by kloyd05

Slides
76 slides

SeparatingMythsFromTruthsTheStoryofInvestingPOWERPOINTPRESENTATION.pptx

Published Sep 4, 2013 in Business & Management
Direct Link :

SeparatingMythsFromTruthsTheStoryofInvestingPOWERPOINTPRESENTATION.pptx... Read more

SeparatingMythsFromTruths

Read less


Comments

comments powered by Disqus

Presentation Slides & Transcript

Presentation Slides & Transcript

SEPARATING MYTHSFROM TRUTHThe Story of InvestingAll investing involves risks and costs.  Your advisor can provide you with more information about the risks and costs associated with specific programs.  No investment strategy (including asset allocation and diversification strategies) can ensure peace of mind, assure profit, or protect against loss. This PowerPoint is based on the views of Matson Money.  Other persons may analyze investments and the approach to investing from a different perspective than that reflected in this PowerPoint. Nothing included herein is intended to infer that the approach to investing espoused in this PowerPoint will assure any particular results. 

Dispelling the Traditional Investing MythsTelling the True Story of InvestingOpportunity to Achieve True Investing Peace of MindSEPARATING MYTHS FROM TRUTH

DISPELLING THE MYTHSMyth: A story made up to explain a phenomenon beyond the science of the day.

TRADITIONAL INVESTING MYTHSMYTH 1:Stock SelectionMYTH 2:Track-Record InvestingMYTH 3:Market TimingMYTH 4:Costs of Investing

THE MYTH:Investment advisors can consistently and predictably add value by exercising “superior skill” in individual stock selection.Stock Selection: Choosing stocks based on a belief they will do well in the future.MYTH 1: STOCK SELECTION

SURVIVORSHIP BIASFor illustrative purposes only. Mutual fund data provided by CRSP Survivor Bias Free Mutual Fund Database. CRSP data provided by the Center for Research in Security Prices, University of Chicago. 12/31/2012PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.* There were 265 funds opened and 47 funds closed in which the year was undisclosed.Total Number of Funds Open 201229,370Total Number Born 51,905Total Number Killed22,535

-79.3%AVERAGE TOTAL RETURNTHE WORST 200 DEAD MUTUAL FUNDSFor illustrative purposes only. Mutual fund data provided by 2012 CRSP Survivor Bias Free Mutual Fund Database. CRSP data provided by the Center for Research in Security Prices, University of Chicago. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.

Average of all US Equity funds available in the CRSP Survivor- Bias Free US Mutual Fund Database, data ending Dec. 2012S&P 500 Index and CRSP Market Index data obtained from DFA Returns software 12/12. Index performance returns do not reflect any management fees, transaction costs or expenses.  In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially different.  Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation. Past performance is no guarantee of future results and investors may experience a loss. Not actual investor results.$4,348,039$4,153,801 $2,392,685Average Potential Wealth Lost to Active Stock Picking$1,955,353

Average of all Mutual funds available in the CRSP Survivor- Bias Free U.S. Mutual Fund Database, data ending Dec. 2012Hypothetical Portfolios based on data in endnote 1. Past performance is no guarantee of future results and investors may experience a loss. Not actual investor results.Index performance returns do not reflect any management fees, transaction costs or expenses.  In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially different.  Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.$1,216,893$3,074,899$5,197,603$7,929,713 $10,168,918

Track-Record Investing:The use of performance history to determinethe best investments for the future.THE MYTH:Finding funds that did well in the past is a reliable method of indicating which funds will do well in the future.MYTH 2: TRACK-RECORDINVESTING

TRACK RECORD INVESTINGTop 30 Funds Average Return All Funds Average Return S&P 500 Index Average Return CRSP 1-10 Index Average Return Total # of Funds 1993–2002Total # of Funds 2003–2012 1993–200225.6416.0011.1810.647252003–20120.182.838.849.783738For illustrative purposes only. Mutual funds data provided by CRSP Survivor-Bias Free Mutual Fund Database, includes funds that are U.S. Equity mutual funds. 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. Indices are not available for direct investment, therefore their performance does not reflect the expenses associated with the management of an actual portfolio.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

