Guideto Asset Allocation

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A brief presentation on your guide to asset allocation of your finances

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Guideto Asset Allocation

  1. 1. Page CC0000.085.0205 Welcome “ The Markets and Asset Allocation” Presented by: Troy C. Patton, CPA and Fund Manager
  2. 2. Page CC0000.085.0205 February 15, 2005 The markets can be puzzling if we don’t understand the basics. Shares of The Archer Funds are not deposits or obligations of any bank, are not guaranteed by any bank are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested. Take the puzzle out of the markets. The Archer Funds
  3. 3. Page CC0000.085.0205 What drives the Market? 1968 1978 2007 Inflation and What It’s Done to Our Money
  4. 4. Page CC0000.085.0205 Inflation by Decade
  5. 5. Page CC0000.085.0205 What does Inflation mean for the Markets? Source: Standard and Poor’s
  6. 6. Page CC0000.085.0205 February 15, 2005 The Art of Balancing Risk and Reward To Meet Objectives Shares of The Archer Funds are not deposits or obligations of any bank, are not guaranteed by any bank are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested. A Guide to Asset Allocation The Archer Balanced Fund
  7. 7. Page CC0000.085.0205 Putting the Puzzle together <ul><li>Reasons to use asset allocation </li></ul><ul><li>How it works and why </li></ul>Asset allocation = Combining different asset classes to help reduce risk but without necessarily reducing your potential for reward
  8. 8. Page CC0000.085.0205 The Risks Are Real, Let’s Understand them (Total Returns) Source of chart data: Standard & Poor’s Micropal Inc. Stocks are represented by the S&P 500 Index, a widely used measure of U.S. stock market performance. Bonds are represented by the Lehman 30-Year Treasury Bellwether Index. Indices include reinvestment of income, but not transaction costs or taxes, are unmanaged and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. Stocks and bonds are subject to different risks. Stocks are different from fixed income securities in that bonds, if held to maturity, may offer both a fixed rate of return and fixed principal value. Fixed income investing entails credit risk and interest rate risk. When interest rates rise, bond prices generally fall.
  9. 9. Page CC0000.085.0205 Volatility Can Be Costly Source of chart data: Ned Davis Research, Inc. Performance represented by hypothetical data. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or index. $110 $110 $121 $121 $133 $133 $120 $146 Volatile Steady 10% $161 $161
  10. 10. Page CC0000.085.0205 Asset Allocation Determines Variance in Returns Source of chart data: Based on the study by Gary P. Brinson, Randolph L. Hood, and Gilbert L. Beebower, “Determinants of Portfolio Performance,” Financial Analysts Journal, January/February 1995. The study analyzed data from 91 large corporate pension plans with assets of at least $100 million. Source: Terrance Odean, “Do Investors Trade Too Much?,” July 1997. Timing the Market and Other 4% Asset Allocation 93% Security Selection 3%
  11. 11. Page CC0000.085.0205 If You Start With $100,000... Conclusion: Limiting volatility may increase returns Source of chart data: Ned Davis Research. Portfolio performance based on hypothetical data. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or index. Asset Allocation and diversification does not protect against losses in declining markets.
