Aboslute Capital Univ. Presentation
- 1. & How to Avoid Them Presented by: Terry Elder, CFP Cash Flow Planners Critial Investor Mistakes
- 2. Important Disclosures The information presented herein does not consider your particular investment objectives or financial situation and does not make personalized recommendations. This information should not be construed as an offer to sell or a solicitation of an offer to buy any security. This material is not intended to replace the advice of a qualified tax adviser or legal counsel. Individuals should contact their own tax professionals and attorneys to help answer questions about specific situations or needs prior to taking any action based on this information. We believe the information provided is reliable, but do not guarantee its accuracy, timeliness, or completeness. Securities offered through Brokers International Financial Services LLC, Member FINRA/SIPC Absolute Capital Management is not affiliated with Brokers International Financial Services, LLC
- 4. Critical Mistake #1 Failing to establish a definitive game plan & investment strategy
- 5. Critical Mistake #2 Not devoting sufficient time to learning & research
- 6. Critical Mistake #3 Not taking action due to information overload
- 7. “ I don’t want to be poor.” (FEAR) “ I want to be rich!” (GREED) Critical Mistake #4 Falling prey to the “Mental Accounting” tendency $$$ ?
- 8. Critical Mistake #5 Falling prey to the “Loss Aversion” tendency
- 9. Critical Mistake #6 Using the “Rearview Mirror” technique
- 10. Critical Mistake #7 Not diversifying assets
- 11. The Potential Effects Source of chart data: Dalbar, Inc. Quantitative Analysis of Investor Behavior, July 2005 update. QAIB calculates investor returns as the change in assets, after excluding sales, redemptions and exchanges. Annualized return rate is calculated as the uniform rate that can be compounded annually for the period under consideration to produce the investor return dollars. Past performance does not guarantee future results. Stocks and bonds have different risks, where bonds, if held to maturity, may offer both a fixed rate of return and a fixed principal value. 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. The performance information 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. Investments Did Well, Investors Not So Well (Average Annual Returns 1985-2004) Source: Oppenheimer Funds, Pulse of the Market 2006 Stocks Average Inflation Equity Fund Investor As measured by the S&P 500 Index
- 12. You don’t have to do it alone!
- 13. The Importance of Risk Management Beyond "Returns"
- 14. Market Risk Is it just the “price of admission” to be invested in the market?
- 15. The Importance of Avoiding Big Losses -25% -75% -50% -33% 50% 100% 300% 33%
- 16. Investment Risk Investment Risk: The variation of returns over time Market Risk Inflation Risk Currency Risk Industry Risk Geopolitical Risk
- 17. Risk and Reward: A New Perspective! An Asset-Allocated Portfolio May Have Given You Comparable Returns with Less Risk Indexes are unmanaged and one cannot invest directly in an index. Source of chart data: S&P Micropal. Risk is measured by annualized standard deviation of monthly total returns. Past performance does not guarantee future results. Based on an 80% Stock; 20% Bond Allocation For the 20-Year Period Ended December 31, 2005 For illustrative purposes only. Not indicative of any investment strategy used or recommended by Absolute Capital. Source: Franklin Templeton Investments
- 18. Do You Know Your Risk Tolerance? What is your willingness to take risk? What about your ability to assume risk? How much do you worry about investments? How often do you monitor your investments? Do you make changes to your accounts often? Do your concerns over investments keep you awake at night?
- 19. What’s Your Time Horizon? Annual Rolling Period Results for S&P 500 Index 1 (1926-12/30/05) 1. Source of chart data: Ned Davis Research, 12/30/05. Based on results for all investment periods beginning and ending within January 1926 and September 30, 2005, starting after each month-end. The S&P 500 Index is a broad-based index of U.S. stocks. The index is unmanaged, includes reinvested income, but not transaction costs or taxes, 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. 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. The performance information 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. Source: Oppenheimer Funds, Pulse of the Market 2006 15 78 3 Years 13 76 5 Years 1 71 10 Years 29 80 1 Year Periods with Loss Number of Periods Holding Period
- 20. Risk Perceptions Fear Greed Risk Management Solutions
- 21. to current market conditions Adapting Your Portfolio
- 22. Where to begin? Growth? Small Cap? BLEND? Value? Mid Cap? Large Cap? Stocks? Bonds ? High Yield? International ?
