Wealth Engineering Power Point

Summit Portfolio Management Founded in 1984 by Timothy F. Bock S.E.C. Registered Investment Advisor State-of-the-Art Strategies- “ Wealth Engineering” Fee-only Financial Consulting Firm Comprehensive Personal Financial Services Offices in Los Angeles, Newport Beach, Walnut Creek, and Las Vegas

Wealth Engineering Invest Using Scientific Evidence Take Only Appropriate Risks Measure Risk and Return Coordinate Investing with Financial Planning Limit and Control Costs Limit Emotional Influence Control Security and Fraud Risk

Fraud Protection Ponzi Schemes Certain Life Products / Annuities Partnerships / Hedge Funds Packaged Financial Products Commission Based Financial Advisors / Misleading Sales Tactics Identity Theft

Who to Trust Fear Greed When is Enough, Enough? Loss Versus Decline Emotional and Psychological Distractions Claiming Losses Sunk Cost Hindsight Bias Overconfidence Probability vs. Possibility

Risk is Not Bad Taking Risk is What Produces Returns Understand Risks Control Risks Measure Risks Market Declines are Different Than Losses Avoid Uncompensated Risk

Why Flip a Coin? Academic Research Provides Many Answers

Active vs. Passive Active Management The belief that stock prices are often incorrect and can be exploited via market timing or stock picking Passive Management Market mechanisms price securities effectively ...Efficient Markets Hypothesis

Efficient Markets Hypothesis Eugene F. Fama, University of Chicago Prices incorporate all available information and expectations Current prices are the best estimate of intrinsic value Price changes are due to events/news Mispricings do occur, but not predictably

Why Passive Management is Superior Competition Makes Capital Markets Efficient Concentrated Portfolios Have Higher Risks and Costs, But Not Higher Returns Superior Returns are Due to Lower Costs and Less Taxation Less Than 1% of Active Managers add Value Analyzing Track Records Doesn’t Help Forecasting the Future Doesn’t Work

Predictability of Mutual Funds Returns Source: Morningstar (May 2009)

Structure Determines Returns 96% Structured Exposure to Factors Market (Beta) Size – Market Cap Value/Growth 4% Stock Picking and Market Timing

Small and Value “Tilts” Increased Expected Returns Total Stock Market Small Growth High P/B Value Low P/B Large

Fixed Income Strategies Bonds Should Provide Income and Safety Limit Term Risk: Optimal 1-3 Years Limit Credit Risk: Govt. and Inv. Grade Only Currency Risk? High Volatility, Uncertain Benefit Index Funds Better Solution than Active Funds or Individual Bonds

Rebalancing Maintains Desired Risk Level Buy Low, Sell High Avoids Timing Uncertainty Time Based or % Based Avoids Emotional Distraction

Dimensional Fund Advisors Academically Based Research Created Many Firsts in “Index” Funds Passive Management, Added Returns from Small and Value Companies Fierce Attention to Keeping Costs Low #1 Fund Family for Lending Revenue Advisor-Only Network

Low High High Quality Short-Term Bonds Fixed Annuities CDs Global Value Stocks Real Estate Private Equity and Hedge Funds Safe Assets Risk Assets Expected Returns 2% - 4.5% 12+% Expected Returns Where is Your Portfolio?

Timely Opportunities Is Your Equity Exposure Appropriate? Value Stocks Tend to Lead Growth Out of Recessions: From March 9 th Low: S&P 500: 40.74%, USV:58.50%, DC: 61.34%, EM: 79.14% Limit Term Risk on Bonds Portfolio Analysis: $500-$5,000 Harvest Tax Losses

7 Steps to a Better Investment Experience Manage Your Investment Risks, Don’t Speculate Passive Management Means: Lower Costs, Less Taxation, Less Risk, Less Uncertainty and Better Returns Focus on Return Sources: Market Cap, Relative Value Control Risks: Diversification of Securities, Countries Control Emotional and Psychological Influences Get Expert Guidance if You’re Not an Expert

Toll Free: 800.683.5800 [email_address] www.SummitPortfolio.com

The Average Investor’s Mutual Fund Return Compared to Indexes 20 Years – 1989 to 2008 Sources: Dalbar QAIB Study 2009, Ibbotson Average Annualized Return 1.87% 5.05% 8.41%

Wealth Engineering Power Point

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