  12. 12. Page CC0000.085.0205 Why Asset Allocation? <ul><li>Manage portfolio volatility. </li></ul><ul><li>Increase potential returns. </li></ul><ul><li>Mitigate common decision-making errors. </li></ul>
  13. 13. Page CC0000.085.0205 Investments Did Well, Investors Not So Well (Average Annual Returns 1984-2003) Sources of chart data: Dalbar, Inc., Quantitative Analysis of Investor Behavior, July 2004 update. Hypothetical Equity Fund Market Timer
  14. 14. Page CC0000.085.0205 How We Make Investment Decisions <ul><li>The disposition effect refers to people’s </li></ul><ul><li>tendency to: </li></ul><ul><ul><li>Hang on to losers </li></ul></ul><ul><ul><li>Sell the winners </li></ul></ul><ul><li>Allows us to enjoy the feeling of winning and defer the pain of loss </li></ul>
  15. 15. Page CC0000.085.0205 Which Would You Choose? <ul><li>80% chance to win $5000, and 20% chance to lose $1000 </li></ul><ul><li>or </li></ul><ul><li>10% chance to win $5000, and 90% chance to lose nothing </li></ul><ul><li>This is known as “narrow framing”, the tendency to make decisions using relatively narrow frames of reference. </li></ul>
  16. 16. Page CC0000.085.0205 How We Make Investment Decisions <ul><li>To avoid losses, we may engage in: </li></ul><ul><ul><li>Narrow framing </li></ul></ul><ul><ul><li>Disposition effect </li></ul></ul><ul><li>Other behaviors that may undermine </li></ul><ul><li>investment success: </li></ul><ul><ul><li>Mental accounting </li></ul></ul><ul><ul><li>Herding </li></ul></ul>
  17. 17. Page CC0000.085.0205 Asset Allocation: The Anti-Timing Tool <ul><li>Seeks to limit short-term portfolio losses </li></ul><ul><li>Bases sales decision on need to stay on target </li></ul><ul><li>Focuses on “big picture,” the goal of achieving overall wealth </li></ul><ul><li>Uses sophisticated quantitative diversification techniques </li></ul>
  18. 18. Page CC0000.085.0205 Every Asset Class Is Positive Over Time… Average Annual Total Return, 1928-2004 Source of chart data: Ned Davis Research, as of 12/31/04. Stocks are represented by the S&P 500 Index, a widely used measure of U.S. stock market performance, bonds by the Ibbotson Long-Term Government Bond Index and cash by the 91-day Treasury Bill Index. Indices include reinvestment of income, but not transaction costs or taxes, are unmanaged and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. Stocks and bonds are subject to different risks. Stocks are different from fixed income securities in that bonds, if held to maturity, may offer both a fixed rate of return and fixed principal value. Fixed income investing entails credit risk and interest rate risk. When interest rates rise, bond prices generally fall.
  19. 19. Page CC0000.085.0205 Source of chart data: Ned Davis Research, as of 12/31/04. Stocks are represented by the S&P 500 Index, a widely used measure of U.S. stock market performance. Bonds are represented by the Ibbotson Long-Term Government Bond Index. Indices include reinvestment of income, but not transaction costs or taxes, are unmanaged and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. Stocks and bonds are subject to different risks. Stocks are different from fixed income securities in that bonds, if held to maturity, may offer both a fixed rate of return and fixed principal value. Fixed income investing entails credit risk and interest rate risk. When interest rates rise, bond prices generally fall. … But Has Volatility… 396 days 104 days Average duration -13.5% 11 5.4% Bonds Average decline No. of 10%+ downturns Average annual total return 1928 - 2004 -19.4% 87 10.1% Stocks
  20. 20. Page CC0000.085.0205 Source of chart data: Standard & Poor’s Micropal Inc., as of 12/31/04. Stocks are represented by the S&P 500 Index, a widely used measure of U.S. stock market performance. Bonds are represented by the Lehman Aggregate Bond Index. Indices include reinvestment of income, but not transaction costs or taxes, are unmanaged and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. Stocks and bonds are subject to different risks. Stocks are different from fixed income securities in that bonds, if held to maturity, may offer both a fixed rate of return and fixed principal value. Fixed income investing entails credit risk and interest rate risk. When interest rates rise, bond prices generally fall. And Its Own Timing 10.3% 2002 8.4% 2001 11.6% 2000 9.0% 1990 21.0% 1999 6.3% 1981 1.3% Stocks had positive results 1994 When bonds fell 3.0% Bonds had positive results 1997 When stocks fell
