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Richard Vetter, BA, CFP, CLU, ChFC                                    Certified Financial Planner                         ...
KEY INVESTMENT PRINCIPLESUNDERSTAND MARKETS                   KNOW YOURSELF1. Let markets work for you.         7. Don’t c...
1        LET MARKETS WORK FOR YOU           MONTHLY GROWTH OF WEALTH ($1)           1926−2010     $100,000                ...
2      TAKE RISKS WORTH TAKING           SIZE AND VALUE EFFECTS AROUND THE WORLD                                          ...
No Point to Stock PickingInvestment Managers versus Chimpanzees
3       INVEST, DON’T SPECULATE          PERCENT OF WINNING ACTIVE MANAGERS          July 2005–June 2010                  ...
4        HOLD MULTIPLE ASSET CLASSES         RANDOMNESS OF ANNUAL RETURNS                                         1996    ...
5        PRACTICE SMART DIVERSIFICATION           S&P/TSX INDEX vs. A GLOBAL PORTFOLIO                                    ...
Composite Asset AllocationsCanadian Pension Plans1998–2009                                                                ...
6        KEEP COSTS LOW           NET GROWTH OF $1 MILLION                                                     Assumes 6.5...
7   DON’T CONFUSE    ENTERTAINMENT WITH ADVICE    • The television, print,      and online financial      media are in the...
8   MANAGE YOUR EMOTIONS    COMMON COGNITIVE ERRORS AND BIASES           • OVERCONFIDENCE       • FAMILIARITY           • ...
9   AVOID INVESTMENT MISTAKES    COMMON INVESTMENT PITFALLS     • NO INVESTMENT PLAN         • MARKET TIMING     • LACK OF...
10     KEEP A LONG-TERM PERSPECTIVE—       AND STAY THE COURSE!                              9.14%                        ...
Disclaimers Manulife Securities and the block design are registered service marks and trade marks of The Manufacturers Lif...
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Rethink The Way You Invest Wealth Smart Version

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Rethink The Way You Invest Wealth Smart Version

  1. 1. Richard Vetter, BA, CFP, CLU, ChFC Certified Financial Planner Senior Financial Advisor WealthSmart Financial Group Manulife Securities Incorporated 3251 Chatham Street, Richmond, BC V7E 6B8CRITICAL FACTORS IN THE PURSUIT Tel: 604-241-4357OF A BETTER INVESTMENT EXPERIENCE Email: richard.vetter@manulifesecurities.caPREPARED FOR:DATE:
  2. 2. KEY INVESTMENT PRINCIPLESUNDERSTAND MARKETS KNOW YOURSELF1. Let markets work for you. 7. Don’t confuse entertainment with advice.2. Take risks worth taking. 8. Manage your emotions and biases.3. Invest, don’t speculate.HARNESS THEIR POWER WORK YOUR PLAN4. Hold multiple asset classes. 9. Avoid common investment mistakes.5. Practice smart diversification. 10. Plan for the long term—and stay the course!6. Keep costs low.
  3. 3. 1 LET MARKETS WORK FOR YOU MONTHLY GROWTH OF WEALTH ($1) 1926−2010 $100,000 $56,891 US Small Cap Value Stocks US Small Cap Stocks $13,666 $10,000 US Large Cap Value Stocks $4,599 S&P 500 Index $3,013 $1,000 US Five-Year Treasury Bonds US Treasury Bills US Inflation (CPI) $100 $81 $20 $12 $10 $1 $0 1926 1936 1946 1956 1966 1976 1986 1996 2006In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is nota guarantee of future results. US small, small value, and large value index data (ex utilities) provided by Fama/French. The S&P data are provided by Standard & Poor’s Index ServicesGroup. CRSP data provided by the Center for Research in Security Prices, University of Chicago. 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).