TRACK RECORD INVESTINGTop 30 Funds Average Return All Funds Average Return S&P 500 Index CRSP 1-10 Index CRSP 9-10 Index Number of Funds 2003–200723.071.8913.1514.2121.725,2372008–20125.062.734.535.3611.166,207For illustrative purposes only. Mutual funds data provided by CRSP Survivor-Bias Free Mutual Fund Database, includes funds that are U.S. Equity mutual funds. 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. Indices are not available for direct investment, therefore their performance does not reflect the expenses associated with the management of an actual portfolio.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

A MANAGER’S ABILITY TO PICK STOCKS IN THE PAST HAS ZERO CORRELATION WITH HIS/HER ABILITY TO DO SO IN THE FUTURE.

Market Timing:Any attempt to alter or change the mix of assets based on a prediction or forecast about the future.THE MYTH: Money managers are able to utilize market timing to effectively predict up & down markets.MYTH 3: MARKET TIMING

DALBAR RESEARCH STUDY RESULTS As the chart below clearly indicates,The Average Investor earns significantly less than the market indices, barely beating inflation over the period measured.Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks.  Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior.  These behaviors reflect the “average investor.”  Based on this behavior, the analysis calculates the “average investor return” for the various periods.  These results are then compared to returns of respective indices. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

WHY MARKET TIMING DOESN’T WORK$44,0877.70%$29,2585.51%$22,050 4.03%$17,2572.77%$13,7471.60%$11,1230.53%$9,090-0.48%January 1, 1993 – December 31, 2012 5040 Trading DaysSource: ChartSource®, S&P Capital IQ Financial Communications. For the period from January 1, 1993, through December 31, 2012. Based on total returns of Standard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. It is not possible to invest directly in an index. Past performance is not a guarantee of future results. Copyright © 2013, S&P Capital IQ Financial Communications. All rights reserved. Not responsible for any errors or omissions.$6,183-2.38%

“Tactical Asset Allocation” is Market Timing in DisguiseBEWARE: MARKET TIMINGTactical Asset Allocation (Def.) – An active management portfolio strategy that rebalances the percentage of assets held in various categories in order to take advantage of market pricing anomalies or strong market sectors.Market Timing (Def.) – The practice of switching among mutual fund asset classes in an attempt to profit from the change in their market outlook.Definitions provided by investodpedia.com

“The evidence on investment managers’ success with market timing is impressive – and overwhelmingly negative.”Charles D. Ellis, Investment Policy, 1993Charles D. Ellis is a managing partner of Greenwich Associates, a leading consulting firm specializing in financial services worldwide.B.A. Yale, M.B.A (with distinction) Harvard and Ph.D. New York University CHARLES D. ELLIS

Costs of Investing: Fees incurred by investors to buy, sell, andown stocks or mutual funds.THE MYTH: What you don’t see can’t hurt you.MYTH 4: COSTS OF INVESTING

Bid/Ask SpreadMutual FundsTHE COSTS OF INVESTING

BID/ASK SPREAD

US data as of November 8, 2012. Data provided by Instinet. © 2013, Instinet Incorporated and its subsidiaries. All rights reserved. International and emerging markets data as of November 15, 2012. Data provided by Bloomberg. The bid/ask spread is generally regarded as an indication of the cost of liquidity. The Bid/Ask Spread as a percent of price is a conservative estimate of actual trading costs. This estimate is almost 30 times as great for the smallest market segment as for the largest market segment (1.77 vs. 0.06).BID/ASK SPREADCosts That You May Not Be Told About

“The key question under the new rules of the game is this: How much better must a[n]...[actively trading]... manager be to at least recover the cost of...[portfolio turnover]? The answer is daunting.” - Charles D. Ellis1. Mutual fund trading plus bid/ask spread cost taken from Investment Policy - How to Win the Loser’s Game, 2nd Edition by Charles D. Ellis (1993) p.8-9. CONSUMER “NO LOAD” MUTUAL FUNDS

The MythsStock SelectionTrack-Record InvestingMarket TimingCosts of InvestingNext…The TruthSO FAR…

THE STORY OF INVESTING:FREE MARKET PORTFOLIO THEORY

Free Market Portfolio Theory is: An investment approach firmly grounded in the academic research of the last 50 years. A disciplined approach to capturing market returns while managing volatility.WHAT IS FREE MARKET PORTFOLIO THEORY?

