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Financial Coach Michael Traynor, cfa® September 2016
Financial Coach Michael Traynor, cfa® September 2016
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 2
Contents
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“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 3
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 4
Exhibit 1
Capital Markets Over The Long Term
Source: Ibbotson® SBBI® “Stocks, Bonds, Bills and Inflation 1926-2014” – Morningstar (2015)
1 Invest ing involves r isk inc luding loss of pr inc ipal . No st rategy assures success or protec t s against loss.
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 5
Exhibit 2
S&P 500 Historical Drawdowns: 1927-2016
Source: “180 Years of Market Drawdowns” – Ben Carlson, A Wealth of Common Sense (2016)
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 6
Exhibit 3
Determinants of Investment Performance
Source: “Determinants of Portfolio Performance” – Brinson, Hood, and Beebower (1986)
2 Asse t A l locat ion does not ensure a prof i t or protect against a loss.
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 7
Exhibit 4
The Efficient Market Frontier
Source: Ibbotson Associates, Inc. – Morningstar
3 Past performance is no guarantee of future resul t s. R isk and return are measured by s tandard dev iat ion and ar i thmet ic mean,
respect ive ly . This is for i l lust rat ive purposes only and is not indicat i ve of any investment. S tandard dev iat ion is a h is tor ica l measure of
the var iabi l i t y of re turns re lat ive to the average annual return. I f a port fol io has a h igh s tandard dev iat ion, i t s re turns h ave been
volat i le. A low standard dev iat ion indicates returns h ave been less volat i le .
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 8
4 33% of revenues for S&P 500 companies were der ived outs ide of the U.S . in 2014, according to Goldman Sachs Global Investment
Research. 5 There is no guarantee that a d iversi f ied port fol io wi l l enhance overa l l re turns or outperfor m a non-divers if ied port fol io. Divers i f i cat ion
does not protec t against market r isk . In ternat ional invest ing involves spec ia l r isks such as currency f luctuat ion and pol i t i c a l instabi l i ty
and may not be sui table for a l l investors . These r isks are of ten he ig htened for investments in emerg ing markets.
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 9
Exhibit 5
Top 25 Global Companies
Source: Fortune 500 Global list of the world’s largest companies measured by revenue (2015)
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 10
Exhibit 6
Asset Class Returns6
Source: “Asset Class Returns” – Novel Investor (2016)
Asset Class Indexi
Large Cap Stocks – S&P 500 Index
Small Cap Stocks – Russell 2000 Index
International Stocks – MSCI EAFE Index
Emerging Market Stocks – MSCI Emerging Markets Index
REITS – FTSE NAREIT All Equity Index
High Grade Bonds – Barclays US Aggregate Bond Index
High Yield Bonds – BofAML US High Yield Master II Index
Cash – 3 Month Treasury Bill Rate
AA – Asset Allocation Portfolio7
6 Re turns represent tota l annual returns wi th a l l d is t r ibut ions be ing re invested and does not inc lude fees and expenses. Data a s of
12/31/2015. 7 Asse t A l locat ion Port fol io is made up of 15% Large Cap Stocks, 15 % Internat ional S tocks, 10% Smal l Cap Stocks, 10% Emerg ing Market
S tocks, 10% REITs, 40% High Grade Bonds, and annual rebalanc ing .
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 11
Exhibit 7
Markets Have Rewarded Discipline
Source: MSCI World Index, 1970-2013
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 12
Exhibit 8
Risk of Stock Market Loss Over Time8
Source: Betterment
8 Th is chart i s for i l lust rat ive purposes only and not indicat ive of any investment . An investment cannot be made d irect ly in to an index.
Index re turns do not ref lect taxes, t ransact ion cost s , investment adv isory and other fees and expenses that would reduce perf ormance in
an ac tual port fol io. Past performance is no guarantee of future result s . S tocks in th is example are represe nted by the Standard & Poor ’ s
500, which is an unmanaged group of secur i t ies and is considered to be representat ive of the stock market in general . The dat a assumes
re investment of a l l income but does not re f lect taxes, investment adv isory fees and other f ees and expenses that would reduce
performance in an actual port fol io.
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 13
9 Rebalanc ing a port fol io may cause investors to incur tax l iab i l i t ies and/or t ransact ion cost s and does not assure a prof i t or protect
against loss.
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 14
Exhibit 9
All-In Investment Expenses for Retirement Plan Investors10
Source: Bogle, Financial Analysts Journal, 2014 CFA Institute
10 Expense Rat io data source : Sharpe (2013) ; The 0.50% est imate for sa les charges/fees is the midpoint of the range between 0% for DIY
investors and 1% for investors who pay sa les loads and fees to brokers and reg is tered investment adv isers . 11 Index Advantage is the d if ference between Act ive ly Managed Funds and Index Funds d isp layed as a percentage. 12 Invest ing in mutual funds involves r isk , inc luding possib le loss of pr inc ipal . Investors sh ould consider the investment object ives, r isks ,
charges and expenses of the investment company care ful ly before invest ing . The prospectus and, i f ava i lab le , the summary prospectus
conta in th is and other important informat ion about the investment company . You can obta in a prospectus and summary prospectus f rom
your f inanc ia l representat ive . Read care ful ly b efore invest ing.
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 15
Exhibit 10
Percentage of Active U.S. Equity Fund Managers Underperforming the Index
Source: S&P Active versus Passive Scorecard (2015)
13 A l l performance re ferenced is h is tor ica l and is no guarantee of future resul t s . A l l indic ies are unmanaged and may not be inv ested into
d irec t ly .
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 16
Exhibit 11
Asset-Weighted and Average Total and Investor Returns:
Trailing Through December 31, 2013
Source: Morningstar (2014)
14 Invest ing in mutual funds involves r isk , inc luding possib le loss of pr inc ipal .
“A GUIDE TO UNDERSTANDING INVESTMENT BASICS” ©2016 FINANCIAL COACH 17
i The Standard & Poor ’ s 500 Index is a capi ta l i zat ion weighted index of 500 s tocks designed to measure performance of the broad
domest ic economy through changes in the aggregate market va lue of 500 s tocks represent ing a l l major indust r ies.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents
approximately 10% of the total market capitalization of the Russell 3000 Index.
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed
markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australi a, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, I reland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore , Spain, Sweden,
Switzerland and the UK.
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market
performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index con sists of the following
emerging market country indices: Brazil , Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa ,
Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Phil ippines, Taiwan, and Thailand.
The FTSE NAREIT All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. Equity REITs. Constituents of the Index
include all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property.
The Barclays U.S. Aggregate Bond Index is an index of the U.S. investment -grade fixed-rate bond market, including both government and corporate
bonds.
The Merril l Lynch US High Yield Master II Index (H0A0) is a commonly used benchmark index for high-yield corporate bonds. It is administered by
Merril l Lynch. The Master II is a measure of the broad high yield market, unlike the Merril l Lynch BB/B Index, which excludes lower-rated securit ies.
Th is mater ia l has been prepared by F i nanc ia l Coach for informat ional purposes only . This mater ia l i s not , and should not be regarded as
investment adv ice or as a recommendat ion regarding any part icu lar secur i t y or course of ac t ion. A professional adv isor should be
consul ted before implement in g any of the opt ions presented. No content should be const ructed as legal or tax adv ice . A lways consul t an
at torney or tax profess ional regarding your spec if i c legal or tax s i tuat ion.
Investment Adv ice offered through FC Adv isory LLC, a reg is tered invest ment adv isor do ing business as F inanc ia l Coach.
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