  4. 4. 2 TAKE RISKS WORTH TAKING SIZE AND VALUE EFFECTS AROUND THE WORLD 18.17 15.79 15.72 15.07 13.82 13.68 12.48 11.69 11.38 11.46 11.43 10.45 9.85 8.97 9.03 9.05 8.23AnnualizedCompound Returns (%) US US US US Emg. Emg. Emg. Emg. Large S&P Large Small CRSP Small Intl. Intl. MSCI Intl. Canada Canada Canada Markets Markets Markets Markets Value 500 Growth Value 6-10 Growth Value Small EAFE Growth Value Market Growth Value Small “Market” Growth US Large US Small Non-US Developed Markets Canadian Emerging Capitalization Stocks Capitalization Stocks Stocks Market Stocks1 Markets Stocks 1927–2010 1927–2010 1975–2010 1977–2010 1989–2010 14.03 11.88 11.35 19.17 15.98 13.95 18.48 19.17 13.67 11.29 14.53 12.86 10.40 25.01 21.98 19.46 17.05Average Return (%) 27.01 20.51 21.93 35.13 30.94 34.05 24.56 28.13 22.29 22.21 21.64 17.47 21.79 42.01 40.67 36.40 34.89Standard Deviation (%) 1. In CAD. All returns in USD except Canadian Market Stocks. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. US value and growth index data (ex utilities) provided by Fama/French. The S&P data are provided by Standard & Poor’s Index Services Group. CRSP data provided by the Center for Research in Security Prices, University of Chicago. International Value data provided by Fama/French from Bloomberg and MSCI securities data. International Small data compiled by Dimensional from Bloomberg, StyleResearch, London Business School, and Nomura Securities data. MSCI EAFE Index is net of foreign withholding taxes on dividends; copyright MSCI 2011, all rights reserved. Emerging Markets index data simulated by Fama/French from countries in the IFC Investable Universe; simulations are free-float weighted both within each country and across all countries.
  5. 5. No Point to Stock PickingInvestment Managers versus Chimpanzees
  6. 6. 3 INVEST, DON’T SPECULATE PERCENT OF WINNING ACTIVE MANAGERS July 2005–June 2010 1% 9% 12% Canadian Equity US Equity International Equity Over time, only a very small fraction of money managers outperform the market after fees, and it is difficult to identify them in advance.Source: Standard & Poor’s Indices Versus Active (SPIVA) Funds Scorecard Canada, Second Quarter 2010.
  7. 7. 4 HOLD MULTIPLE ASSET CLASSES RANDOMNESS OF ANNUAL RETURNS 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Highest Return 37.72 40.72 37.81 31.70 36.18 25.07 2.58 34.77 23.47 24.11 35.72 9.82 2.56 63.86 35.35 34.71 39.18 28.62 24.88 28.45 20.37 2.39 31.32 22.49 22.47 30.13 4.27 -21.94 42.73 23.33 28.35 32.22 26.15 24.17 12.24 19.35 -3.79 30.15 17.49 19.56 26.10 1.96 -22.85 35.05 21.50 23.56 24.87 21.65 22.53 7.41 4.36 -5.03 28.96 15.28 10.97 26.08 1.41 -24.88 27.47 17.61 22.18 17.17 18.16 19.52 5.17 4.12 -12.45 26.74 14.47 10.95 22.11 -5.25 -25.55 25.12 14.59 21.30 14.99 4.78 16.86 0.78 1.63 -16.02 19.07 11.49 10.69 21.66 -7.92 -30.67 15.97 13.29 18.98 11.92 4.60 13.94 0.65 -6.40 -16.72 13.57 10.97 9.79 17.25 -9.70 -31.53 13.85 10.26 9.39 6.22 -0.03 4.59 -5.54 -11.56 -16.75 11.60 8.42 4.16 16.58 -10.09 -33.00 10.98 9.16 6.56 5.89 -1.59 2.35 -7.68 -12.57 -17.33 7.46 7.80 3.05 15.76 -15.63 -33.27 9.26 2.22 4.61 2.85 -5.66 0.39 -8.82 -13.45 -20.43 5.46 2.80 2.57 15.58 -17.11 -35.17 3.45 0.43 Lowest Return 3.30 -10.82 -11.05 -8.30 -10.80 -16.55 -22.85 2.86 2.25 2.29 3.93 -29.73 -47.33 0.36 -2.05 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Canadian Fixed Income 4.61 2.85 4.60 4.59 5.17 4.36 2.39 2.86 2.25 2.57 3.93 4.27 2.56 0.36 0.43Canadian Large Cap 28.35 14.99 -1.59 31.70 7.41 -12.57 -12.45 26.74 14.47 24.11 17.25 9.82 -33.00 35.05 17.61Canadian Value 34.71 11.92 -5.66 2.35 28.45 4.12 -17.33 28.96 17.49 22.47 