THE COMPONENTS OFFREE MARKET PORTFOLIO THEORYCOMPONENT 1:Free Markets WorkCOMPONENT 3:The Three-Factor ModelCOMPONENT 2:Modern Portfolio Theory

LEADING ACADEMICS WHO CONTRIBUTE TO FREE MARKET PORTFOLIO THEORYHarry Markowitz: Nobel Prize Laureate, 1990, University of ChicagoMerton H. Miller: Nobel Prize Laureate, 1990 - Robert R. McCormick Distinguished Service, University of ChicagoRex Sinquefield: Co-author Stocks, Bonds, Bills and Inflation, MBA, University of Chicago, BA, St. Louis UniversityRoger G. Ibbotson: Co-author Stocks, Bonds, Bills and Inflation, Professor of Finance, School of Organization and Management, Yale UniversityEugene F. Fama: Robert R. McCormick Distinguished Service, Graduate School of Business, University of ChicagoKenneth French: Professor of Finance at the Tuck School of Business, Dartmouth College

Free Markets Work“In [a free] market at any point in time the actual price of a security will be a good estimate of its intrinsic value.”- Eugene F. Fama, “Random Walks in Stock Market Prices,” Financial Analysts Journal, September/October 1965.COMPONENT 1:

The market fails to price goods and services appropriately.It is possible for some individuals to identify in advance which prices are inaccurate.Underpriced or overvalued markets can be forecasted or predicted.By taking advantage of these mispricings, either in stocks or market sectors, it is possible to both increase returns and avoid losses in investments.People with this view would utilize traditional investment myths and speculate with their assets.BELIEFS THAT FREE MARKETS FAIL

Based on supply and demand the free market is the best determinant of market prices. All available information is factored into the current price.Only new and unknowable information and events change pricing.The randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns unrelated to risk.People with this view would utilize free market investment strategies.BELIEFS THAT FREE MARKETS WORK

BELIEFS DICTATE ACTIONFREE MARKETS WORKFocus on capturing market returnsUtilize asset-class or structured fundsDiversify prudentlyIdentify your risk toleranceEliminate traditional investment strategiesWork with a financial coach who shares your market beliefFREE MARKETS FAILPursue traditional investment strategiesStay connected to all sources of financial informationRead every investment article you can findWork with a financial professional who shares your market belief

Modern Portfolio TheoryDiversification WorksNobel Prize Winners, 1990Harry MarkowitzWilliam SharpeMerton MillerCOMPONENT 2:

As a graduate student in economics at the University of Chicago in the 1950's, Dr. Markowitz won acclaim for his studies on portfolio design and risk reduction. These concepts were later crucial for the development of Modern Portfolio Theory. Nobel Prize Winner 1990DR. HARRY MARKOWITZ

681012141618206810121416One Year Standard Deviation (Volatility) Annualized Compound ReturnGrowthAggressiveS&P 500ConservativeModerateMARKOWITZ EFFICIENT FRONTIERMaximizing Expected Returns for Any Level of VolatilityFor Illustrative purposes only.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

DETERMINANTS OFPORTFOLIO PERFORMANCE1.82.14.691.51.82.14.691.5

ASSET CLASS CORRELATIONExample Portfolio

Source: DFA Returns Software 12/12.Annualized Return(%)Simplified Example Of Low Correlation BenefitsJanuary 1970–December 2012 (Quarterly Data in $US)INCREASE RETURNSAND REDUCE VOLATILITYAnnualized Standard DeviationPast performance is no guarantee of future results and investors may experience a loss. See Endnote 1. These hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. actual investment results may be more or less than shown. This does not represent any specific product or service. Index performance returns do not reflect any management fees, transaction costs or expenses.  In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially different.  Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.