  21. 21. Page CC0000.085.0205 Source of chart data: Standard & Poor’s Micropal Inc. For 10 years ended 12/31/04. Stocks are represented by the S&P 500 Index, a widely used measure of U.S. stock market performance, bonds by the Lehman 10-Year Treasury Bellwether Index and cash by a 91-day Treasury Bill Index. Treasury indices are total return indices held at constant maturities. Indices include reinvestment of income, but not transaction costs or taxes, are unmanaged and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. Stocks and bonds are subject to different risks. Stocks are different from fixed income securities in that (i) Government bonds and Treasury notes and bills are backed by the full faith and credit of the U.S. Government and (ii) bonds, if held to maturity, may offer both a fixed rate of return and fixed principal value. Fixed income investing entails credit risk and interest rate risk. When interest rates rise, bond prices generally fall. Fact: Asset Classes Move Independently Major Asset Class Correlations (1995-2004) 1.00 Cash 0.24 1.00 Bonds 0.30 Cash -0.03 Bonds 1.00 Stocks Stocks
  22. 22. Page CC0000.085.0205 Combine Asset Classes for Smoother Results Source of chart data: Standard & Poor’s Micropal Inc., as of 12/31/04. Stocks are represented by the S&P 500 Index, a widely used measure of U.S. stock market performance. Bonds are represented by the Lehman Aggregate Bond Index. Indices include reinvestment of income, but not transaction costs or taxes, are unmanaged and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. Stocks and bonds are subject to different risks. Stocks are different from fixed income securities in that bonds, if held to maturity, may offer both a fixed rate of return and fixed principal value. Fixed income investing entails credit risk and interest rate risk. When interest rates rise, bond prices generally fall.
  23. 23. Page CC0000.085.0205 Different Times, Different Styles Growth vs. Value (Annual Returns 1995–2006) Source of chart data: Standard and Poor’s Micropal Inc., 12/31/04. Growth performance is represented by the S&P BARRA Growth Index. Value performance is represented by the S&P BARRA Value Index. There are special risks in both styles: with growth investments, there is the possibility of increased volatility; with value investing, there is the possibility that the market may not recognize a stock as undervalued and might not appreciate as expected. The indices are unmanaged, includes reinvested income and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. 50% 0 – 30 – 20 – 10 10 20 30 40
  24. 24. Page CC0000.085.0205 Different Times, Different Market Segments Small Cap vs. Mid Cap vs. Large Cap (Annual Returns 1995–2006) Source of chart data: Standard and Poor’s Micropal Inc., 12/31/04. Large-cap stocks are represented by the S&P 500 Index, a broad-based index of domestic stocks; mid-cap stocks are represented by the S&P MidCap 400 Index; small-cap stocks are represented by the Russell 2000 Index. Small-cap stocks may be subject to greater volatility than mid-cap or large-cap stocks. The indices are unmanaged, include reinvested income and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. 50% 0 – 30 – 20 – 10 10 20 30 40
  25. 25. Page CC0000.085.0205 Adding Asset Classes May Enhance Your Returns Source of chart data: Standard & Poor’s Micropal Inc. Large-cap stocks are represented by the S&P 500 Index; mid-cap stocks by the S&P MidCap 400 Index; small-cap stocks by the Russell 2000 Index; foreign stocks by the MSCI EAFE Index; short-, intermediate- and long-term bonds by the Lehman 1-3 year Government, 5-year Treasury and 10-year Treasury Indices, respectively; cash by the 91-day Treasury Bill Index. Treasury indices are total return indices held at constant maturities. Indices include reinvestment of income, but not transaction costs or taxes, are unmanaged and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. Stocks