15.76 1.96 -33.27 42.73 13.29Canadian Small Cap 21.30 17.17 -0.03 24.17 0.78 20.37 -5.03 34.77 7.80 9.79 21.66 1.41 -47.33 63.86 35.35US Large Cap 23.56 39.18 37.81 13.94 -5.54 -6.40 -22.85 5.46 2.80 2.29 15.58 -10.09 -22.85 9.26 9.16US Value 22.18 40.72 21.65 0.39 12.24 1.63 -16.02 7.46 8.42 4.16 22.11 -15.63 -21.94 3.45 10.26US Small Cap 18.98 32.22 4.78 24.88 -7.68 25.07 -20.43 30.15 10.97 3.05 16.58 -17.11 -24.88 27.47 23.33US Real Estate 37.72 24.87 -11.05 -8.30 36.18 19.35 2.58 11.60 23.47 10.97 35.72 -29.73 -25.55 10.98 21.50International Large Cap 6.56 6.22 28.62 19.52 -10.80 -16.55 -16.75 13.57 11.49 10.69 26.10 -5.25 -30.67 13.85 2.22International Value 9.39 5.89 26.15 16.86 0.65 -13.45 -16.72 19.07 15.28 10.95 30.13 -9.70 -31.53 15.97 -2.05International Small Cap 3.30 -10.82 18.16 22.53 -8.82 -11.56 -3.79 31.32 22.49 19.56 26.08 -7.92 -35.17 25.12 14.59In Canadian dollars. Charts are for illustrative purposes only.Canadian Fixed Income is Canadian One-Month Treasury Bills. Canadian Large Cap is the S&P/TSX Composite Index. Canadian Value is the MSCI Canada Value Index (net dividends), andCanadian Small Cap is the MSCI Canada Small Cap Index (price-only). US Large Cap is the S&P 500 Index. US Value is Russell 3000 Value Index. US Small Cap is CRSP 6-10 Index. US RealEstate is the Dow Jones US Select REIT Index. International Large Cap is the MSCI EAFE Index (net dividends), and International Value is the MSCI EAFE Value Index (net dividends).International Small Cap is compiled by Dimensional from StyleResearch securities data; includes securities of MSCI EAFE countries in the 10%-1% of ME range; market-capitalization weighted;each country capped at 50%; value defined as the top 30% of book-to-market; rebalanced semiannually. Canadian T-bills provided by PC-Bond a business unit of TSX Inc.; copyright © TSX Inc.,all rights reserved. MSCI data copyright MSCI 2011, all rights reserved. The S&P data provided by Standard & Poor’s Index Services Group. Indices are not available for direct investment. Indexperformance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.
  8. 8. 5 PRACTICE SMART DIVERSIFICATION S&P/TSX INDEX vs. A GLOBAL PORTFOLIO Canadian Model Equity Index 100% 1991−2010 1 Portfolio S&P/TSX Canadian Large Cap Index Composite It’s not enough to Annualized Return (%) 9.80 Annualized diversify by security. Standard Deviation (%) 16.91 Deeper diversification involves geographic and asset class 10% Each Global Model diversity. Holding Diversified Canadian Large Cap Index Canadian Large Cap Value Index a global portfolio Equity Index 1991−2010 1 Portfolio Globally Canadian Small Cap Index helps reduce risk International Small Cap Index and increase Annualized Return (%) 9.74 Diversified US Large Cap Index US Value Index expected returns. Annualized Standard Deviation (%) 13.87 Portfolio US Small Cap Index US Real Estate Index International Value Index International Large Cap IndexFor illustrative purposes only. In Canadian dollars.Canadian Large Cap is the S&P/TSX Composite Index. Canadian Value is the MSCI Canada IMI Value Index (gross dividends) for June 1998-present, and Barra Canada Value Index for January 1982-May 1998. CanadianSmall Cap is the MSCI Canada Small Index (gross dividends) for January 1999-present, and Barra Canadian Small Cap Index for July 1990-December 1998. US Large Cap is the S&P 500 Index. International Value is theMSCI EAFE Value Index (net dividends), and International Large Cap is the MSCI EAFE Index (net dividends). International Small is: 1970-June 1981, 50% UK small cap stocks provided by the London Business Schooland 50% Japan small cap stocks