The Three-Factor ModelSource: Fama, Eugene F., and Kenneth R. French, 1992 “The cross-section of Expected Stock Returns”, Journal of Finance 47 (June), 427-465COMPONENT 3:Eugene Fama & Kenneth FrenchFactor 1: The Market Factor Factor 2: The Size FactorFactor 3: The “Value” Factor

Equities are riskier than fixed income.Equities historically provide a higher rate of return.1926–2012 S&P 500 T-BillsAnnualized Return 9.84 3.53Standard Deviation 20.18 3.10Source: DFA Returns Software, 12/12.FACTOR 1: THE MARKET FACTORPast performance is no guarantee of future results and investors may experience a loss. See Endnote 1. Index performance returns do not reflect any management fees, transaction costs or expenses.  In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially different.  Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.

Small companies are riskier than large companies.Small companies historically provide a higher return than large companies.1926–2012 S&P 500 U.S. Small Co. (CRSP 6-10)Annualized Return 9.84 11.38Standard Deviation 20.18 30.54FACTOR 2: THE SIZE FACTORSource: DFA Returns Software, 12/12.Past performance is no guarantee of future results and investors may experience a loss. See Endnote 1. Index performance returns do not reflect any management fees, transaction costs or expenses.  In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially different.  Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.

High book-to-market (value) stocks are riskier than low book-to-market (growth) stocks.High book-to-market stocks historically provide higher return than low book-to-market stocks.July 1926–2012 S&P 500 U.S. Lg. ValueAnnualized Return 9.92 11.67Standard Deviation 19.10 25.07FACTOR 3: THE VALUE FACTORSource: DFA Returns Software, 12/12.Past performance is no guarantee of future results and investors may experience a loss. See Endnote 1. Index performance returns do not reflect any management fees, transaction costs or expenses.  In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially different.  Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.

Free Markets Work+ Modern Portfolio Theory+ The Three-Factor Model= Free Market Portfolio TheoryTHE TRUTH

BUILDING A BETTER PORTFOLIOAVERAGE INVESTOR EQUITY PERFORMANCE

Portfolio 1 100%Average Equity Mutual Funds1993–2012Portfolio 1* 4.25 19.70AnnualizedReturn(%)AnnualizedStandardDeviation (%)60%40%Average 100% Equity Mutual Fund Investor ResultsDalbar Investor ResultsResearch for period1993-2012CREATING A DIVERSIFIED PORTFOLIO*Portfolio Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks.  Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior.  These behaviors reflect the “average investor.”  Based on this behavior, the analysis calculates the “average investor return” for the various periods.  These results are then compared to returns of respective indices. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.

Average Holding Period—3.31 Years*Track-Record Investing—Chasing the MarketHyperactive Stock PickingMarket TimingWHY ARE THE RETURNS SO LOW?*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks.  Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior.  These behaviors reflect the “average investor.”  Based on this behavior, the analysis calculates the “average investor return” for the various periods.  These results are then compared to returns of respective indices. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.

S&P 500 Index1970–2012AnnualizedReturn(%)AnnualizedStandardDeviation (%)Portfolio 1 100%Portfolio 2 100%Avg. Equity Mutual Funds100%S&P 500CREATING A DIVERSIFIED PORTFOLIOBasic Passively Invested PortfolioPortfolio 1* 3.49 19.58Portfolio 2 9.94 17.55*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks.  Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior.  These behaviors reflect the “average investor.”  Based on this behavior, the analysis calculates the “average investor return” for the various periods.  These results are then compared to returns of respective indices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations, political/economic stability and differences in accounting standards.

AnnualizedReturn(%)1970–201260%20%20%AnnualizedStandardDeviation (%)S&P 500IndexPortfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Avg. Equity Mutual Funds5-Year Government PortfolioOne-Year Fixed IncomeCREATING A DIVERSIFIED PORTFOLIOIncluding Fixed Income Assets in the PortfolioPortfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks.  Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior.  These behaviors reflect the “average investor.”  Based on this behavior, the analysis calculates the “average investor return” for the various periods.  These results are then compared to returns of respective indices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations, political/economic stability and differences in accounting standards.

