Staying On Course

Editor's Notes

• #2: Consultant instructions Please insert your name, title from your business card and the name of your dealer on this slide. The dealer name under which you present yourself will differ, dependent upon whether you are licensed with Investors Group Financial Services Inc. (Mutual Fund Dealers Association - MFDA) or Investors Group Securities Inc. (Investment Industry Regulatory Organization of Canada - IIROC). If you are licensed through the MFDA, you must use this dealer name on the slide: Investors Group Financial Services Inc. (use in Canada outside Québec) Investors Group Financial Services Inc., Financial Services Firm (use inside Québec) If you are licensed through the IIROC, you must use this dealer name on the slide: Investors Group Securities Inc. (use in Canada outside Québec) Investors Group Securities Inc., Firm in Financial Planning (use inside Québec)
• #3: Before we jump right into this presentation, I want to take a minute to go over some of these key points. It is important to me that you are aware of these details before we start – details that I hope all advisors are talking to you about. First, we are going to be talking about many ideas today but, before you decide to act, it is critical that we review your specific situation. Everyone is different so what works for some may not be as applicable to others. Second, this is what I do for a living. If we decide in the future to work together it is important to me that you are aware of how investments and plans work, any fees that might be associated with them, and how I get paid. We have plenty of material that I can share with you that spells it all out very clearly. (Go over disclaimers) Now that we ’ve gone over that, let’s begin by talking about how turbulent markets can create investor uncertainty but also some of the best opportunities for future reward over time. Consultant instructions If you are licensed with Investors Group Financial Services Inc. (Mutual Fund Dealers Association – MFDA), use line one of the disclaimers listed above. If you are licensed with Investors Group Securities Inc. (Investment Industry Regulatory Organization of Canada - IIROC) use line two of the disclaimers. Delete the dealer line that is not applicable. If there is a guest speaker insert the following disclaimer on this page: Views expressed by guest speakers may not be shared by Investors Group.
• #4: This past year was a challenging time for investors. Global economic and sovereign debt concerns created exceptional volatility and resulted in disappointing investment returns, while the negative tone of the reporting on market events amplified uncertainty. It ’ s no wonder many investors began to question their investments. Perhaps you even did yourself… should you stick with what you ’ re currently doing? Is now the time to invest more? Are market conditions different this time? Today I ’ m going to show you how you can benefit from staying on course and how the value of our advice, combined with a personalized financial plan, can keep you focused and help you reach your goals.
• #5: To begin, let ’s talk about what has happened recently to make investors feel so uncertain. Ironically, 2011 actually began with measured confidence and optimism. That changed in March with Japan ’ s tragic earthquake and tsunami. This event had a negative global economic impact as it disrupted the global supply chain. Further uncertainty came mid-summer as concerns grew about the Eurozone ’ s ability to effectively manage sovereign debts, along with debt ceiling debates and credit rating downgrades in the U.S. It ’ s important to remember that t his is not the first time there has been heightened volatility brought on by threats of government default. In the late 1990s, Russia defaulted, and most of Asia experienced a debt default scare. In the 1980s, many Latin-American countries went into default. These events were met with heightened volatility and a crisis in confidence. So in short, we ’ve been here before.
• #6: But even though history has shown us to stay disciplined and remain committed to a plan through high volatility, confidence was still shaken. Many investors started abandoning their plans and reducing their exposure to equities. As you can see, in 2011 the percentage of Americans invested in equities decreased to only 54% which is a decade low.
• #7: But is there just cause for all the uncertainty? The answer is no. Actually, the issues we ’ve talked about have completely overshadowed the fact that the global economy continues to grow, and that expectations for future growth remain positive. Future economic growth is expected to be less U.S.-dependent, more balanced globally and thereby more diversified and sustainable with the increasing influence of developing markets like China. Economic indicators have shown strength and resilience. In the U.S. for example, the stubborn jobless rate is improving, unemployment numbers are falling, and consumer spending is strengthening. There are even pockets of stability underpinning the housing market in the U.S. In fact, the actual rate of 2011 economic growth for the U.S. is likely to exceed early year expectations. Global businesses are performing well, with revenues and profits exceeding expectations, in part due to economic growth compounded by operating efficiencies. Corporate balance sheets are in excellent condition.
• #8: Now obviously, the growth in the economy and in underlying businesses was not reflected in corresponding growth in capital markets or in your investment portfolio last year. That ’ s because there is currently a disconnect between how businesses are functioning and how they ’ re being valued. For example, for 2011, global businesses, as measured by their earnings, grew at an average rate of 10%, yet experienced a loss in value of greater than 5% (in U.S.$), as measured by the average price decline. In other words, companies earned more, but lost value. Price-to-earnings (p/e) multiples, a key measure of market value, are at extremely attractive levels, relative to long term historical averages. For example, the current global p/e ratio is approximately 11 times earnings, well below that of the historic average of 16 times earnings. Other important measures, including the market price-to-book value, return on equity, and dividend yield all represent very attractive levels of valuation relative to historical norms. These disconnects have occurred throughout history, and tend to expire as markets re-focus on facts and fundamentals. And as history has shown us, the biggest opportunities often present themselves at points of maximum pessimism.