and bonds are subject to different risks. Stocks are different from fixed income securities in that (i) Government bonds and Treasury notes and bills are backed by the full faith and credit of the U.S. Government and (ii) bonds, If held to maturity, may offer both a fixed rate of return and fixed principal value. Fixed income investing entails credit risk and Interest rate risk. When interest rates rise, bond prices generally fall. Cash Long-term Bonds Short-term Bonds Intermediate Bonds Large-cap Stocks Mid-cap Stocks Foreign Stocks Small-cap Stocks 2003 Foreign Stocks Large-cap Stocks Small-cap Stocks Cash Short-term Bonds Intermediate Bonds Long-term Bonds Mid-cap Stocks 2000 Foreign Stocks Large-cap Stocks Mid-cap Stocks Small-cap Stocks Cash Long-term Bonds Intermediate Bonds Short-term Bonds 2001 Large-cap Stocks Small-cap Stocks Foreign Stocks Mid-cap Stocks Cash Short-term Bonds Intermediate Bonds Long-term Bonds 2002 Short-term Bonds Best Performing Worst Performing Cash Intermediate Bonds Long-term Bonds Large-cap Stocks Mid-cap Stocks Small-cap Stocks Foreign Stocks 2004
  26. 26. Page CC0000.085.0205 Asset Allocation: Picking Your Mix Which is the correct asset allocation? Stocks 60% Bonds 30% Cash 10% Stocks 20% Bonds 60% Cash 20%
  27. 27. Page CC0000.085.0205 Is there Risk in All Portfolios? <ul><li>Two Portfolios with the same Stock/Bond Allocation could have completely different risks. </li></ul><ul><li>One may have higher growth stocks while the other focuses on Value or a certain sector. </li></ul><ul><li>Bond classes have different risk levels as well. </li></ul>
  28. 28. Page CC0000.085.0205 Combinations for Different Risk/Reward Profiles The Efficient Frontier, Stocks and Bonds (1980-2004) Source of chart data: Standard & Poor’s Micropal Inc., for 25 years ended 12/31/04. Stocks are represented by the S&P 500 Index, a widely used measure of U.S. stock market performance. Bonds are represented by the Lehman Aggregate Bond Index. Indices include reinvestment of income, but not transaction costs or taxes, are unmanaged and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. Stocks and bonds are subject to different risks. Stocks are different from fixed income securities in that bonds, If held to maturity, may offer both a fixed rate of return and fixed principal value. Fixed income investing entails credit risk and Interest rate risk. When interest rates rise, bond prices generally fall. 100% Stocks 50% Stocks 50% Bonds 100% Bonds
  29. 29. Page CC0000.085.0205 Asset Allocation Mix Choices: Source of chart data: Standard & Poor’s Micropal Inc. Stocks are represented by the S&P 500 Index, a widely used measure of U.S. stock market performance. Bonds are represented by the Lehman Aggregate Bond Index. Indices include reinvestment of income, but not transaction costs or taxes, are unmanaged and cannot be purchased directly by investors. This chart is for illustrative purposes only and does not predict or depict the performance of any investment or fund. Past performance does not guarantee future results. Stocks and bonds are subject to different risks. Stocks are different from fixed income securities in that bonds, If held to maturity, may offer both a fixed rate of return and fixed principal value. Fixed income investing entails credit risk and Interest rate risk. When interest rates rise, bond prices generally fall. Notes/Bonds Return 7% 7.0 7.0 7.0 7.0 7.0 100 0 4.3 5.3 6.3 7.3 8.3 90 10 1.6 3.6 5.6 7.6 9.6 80 20 – 1.1 1.9 4.9 7.9 10.9 70 30 – 3.8 0.2 4.2 8.2 12.2 60 40 – 6.5 – 1.5 3.5 8.5 13.5 50 50 – 9.2 – 3.2 2.8 8.8 14.8 40 60 – 11.9 – 4.9 2.1 9.1 16.1 30 70 – 14.6 – 6.6 1.4 9.4 17.4 20 80 – 17.3 – 8.3 0.7 9.7 18.7 10 90 If the total return on stocks is: PORTFOLIO MIX (%) – 20% – 10% 0% 10% 20% – 20.0% – 10.0% 0.0% 10.0% 0% Bonds 20.0% The weighted average return on the portfolio is: 100% Stocks
  30. 30. Page CC0000.085.0205 Keep your Investments in Shape Your portfolio can become overly risky with time Rebalancing may help shed some risk Keep your Investments in Shape CC0000.024.0304 March 15, 2004 <ul><li>Jan. 1970 to Dec. 2004 </li></ul><ul><li>Jan. 1980 to Dec. 2004 </li></ul><ul><li>Jan. 1990 to Dec. 2004 </li></ul>12.8% 10.4% 10.1% 12.7% 9.4% 11.1% 11.0% 11.3% 11.7% 12.1% 8.8% 9.4% Your portfolio can become overly risky with time Rebalancing may help shed some risk Risk Return Rebalanced portfolio   Not rebalanced portfolio  