provided by Nomura Securities; July 1981-present, compiled by Dimensional from StyleResearch securities data; includes securities of MSCI EAFE Index countries, market-capitalizationweighted, each country capped at 50%. US Value is the Russell 3000 Value Index. US Small Cap is the CRSP 6-10 Index. US Real Estate is the Dow Jones US Select REIT Index. S&P/TSX data provided by S&P/TSX.Barra data provided by MSCI Barra. S&P data provided by Standard & Poor’s Index Services Group. MSCI data copyright MSCI 2011, all rights reserved. Russell data copyright © Russell Investment Group 1995-2011, allrights reserved. CRSP data provided by the Center for Research in Security Prices, University of Chicago. Dow Jones US Select data provided by Dow Jones Indexes. Standard deviation is a statistical measure of risk.Generally speaking, the higher the standard deviation, the greater the risk.1. Date range selected is the longest common time series of whole years of data available. Rebalanced quarterly.Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to beconstrued as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance.
  9. 9. Composite Asset AllocationsCanadian Pension Plans1998–2009 Other: 23% Equities: 44% Fixed Income: 33% Hurricane Subprime Katrina Mortgage Crisis Asian Flu Y2K Technology SARS Outbreak Meltdown Russian Debt Crisis 9/11 Terrorist Attacks US Invades Iraq Southeast Asian Tsunami CAD at USD 0.63 CAD at USD 1.10 Source: Pension Investment Association of Canada, ―Composite Asset Mix Reports,‖ in http://www.piacweb.org/publications, accessed March 15, 2011. S1390.3
  10. 10. 6 KEEP COSTS LOW NET GROWTH OF $1 MILLION Assumes 6.5% Annualized Return over 30 Years 1% Fee $4,983,951 $5,000,000 Over long time periods, high costs can drag down wealth accumulation in a portfolio. $4,000,000 2% Fee $3,745,318 Costs to consider include: • Management fees 3% Fee $3,000,000 $2,806,794 • Fund expenses • Taxes $2,000,000 $1,000,000 1 3 5 10 20 30 TIME (years)In US dollars. For illustrative purposes only.
  11. 11. 7 DON’T CONFUSE ENTERTAINMENT WITH ADVICE • The television, print, and online financial media are in the business of entertainment. • The emphasis is often on short-term, sensational, and emotionally charged headlines. • These messages can compromise long-term focus and discipline, and lead to poor investment decisions.
  12. 12. 8 MANAGE YOUR EMOTIONS COMMON COGNITIVE ERRORS AND BIASES • OVERCONFIDENCE • FAMILIARITY • SELF ATTRIBUTION • MENTAL ACCOUNTING • HINDSIGHT • REGRET AVOIDANCE • EXTRAPOLATION • CONFIRMATION
  13. 13. 9 AVOID INVESTMENT MISTAKES COMMON INVESTMENT PITFALLS • NO INVESTMENT PLAN • MARKET TIMING • LACK OF MANAGER SCRUTINY • WRONG TIME HORIZON • CHASING PERFORMANCE • FORECASTING • OVERCONCENTRATION • EXCESSIVE RISK TAKING
  14. 14. 10 KEEP A LONG-TERM PERSPECTIVE— AND STAY THE COURSE! 9.14% 3.83% S&P 500 ―Average‖ Equity 20-Year Annualized Return Fund Investor (time weighted) 20-Year Annualized Return (dollar weighted) Comparing time-weighted index returns to dollar-weighted fund returns suggests that the ―average‖ equity fund investor buys high and sells low while owning a given fund for less than five years. Source: DALBAR Quantitative Analysis of Investor Behavior (QAIB), 2011.
  15. 15. Disclaimers Manulife Securities and the block design are registered service marks and trade marks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Securities Incorporated. Manulife Securities Incorporated is a Member of the Canadian Investor Protection Fund The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Incorporated.

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