• #9: So what ’ s an investor to do? Well, although it may seem counterintuitive, it is often when the markets are the most volatile, that they have the potential to provide the greatest future reward. That is because market volatility creates pricing inefficiencies, and pricing inefficiencies create opportunity for those who are disciplined as markets eventually return to a focus on facts and fundamentals. Think back to previous times of fear, such as March 2009. Few investors would have considered it a good time to invest. But those who stayed on course and continued to invest benefited from a recovery that saw the stock market rise by more than 60% from the low. What this tells us is that investors are not very good at gauging what the market will do or when it will do it. Attempting to time entry and exit points negatively impacts returns as shown here. This example shows an investor who stayed fully invested in the S&P/TSX composite index from 1990 to the end of 2010 realized a 6% annual return (excluding dividends). Conversely, an investor who missed just the 50 best days of the S&P/TSX over that time period (less than 1% of the trading days) realized a loss of 3.7% annual compounded annually.
• #10: Long-term investing not only lets you take advantage of the best days, but the extended time horizon also decreases volatility significantly. As shown in this chart, in any one-year period, the returns of the S&P/TSX Composite index have been as high as 86.9% and as low as -39.2%; a range of over 126%. This is extreme volatility. However, in any 20-year period, the returns of the S&P/TSX have been in a much more narrow range of only 7.4% – as high as 14.1% and as low as 6.7%, and also importantly, with returns that have all been on the positive side of the ledger.
• #11: All this demonstrates the value of professional advice and the importance of a long-term financial plan, especially in turbulent markets. Research shows that Canadians who rely on professional advice to guide their financial decisions are wealthier, more confident and better prepared for major life events than those who do not have the benefit of advice. And as you can see in this chart, across various income levels – everyone can benefit from having a financial advisor. At Investors Group, we have the knowledge and wisdom gained from more than 80 years of providing financial advice to millions of Canadians.
• #12: Investors Group offers you professional advice with a global investment management presence. We have a global team of portfolio managers, investment analysts, and traders located in North America, Europe and Asia who have the ability to conduct research and interact face-to-face with the companies and the corporate leaders who drive and shape the economy - both here at home and overseas. Having talented people on the ground, close to the markets they ’re investing in, presents significant opportunities to monitor important trends. For example, having a presence in Europe has allowed us to monitor the situation first-hand and means we have had access to up-to-the minute analysis, insights and perspectives. As we ’ve said, market volatility creates opportunity and our fund managers have been taking advantage of pricing anomalies as part of our active investment discipline. While heightened trading activities are necessary in this environment, our managers remain very focused on providing long-term rates of return consistent with the needs of a long-term financial plan. We continue to keep a close eye on the markets and what ’s happening, but also continue to focus on our discipline, on our process, and on the underlying value of the businesses we hold.
• #13: In addition to an experienced portfolio management team, I am also backed up by a complete team of specialist in our local offices. We have security specialists, insurance specialists and banking and mortgage specialists. So while I may not be expected to have all the answers, I promise that if necessary, I have access to some of the leading experts in their respective areas in the country.
• #14: We help our clients focus on long-term financial planning with a unique approach – one that recognizes individual differences. Because we know that financial independence means different things to different people. It ’ s getting the things you want and doing the things you enjoy based on your lifestyle. We ’ ll start by finding out what ’ s important to you – your dream, goals and concerns. We ’ ll also look at what ’ s going on in your life. Perhaps you ’ re renovating your house, saving for your child ’ s education, or caring for elderly parents. We ’ ll face these realities and find opportunities, helping you prepare for both planned and unplanned events that may take place in your life.
• #15: Your comprehensive plan is your roadmap for securing your financial future and will consider both your short and long-term goals, helping you do everything from manage your day-to-day finances to save for the future. And it will not only consider investment planning, but also other components such as insurance planning, estate planning, tax planning, retirement planning and cash management. Once we ’ ve developed your realistic financial plan, it will be regularly reviewed and updated. This helps you know where you stand and of course, helps you stay on track and focused. It can also help you to avoid poor decision making, especially during turbulent markets like we ’ re experiencing now.
• #16: No one knows with any certainty what the markets will do today, tomorrow, next week, or next month. But ultimately, what is more important than being able to predict what will happen is your ability to be properly prepared. We have the experience and knowledge to help you to make the decisions that will work best for you. And because good advice adds value no matter what your age or path in life, working with Investors Group means you can ensure your portfolio is appropriately diversified, and that your financial plan is suited to your risk appetite, time horizon, and circumstances. Benefit from the value of our advice and stay on course… now and over time.