1970–2012AnnualizedReturn(%)30%20%20%30%AnnualizedStandardDeviation (%)S&P 500IndexPortfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30% 5-Year Government PortfolioOne-Year Fixed IncomeEAFE IndexCREATING A DIVERSIFIED PORTFOLIOIncluding Non-U.S. Assets in the PortfolioPortfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97Portfolio 4 9.19 11.16*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks.  Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior.  These behaviors reflect the “average investor.”  Based on this behavior, the analysis calculates the “average investor return” for the various periods.  These results are then compared to returns of respective indices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations, political/economic stability and differences in accounting standards.Avg. Equity Mutual Funds

1970–2012 AnnualizedReturn(%)20%15%20%15%15%15%AnnualizedStandardDeviation (%)S&P 500IndexPortfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%Portfolio 5 15% 20% 20% 15% 15% 15% 5-Year Government PortfolioOne-Year Fixed IncomeEAFE IndexU.S. 9-10 Small Co.Int’l Small Cap StocksCREATING A DIVERSIFIED PORTFOLIOAdding Small Cap StocksPortfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97Portfolio 4 9.19 11.16Portfolio 5 10.25 12.17*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks.  Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior.  These behaviors reflect the “average investor.”  Based on this behavior, the analysis calculates the “average investor return” for the various periods.  These results are then compared to returns of respective indices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations, political/economic stability and differences in accounting standards.Avg. Equity Mutual Funds

AnnualizedReturn(%)20%20%7.5%15%7.5%7.5%15%7.5%AnnualizedStandardDeviation (%)S&P 500IndexPortfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%Portfolio 5 15% 20% 20% 15% 15% 15%Portfolio 6 7.5% 20% 20% 15% 7.5% 15% 7.5% 7.5%5-Year Government PortfolioOne-Year Fixed IncomeEAFE IndexU.S. 9-10 Small Co.Int’l Small Cap StocksU.S. Small Cap ValueU.S. Large Cap ValueCREATING A DIVERSIFIED PORTFOLIOAdding High Book-to-Market Stocks1970–2012Portfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97Portfolio 4 9.19 11.16Portfolio 5 10.25 12.17Portfolio 6 10.76 11.84*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks.  Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior.  These behaviors reflect the “average investor.”  Based on this behavior, the analysis calculates the “average investor return” for the various periods.  These results are then compared to returns of respective indices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations, political/economic stability and differences in accounting standards.Avg. Equity Mutual Funds

Directions:Answer each question “Yes” or “No.” Your Answer must be 100% “Yes” to qualify as “Yes.”THE 20 MUST-ANSWER QUESTIONS FOR YOUR JOURNEY TOWARD INVESTING PEACE OF MIND

QUESTION 1Have you discovered your True Purpose for Money, that which is more important than money itself?

Are you invested in the Market?QUESTION 2

Do you know how markets work?QUESTION 3

Have you defined your Investment Philosophy?QUESTION 4

Have you identified your personal risk tolerance?QUESTION 5

Do you know how to measure diversification in your portfolio?QUESTION 6

Do you consistently and predictably achieve market returns?QUESTION 7

Have you measured the total amount of commissions and costs in your portfolio?QUESTION 8

Do you know where you fall on the Markowitz Efficient Frontier?QUESTION 9

When it comes to building your investment portfolio, do you know exactly what you are doing and why?QUESTION 10

Are you working with a financial coach versus a financial planner?QUESTION 11

Do you have a customized lifelong game plan to guide all of your investing and spending decisions?QUESTION 12

Do you have an Investment Policy Statement?QUESTION 13

Have you devised a clear-cut method for measuring the success or failure of your portfolio?QUESTION 14

Do you fully understand the implications and applications of diversification inyour portfolio?QUESTION 15

Do you have a system to measureportfolio volatility?QUESTION 16

Are you aware of the incentives brokerage firms and the financial community have when selling commission-based products?QUESTION 17

Do you know the three warning signs that you are gambling and speculating with your money versus prudently investing it?QUESTION 18

Can you identify the cultural messages and personal mind-sets about money that destroy your peace of mind?QUESTION 19

Are you ready to shift your personal experience of money and investing from a scarcity mode to an abundance mode?QUESTION 20

THE OPPORTUNITYLearn more about what this means for you.