  31. 31. Page CC0000.085.0205 Know who is Managing Your Money… <ul><li>You should ask: </li></ul><ul><ul><li>Does the manager have his/her own money invested in the fund? </li></ul></ul><ul><ul><li>Does the manager have at least five years experience? </li></ul></ul><ul><ul><li>Do those years include a bear market? </li></ul></ul><ul><ul><li>I can answer, “yes” to each question! </li></ul></ul><ul><ul><li>95% of my long-term assets are invested right with yours! </li></ul></ul>
  32. 32. Page CC0000.085.0205 Implement Your Plan <ul><li>You will need access to: </li></ul><ul><ul><li>Someone who understands your plan and is going to give you first class advice. You do not have to pay commissions to get this! </li></ul></ul><ul><ul><li>A First-class money manager. </li></ul></ul><ul><ul><li>Investments that are true to their designated roles </li></ul></ul>
  33. 33. Page CC0000.085.0205 Maintain Your Plan’s Integrity <ul><li>Set up your plan and live by it, just like brushing your teeth every morning. If you don’t brush, you know the outcome! </li></ul><ul><li>Maintain tactical rebalancing or invest in a vehicle that does it for you. </li></ul><ul><li>Update/revise to reflect changing goals and personal circumstances as needed. </li></ul><ul><ul><li>College </li></ul></ul><ul><ul><li>Second Home </li></ul></ul>
  34. 34. Page CC0000.085.0205 Implementing a Successful Plan with The Archer Funds. <ul><li>Experienced, professional investment manager </li></ul><ul><li>Historically competitive total returns </li></ul><ul><li>Reduced Risk (beta) </li></ul>
  35. 35. Page CC0000.085.0205 By working with The Archer Funds, I will assist you to: Develop your plan Define your goals Manage your money Monitor your progress
  36. 36. Page CC0000.085.0205 Asset Allocation: One Way to a Successful Investment Plan <ul><li>Maintain a long-term horizon </li></ul><ul><li>Understand your tolerance for risk </li></ul><ul><li>Save on a regular basis </li></ul><ul><li>Plan well and review your decisions </li></ul>
  37. 37. Are you managing your asset allocation? The Archer Balanced Fund, a no-load fund, will at all times maintain an asset allocation model by investing in stocks and bonds at various percentages. Within the stock and bond portfolio, the Fund will be further allocated among asset classes such as pharmaceuticals, financials, utilities, short- and long-term notes and bonds. These allocations will be managed with the goal of enhancing the Fund’s total return while keeping the risk, or volatility of the Fund, below that of the broader market.
  38. 38. Page CC0000.085.0205 Thank You Past performance does not guarantee future results. Due to ongoing market volatility, current performance may be more or less than the results shown in this presentation. For performance data of The Archer Funds current to the most recent month end, visit us at www.archerbalancedfund.com or call us at 1.800.671.5872. The performance information shown in this presentation does not show the effects of income taxes on an individual’s investment. Taxes may reduce your actual investment returns or any gains you may realize if you sell your investment. An investor’s shares, when redeemed, may be worth more or less than the original cost. Shares of The Archer Funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested. You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund’s prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund’s prospectus by calling 1-800-238-7701 or by visiting www.thearcherfunds.com . Past performance is no guarantee of future results. Your fund shares, when redeemed, may be worth more or less than their original cost. Distributed by Unified Financial Services, Inc. Member NASD 431 North Pennsylvania Street P.O. Box 6110 Indianapolis, IN 46204 Indianapolis, IN 46206-6110 (800) 238-7701
  39. 39. Page CC0000.085.0205 February 15, 2005 Q & A A Guide to Asset Allocation The Archer Funds

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