- 23. Master Asset Classes Domestic Equity International Equity Bonds Money Market (Stable Value)
- 24. Equity Styles Value Current stock price is lower than its perceived value This may be for a variety of reasons Investor believes stock price will rebound over time Companies with solid earnings, often paying high dividends Mature industries or business models $20 $10 $0 Perceived Value Current Stock Price Source: Federated Investors Growth Companies in rapidly expanding industries Promise of new technologies or innovation Earnings expected to rise quickly Usually “plow back” earnings to reinvest in company Can be more speculative form of investing EPS ($$) Expected Earnings
- 25. Different Times, Different Styles Growth vs. Value (1996–2005) 1 1. Source of chart data: Standard and Poor’s Micropal Inc.,12/30/05. 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 it 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. Diversification does not assure a profit or protect against loss. 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. The performance information 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. Growth Value Source: Oppenheimer Funds, Pulse of the Market 2006
- 26. Large Cap? Mid Cap? Small Cap? Source: Federated Investors Largest companies in the U.S. Approximately 500 companies at present Trade on NYSE, Nasdaq, AMEX S&P 500 Index is a common benchmark Approximately 1,000 companies at present Trade on Nasdaq, NYSE, AMEX S&P 400 Midcap Index is a common benchmark Approximately 5,000 companies at present Trade on Nasdaq, AMEX more commonly Russell 2000® Index is a common benchmark Large Cap Mid Cap Small Cap Market Capitalization $10 Billion $1 Billion $100 Million S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through change in the aggregate market value of 500 stocks representing major industries. S&P 400 Midcap Index: An unmanaged capitalization-weighted index of common stocks representing all major industries in the mid-range of the U.S. stock market. Russell 2000 ® Small Stock Index: An unmanaged index consisting of approximately 2000 small capitalization common stocks and is a trademark/service mark of the Frank Russell Company. Russell™ is a trademark of the Frank Russell Company. The Federated Mini-Cap Fund is neither affiliated with, nor promoted, sponsored, or endorsed by the Frank Russell Company. Frank Russell’s only relationship to the fund is the licensing of the use of the Index. Frank Russell Company is owner of the trademarks and copyrights relating to the Index.
- 27. Does It Matter Which Cap You Choose? Small Cap vs. Mid Cap vs. Large Cap (1996–12/30/05) 1 (Annual Returns) 2000 1998 1996 1997 1999 2001 Large cap Mid cap Small cap 2002 50% 0 – 30 – 20 – 10 10 20 30 40 2003 2004 2005 1. Source of chart data: Standard & Poor’s Micropal Inc., 12/30/05. Large-cap stocks are represented by the S&P 500 Index, a broad-based index of domestic stock; mid-cap stocks are represented by the S&P MidCap 400 Index; small-cap stocks are represented by the Russell 2000 Index. Returns are based on rolling 12-month index total returns. Indices include income, but not transaction costs or taxes, are unmanaged, and cannot be purchased directly by investors. Small-cap stocks may be subject to greater volatility than stocks of larger, more established companies. This chart is for illustrative purposes only and does not predict or depict the performance of any investment. 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. The performance information 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. Source: Oppenheimer Funds, Pulse of the Market 2006
- 28. The International Component Year S&P 500 MSCI-EAFE 1980 32.50 22.58 1981 (4.92) (2.28) 1982 21.55 (1.86) 1983 22.56 23.69 1984 6.27 7.38 1985 31.73 56.16 1986 18.66 69.44 1987 5.25 24.63 1988 16.56 28.27 1989 31.63 10.54 Annual Total Returns (%) of S&P 500 Index vs. MSCI EAFE Index 1980 - 2005 The 1980s Source: Federated Investors Performance data quoted represents past performance which is no guarantee of future results. Performance is based on total returns for 1-year periods ended 12/31. Total return represents the change in the value of an investment after reinvesting all income and capital gains. These indices are for illustrative purposes only and are not representative of any specific investment or the performance of any account managed by Absolute Capital. Actual investments cannot be made directly in an index. International investing involves special risks including currency risk, increased volatility of foreign securities, political risks, and differences in auditing and other financial standards. Diversification does not assure a profit nor protect against loss. Large Cap Stocks: The S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in aggregate market value of 500 stocks representing all major industries. International Stocks: The Morgan Stanley Capital International Europe, Australasia, and Far East Index (EAFE) is an unmanaged market capitalization-weighted equity index comprising 20 of the 48 countries in the MSCI universe and representing the developed world outside of North America. Each MSCI country index is created separately, then aggregated, without change, into regional MSCI indices. EAFE performance data is calculated in U.S. dollars and in local currency. The 1990s Year S&P 500 MSCI-EAFE 1990 (3.11) (23.45) 1991 30.40 12.13 1992 7.61 (12.17) 1993 10.06 32.56 1994 1.31 7.78 1995 37.53 11.21 1996 22.95 6.05 1997 33.35 1.78 1998 28.60 20.00 1999 21.03 26.96 Current Decade Year S&P 500 MSCI-EAFE 2000 (9.10) (14.17) 2001 (11.88) (21.44) 2002 (22.09) (15.94) 2003 26.38 39.17 2004 10.87 20.25 2005 4.91 13.54