ENDNOTES1. 42 Year Performance figures taken from Dimensional Fund Advisor, Inc. (DFA) Returns software 12/12. Some data provided to DFA by the Center for Research & Security Pricing(CRSP), University of Chicago. No commissions or fees have been deducted from the market performance figures because the intent is to show the benefits of diversification of asset classes and not to indicate the results Matson Money, Inc. would have achieved if it managed a client’s funds. If an investor invested in mutual funds designed to reflect asset class performance, the investor would, in effect, be paying an advisory fee to the mutual fund manager and brokerage commissions because these fees and commissions would be reflected in the mutual fund’s expenses that are deducted from the value of each share of the mutual fund. If, in addition, an investor engaged an investment advisor to manage the assets, the investor would pay an investment advisory fee to this manager. If an investor also utilized the services of a separate custodian, the investor would pay additional fees to the custodian. The returns of the hypothetical asset class mixes frequently exceeded the results of Matson Money, Inc. clients’ portfolios with similar investment objectives for the period Matson Money, Inc. has managed clients’ funds from 1991 to present. This difference is due to differing allocations over the time periods shown. These allocations differed because of different asset classes used, new research applied, and because of deduction of commission. Also, it is not possible to invest in an index. Past performance of markets is no guarantee of future performance and clients may experience a loss. Asset Classes are defined below. U.S. Large Value = U.S. Large Cap Value Portfolio: July 1926-March 1993: Fama-French Large Cap Value Strategy. Simulates Dimensional’s hold range and estimated trading costs. Courtesy of Fama-French and CRSP: deciles 1-5 size, (.7) BtM. April 1993-Present: U.S. Large Cap Value Portfolio net of all fees. DFA International Small Company Strategy/DFA International Large Company Strategy: January 1970-June 1998: 50% DFA Japanese Portfolio, 50% DFA UK Portfolio net of all fees. July 1998-September 1989: 50% DFA Japanese Portfolio, 20% DFA UK Portfolio, 30% DFA Continental Portfolio net of all fees. October 1989-March 1990: 40% DFA Japanese Portfolio, 30% DFA Continental Portfolio, 20% DFA UK Portfolio, 10% DFA Asia/Australia Portfolio net of all fees. April 1990-December 1992: 40% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 10% DFA Asia/Australia Portfolio net of all fees. January1993-March 1997: 35% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 15% DFA Asia/Australia Portfolio net of all fees. April 1997-March 1998: 30% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 20% DFA Asia/Australia Portfolio net of all fees. April 1998-Present: 25% DFA Japanese Portfolio, 40% DFA Continental Portfolio, 20% DFA UK Portfolio, 15% DFA Asia/Australia Portfolio net of all fees. DFA International Small Company Portfolio: January 1970-September 1996: DFA International Small Company Strategy. October 1996-Present: DFA International Small Company Portfolio net of all fees. EAFE Index: Courtesy of Morgan Stanley Capital International. Europe, Australia, and Far East Index net dividends ($). January 1969-Present: EAFE Index Including gross dividends ($). U.S. Small Co = CRSP 9-10 Index: Courtesy of Center for Research in Security Prices, University of Chicago. Small Company Universe Returns (Deciles 9 &10) all Exchanges. January 1926-June 1962: NYSE, rebalanced semi-annually. July 1962-December 1972: CRSP Database, NYSE & AMEX, rebalanced quarterly. January 1973-September 1988: CRSP Database, NYSE, AMEX & OTC, rebalanced quarterly. October 1988-Present: CRSP Index (NYSE & AMEX & OTC). U.S. Large Company Stocks - S&P 500: Courtesy of Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: The Past and the Future, Dow Jones, 1989. Ibbotson Associates, Chicago, annually updates work by Roger Ibbotson and Rex A. Sinquefield. Used with Permission. All rights reserved. The S&P 500 is an unmanaged market value-weighted index which measures the change in aggregate market value of 500 stocks relative to the base period 1941-1943. This index does not incur fees and charges typically associated with investing and values would be lower if such fees and charges were taken into consideration. Individuals may not invest directly in an index. DFA One-Year Fixed Income Portfolio: August 1983-Present: DFA One-Year Fixed Income Portfolio November 1971-July 1983: Stimulation Using CD Returns DFA Five-Year Government Portfolio: June 1987-Present: DFA Five-Year Government Fixed Income PortfolioJuly 1952-May 1987: Stimulation Using U.S. Government InstrumentsLehman Brothers Government/Credit Bond Index 1-30+ Years: January 1973-Present: Lehman Brothers Government/Credit Bond Index Range 1-30+ Years

