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FIRST WESTERN TRUST BANK

Investment Pools – Best Practices

Guy W. Holman, CPA, CFP®Sr. Vice President – Portfolio Manager5460 S. Quebec St., Suite 200Greenwood Village, CO 80111

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INVESTMENT OBJECTIVE

Meet Financial Goals with Appropriate Financial Vehicles

Extremes:• Pay as You Go

• Endowments

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UNDERSTANDING INVESTMENTS

Key Concepts– Time Horizon– Diversification/Asset Allocation– Risk and Reward– Discipline

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TIME HORIZON

Financial Vehicles each Have Unique Characteristics

• Short-Term (< 1 Year) – Bank Deposits, Money Market, CDs

• Intermediate Term (1-3 Years) – CDs, Fixed Income

• Long Term (> 3 Years) – Diversified Portfolio including Equities, Risk Assets

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DIVERSIFICATION/ASSET ALLOCATION

Determinants Beyond Time Horizon:• Liquidity Needs

• Income Needs

• Risk Tolerance– Emotional (Risk Appetite)– Economic Capacity

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INVESTMENT PRINCIPLES

• Different investment vehicles– Stocks, Bonds, Real Estate, Cash

Equivalents

• Varying levels of risk associated with different investments

• Reduce risk with Asset Allocation and Diversification

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RISK AND RETURN

• Cash– Stable Value Fund

• Bonds– Government – Corporate

• Real Estate– REITS

• Stocks– Large Companies– Mid & Small Companies– International Companies

Lower Risk

Higher Risk

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MANAGING RISK

Asset allocation takes diversification a step further

The Impact of Various Factors on the Variability of Investment

Results

Source: Financial Advisors Study, 1991; Confirmed by Ibbotson Associates, 1999.

No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. Study results are based on historical data and past performance is not a guarantee of future results.

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THE “LOST DECADE” OF INVESTING?Diversification and compounding returns

helped

10 year US equity return of -0.07% (annualized) challenging to say the least. US equity is not the entire story in a diversified portfolio. Other diversifiers witnessed stronger returns that pulled up total return for a diversified portfolio. Don’t confuse annualized returns with cumulative returns. The compounding nature of returns can work

in your favor. Will the next 10 years look like the past 10 years? That’s why you diversify and try to increase your odds.

10 Years Ending March 2010

Diversification does not assure a profit and does not protect against loss in declining markets.Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.US Equity: R3000; Developed Non-US Equity: MSCI EAFE; Emerging Markets: MSCI EM; Fixed Income: BC Aggregate; Real Estate: FTSE NAREIT Equity; 60/40 Portfolio: 36% US Equity, 16% EAFE, 3% EM, 5% FTSE NAREIT, 40% BC Aggregate

18%162%

84%195%

50%

-1%

-1%2%

10%6%11%

4%

-10% 40% 90% 140% 190%

10 YearAnnualized

Returns

10 YearCumulative

Returns

US Equity Developed Non-US EquityEmerging Market Equity Fixed IncomePublic Real Estate (REITs) 60/40 Portfolio

Annualized returns hide the

impact of compounding

returns over time

$-

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

Mar-00Mar-01Mar-02Mar-03Mar-04Mar-05Mar-06Mar-07Mar-08Mar-09Mar-10

US EquityEmerging Market Equity

Developed Non-US EquityFixed Income

Public Real Estate (REIT's) 60/40 Portfolio*

60/40 Portfoli

o

Growth of $160/40 Portfolio return

smoothed by diversification

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TRACKING INDEX PORTFOLIO RECOVERY

Did staying the course make sense?

This hypothetical example is for illustration only and is not intended to reflect the return of any actual investment. The 60/40 Balanced Index portfolio does not reflect a deduction for expenses or fees, had it done so, returns would have been lower.

Index returns represent past performance and are not a guarantee of future performance.

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Feb

-08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb

-09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

Cash after Sept 08 Treasuries after Sept 08 60/40 Balanced Portfolio

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

Po

rtfo

lio V

alu

e ($

)

US Equity Market PeakOctober 9, 2007

March 9, 2009US Equity Market Low

Sept 14, 2008Lehman Brothers Bankruptcy

Mar 14, 2008JPMorganpurchasesBear Stearns

July 11, 2008Oil closes atrecord highof $147 barrel

Nov 21, 20082008 Market Low

May 29, 2009US Equity marketturns positive for2009

Feb 17, 2009Obama signs$787b stimulus

Mar 18, 2009Fed plan to buy up to$1 trillion in treasuriesand mortgages

Returns Oct 08 - Dec 09US Equity -0.9%Non-US Equity +10.9%US Bonds +10.8%Treasuries +4.9%Cash +0.3%

Sept 30, 2008Three options:1) 60/40 stay the course2) Move to 100% Cash3) Move to 100% Treasuries

Portfolio Values on Dec 31, 200960/40 Balanced Portfolio:

$92,771Cash Portfolio: $85,353Treasuries:

$89,213

Treasuries: BC Treasury Index, Cash: BC 1-3 Month T-bill, 60/40: 40% Russell 3000, 20% Russell Global xUS Equity Index, 40% BC Aggregate Index

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HISTORICAL EQUITY RETURNS

After 2008 and early 2009, who would have believed such a strong year for equities?

Average calendar year return +11.8% Note the distribution of returns to the right of 0% Over time, it is extremely difficult to time the market to avoid years like 2008

and be invested to enjoy years like 2009

Calendar Year S&P 500 Returns: 1926-2009

Rates of Return

200620041993 2009

2000 1988 2003 19971990 2007 1986 1999 19951981 2005 1979 1998 19911977 1994 1972 1996 19891969 1992 1971 1983 19851962 1987 1968 1982 19801953 1984 1965 1976 19751946 1978 1964 1967 1955

2001 1940 1970 1959 1963 19501973 1939 1960 1952 1961 1945

2002 1966 1934 1956 1949 1951 1938 19582008 1974 1957 1932 1948 1944 1943 1936 1935 1954

1931 1937 1930 1941 1929 1947 1926 1942 1927 1928 1933-50% -40% -30% -20% -10% x 0% 10% 20% 30% 40% 50% 60%

Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

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MAKING THE INVESTMENT DECISION

Rules of the Road Have Not Changed• Diversify• Take risk appropriately to your time

horizon• Stay disciplined - respond to your plan

AND avoid emotional reactions to news of the day

• Make investment changes when your situation or needs change

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INVESTMENT SOLUTIONS

Investment Solution

Management Solution

Reason

Investment Portfolio - $100,000 - $250,000 Single Style-Allocation Fund Frank Russell Company Lower cost LifePoints Funds Greater diversification

Investment Portfolio - $250,000 - $750,000US Swim Asset Allocation Frank Russell Company Master IPS – lower cost

Institutional Funds

Investment Portfolio – Over $750,000Customized Asset Allocation Frank Russell Company Customized IPS

Funds Institutional pricing

Investment Portfolio < $100,000Bank Deposits, CDs

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QUESTIONS