinuetobemetastheychangeovertime. Thisconsultativeprocessusuallyunfoldsoveraseriesofmeetings: ■Atthediscoverymeeting,thewealthmanagerdeterminesyourcurrentfinancialsituation, whereyouwanttogoandtheobstaclesyoufaceinachievingwhatisimportanttoyou. ■Attheinvestmentplanmeeting,thewealthmanager,usingtheinformationheorshegatheredatyourfirstmeeting,presentsaINTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESSYourNextStepsAswediscussedatthebeginningofthisguide,takingacomprehensiveapproachtoachievingallyourfinancialdreamsrequireswealthmanagement.Thismeansmorethanjusttakingcareofyourinvestments.Italsomeansaddressingyouradvancedplanningneeds, [12]

15. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[13] completediagnosticofyourcurrentfinan- cialsituationandaplanforachievingyourinvestment-relatedgoals. ■Atthemutualcommitmentmeeting, assumingthatthewealthmanagercantrulyaddvalue,bothyouandthewealthmanagerdecidetoworktogether.Younowofficiallybecomeaclient. ■Attheinitialfollow-upmeeting,thewealthmanagerhelpsyoutoorganizeyournewaccountpaperworkandanswersanyques- tionsthatmayhavearisen. ■Atregularprogressmeetings,whicharetyp- icallyheldquarterly,thewealthmanagerreportstoyouontheprogressyou’remakingtowardachievingyourgoalsandchecksinwithyouonanyimportantchangesinyourlifethatmightcallforanadjustmenttoyourinvestmentplan.Inaddition,atthefirstreg- ularprogressmeeting,thewealthmanagerpresentstoyouawealthmanagementplan—acomprehensiveblueprintforaddressingyouradvancedplanningneedsthathasbeendevelopedincoordinationwiththewealthmanager’snetworkofexperts.Atsubsequentprogressmeetings, youandthewealthmanagerdecidehowtoproceedonspecificelementsofthewealthmanagementplan.Inthisway,overtime, everyaspectofyourcompletefinancialpic- tureiseffectivelymanaged. Exhibit6showsanoverviewoftheconsulta- tivewealthmanagementprocess. Inaddition,youshouldalwaysexpectout- standingservicefromanyfinancialadvisoryouchoose.Yourphonecallsshouldbereturnedonthesameday,youshouldreceivequickandcom- pleteresponsestoallyourquestions,youshouldbeabletomeetwithyouradvisorasoftenasyouwish,andyouradvisorshouldalwaystakeyouruniqueneedsandpreferencesintoaccount.Inshort,youshouldexpecttobeEXHIBIT6THECONSULTATIVEWEALTHMANAGEMENTPROCESSSource:CEGWorldwide. DiscoverymeetingInvestmentplanmeetingMutualcommitmentmeetingInitialfollow-upmeetingRegularfollow-upmeetingsInvestmentplanWealthmanagementplanWealthmanagementnetworkmeetingWealthmanagementnetwork

16. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[14] treatedlikewhoyouare—averyimportantclient. Ifyouarecurrentlyworkingwithafinancialadvisorandareunsurewhetherheorsheisusingtheconsultativewealthmanagementapproachwe’vediscussedhere,werecommendthatyouhaveanotheradvisorcompleteadiag- nosticofyoursituationsothatyouhaveasec- ondopinion. Youoweittoyourfamilyandyourselftomakesurethatyourinvestmentplan—andoverallwealthmanagementplan—isdesignedtoeffectivelyaddressyourveryspecificfinancialneedsinordertomaximizetheprobabilitythatyouwillachieveallyourfinancialgoals. Wewishyounothingbutsuccessinachievingallthat’simportanttoyou.

17. INTELLIGENTINVESTING:FIVEKEYCONCEPTSFORFINANCIALSUCCESS[15] AbouttheFinancialAdvisorApproximately200-wordbiographyoftheauthorAboutABCAdvisoryFirmApproximately200-worddescriptionofthefirmINTELLIGENTINVESTING:worddescriptionofthefirm
About Tim Russell
Tim Russell literally grew up in the business. His Father, Roy Russell, taught each of his 4 children the importance of money and how to be a wise steward of their resources. In the summer between his junior and senior year of High School, his father presented him with a book (Series 6 exam manual) and told him that he should try to get licensed. Tim took up this challenge and was successful in passing the exam. He was only 17 years old at the time.
Tim Graduated from Clearwater Christian College with a BA in Bible and minors in History and Biblical Languages. He also attended seminary before moving back to the area to assist Roy in shaping The Life Financial Group’s vision and focus.
Married since 2002, Tim and his wife Christine have two very active boys (Joshua and David). Along with spending time with his family, Tim enjoys reading, scuba diving, hiking, and going on mission trips. In addition, he serves as a Sunday School teacher, Youth Leader and Deacon at church. He and his family worship at Grace & Peace Presbyterian Church in Pottstown, PA. Tim is also a Den Leader for his son’s Cub Scout pack.
Today, as a Wealth Manager, Tim uses the experience and education that he has received his whole life to assist his clients in meeting their goals. He currently holds Series 7 and 66 licenses, in addition to his Pennsylvania Life & Health Insurance license.
Contact Tim directly at:
Tim@TheLifeGroup.org
About The Life Financial Group
The Life Financial Group is a group of dedicated believers, providing a wide variety of financial services from a Biblical worldview. Founded in 1978 by Roy Russell, The Life Group exists for the sole purpose of providing professional, Biblically sound financial services, counseling, and education to the Christian community. In addition to our investment and advisory services, we offer three day stewardship seminars as a ministry to churches around the country.
Our goal as a wealth management firm is to help successful Christians make wise decisions with their money so that they can better provide for their families and leave a legacy of significance.

18. The Life Financial Group, Inc.
978 Ben Franklin Hwy E
Douglassville, PA 19518
(610) 385-4500
www.TheLifeGroup.org • contact@TheLifeGroup.org