1. Cont’d CONSERVATIVE, MODERATE, GROWTH, & AGGRESSIVE These results are based on the performance of the Indices defined above, using the below mixes. The objective of allocation for each asset class shown in the charts is to reduce the likelihood that different assets move together in tandem. The asset class mixes shown in these charts were rebalanced annually in order to continually preserve the original investment allocations. No reinvestment of dividends or other earnings were included in the calculations. No commissions or fees have been deducted from the market performance figures shown in the charts because the intent is to show the benefits of diversification of asset classes and not to indicate the results Matson Money, Inc. would have achieved if Matson Money, Inc. had managed a client’s funds. If an investor invested in mutual funds designed to reflect asset class performance, the investor would, in effect, be paying an advisory fee to the mutual fund manager and brokerage commissions. These fees and commissions would be reflected in the mutual fund’s expenses that are deducted from the value of each share of the mutual fund. If, in addition, an investor engaged an investment advisor to manage the assets, the investor would also pay an investment advisory fee to this manager. If an investor also utilized the services of a separate custodian, the investor would pay additional fees to the custodian. Index performance returns do not reflect any management fees, transaction costs or expenses.  In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio.PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE.All investing involves risk and costs. Your advisor can provide you with more information about the risks and costsassociated with specific programs. No investment strategy (including asset allocation and diversification strategies) canensure peace of mind, assure profit, or protect against loss.ENDNOTES

ENDNOTES2. Some data provided to DFA by the Center for Research & Security Pricing (CRSP), University of Chicago. Asset Classes defined as: U.S. Large Company Stocks - S&P 500 Index  U.S. Small Company Stocks - CRSP (Center for Research & Security Pricing) 9-10 Index International Large Company Stocks - Morgan Stanley (MSCI) Europe, Australia, Far East (EAFE) Index (Gross Div)  International Small Company Stock - index created by DFA using CRSP data, Dimensional’s Small International Index [1970 - June 1988 - 50% Japan, 50% United Kingdom. July 1988 - September 1989 - 50% Japan, 30% Continental, 20% United Kingdom, October 1989 - March 1990 - 40% Japan, 40% Continental, 20% United Kingdom, 10% Asia-Australia. April 1990 - December 1992 - 40% Japan, 35% Continental, 15% United Kingdom, 10% Asia-Australia. January 1993 to present - 35% Japan, 35% Continental, 15% United Kingdom, 15% Australia.]  U.S. Small Company Value Stocks - Fama/French US Small Value Research index  U.S. Large Company Value Stocks - Fama/French US Large Value Research index 5 Year Government Portfolio - Dimensional’s Five-Year Government Portfolio [Average maturity: Under Five Years, 1953-May 1987 - Simulation using U.S. Government Instruments (maximum maturity fie years) June 1987- DFA Five Year Government Portfolio net of all fees]  One Year Fixed Income - Dimensional’s One-Year Fixed Strategy [1972 - July 1983 - Simulated CD Fixed Income Strategy (maximum maturity 1 year) Aug. 1983 - DFA Fixed Income Portfolio returns net of all fees (weighted average maturity under 1 year)]