- 29. Asset Classes Have Rotated Over Time Annual Returns of Key Asset Classes 1986–2005 Source of data: Standard & Poor’s Micropal. Past performance does not guarantee future results. Indexes are unmanaged and one cannot invest directly in an index. Source: Franklin Templeton Investments
- 30. Example: Large Growth Source: Standard & Poor’s Micropal. Past performance does not guarantee future results. Indexes are unmanaged and one cannot invest directly in an index. Annual Returns of Key Asset Classes 1986–2005 Source: Franklin Templeton Investments
- 32. The Step by Step Formula Assess Market Conditions Select Asset Classes for Investment Construct Diversified Portfolio (%) Analyze Available Investment Options / Select Managers Rebalance as Necessary Monitor & Respond to Changing Market Conditions
- 33. Questions to Ask Yourself How are my assets allocated now? How do I select my investments? How and when do I rebalance my portfolio? What risk level am I trying to achieve? What risk level is my current portfolio now? Do I have the time to regularly monitor and analyze the market? Do I have the available tools and information to analyze all my available investment options?
- 34. You don’t have to do it alone!
- 36. A Professional Money Manager Provides full time market monitoring and analysis Provides asset allocation based on your personal tolerance for risk Manages market risk in your portfolio
- 37. What You Get: Full time monitoring of your investments Reallocation of your portfolio based on current market conditions Risk Management
- 39. AssetAllocator Invests in asset classes and styles that are anticipated to perform well and avoids those that are expected to lag Generally fully invested
- 40. How it works… Determine your tolerance for risk Diversify your portfolio accordingly Choose the appropriate investments Regularly rebalance your portfolio Continuously review
- 41. Five Different Strategies Income Growth Core Conservative Domestic Equity 30% Bonds 70% Domestic Equity 35% Bonds 55% International Equity 10% Domestic Equity 50% Bonds 35% International Equity 15% Domestic Equity 65% Bonds 20% International Equity 15% Aggressive Growth Domestic Equity 65% International Equity 35%
- 42. So Many Choices! Growth? Small Cap? BLEND? Value? Mid Cap? Large Cap? Stocks? Bonds ? High Yield? International ?
- 43. Choosing the Correct Style Boxes Domestic International Bond Large Cap Value Large Cap Blend Large Cap Growth Mid Cap Value Mid Cap Blend Mid Cap Growth Small Cap Value Small Cap Blend Small Cap Growth Foreign World Europe Asia Japan Emerging Markets Investment Grade Corporate Bonds Government Bonds High Yield Corporate Bonds
- 44. Step 1 : Determine relative weightings for market capitalization (Big Cap, Mid Cap, Small Cap) Step 2 : Determine which style to use (Value, Blend, Growth) Step 3 : Allocate to style categories based on your investor profile How It’s Done Style Box Breakdown Value Blend Growth Small Mid Large Example: Domestic Equity
- 45. Professional Investment Selection 105% more equity funds in 5 years! Source: Investment Company Institute
- 46. Positioning Your Investments Assess Market Conditions Select Asset Classes for Investment Construct Diversified Portfolio (%) Analyze Available Investment Options / Select Managers Rebalance as Necessary Monitor & Respond to Changing Market Conditions
- 48. The Process… A 45 minute, no obligation interview Receive a FREE risk profile Friendly, non sales environment
- 49. You don’t have to do it alone!
- 50. Important Disclosures Past performance is no guarantee of future results. Historical performance is not meant to represent the performance of any specific strategy or program. Investors cannot invest directly in an index. This update is subject to change and, although based upon information considered to be reliable, it is not guaranteed as to accuracy or completeness. This update is not meant as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client's accounts should or would be handled, as appropriate investment decisions depend upon the client's investment objectives. This update is for informational purposes only and does not constitute a complete description of our investment services or performance. Calculations that appear throughout this presentation are for demonstration purposes only. In addition, different assumptions will lead to different results. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance. No one involved in the preparation of this presentation shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the user.
- 51. Thank you!
Editor's Notes
- #2: Title slide: Read title; welcome guests