Transcript ING - Voya Investment Management

ING Behavioral Finance:
The Power of Not Losing
Presenter Name - Title
2012
CID: 2775
Bank of America Corporation (“Bank of America”) is a financial holding company that, through its
subsidiaries and affiliated companies, provides banking and investment products and other financial
services .
Merrill Lynch, Pierce, Fenner & Smith Incorporated is a wholly-owned subsidiary of Bank of America
Corporation, and a registered broker-dealer and member of FINRA and SIPC.
Investment products provided by Merrill Lynch, Pierce, Fenner & Smith, Incorporated:
Are Not FDIC Insured
Are Not Bank Guaranteed
May Lose Value
The views and opinions expressed in this presentation are not necessarily those of Bank of America
Corporation; Merrill Lynch, Pierce, Fenner & Smith Incorporated; or any affiliates.
Nothing discussed or suggested in these materials should be construed as permission to supersede or
circumvent any Bank of America, Merrill Lynch, Pierce, Fenner & Smith Incorporated policies, procedures,
rules, and guidelines.
Merrill Lynch, Pierce, Fenner & Smith Incorporated are not tax or legal advisors. Clients should consult a
personal tax or legal advisor prior to making any tax or legal related investment decisions.
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Behavioral Finance and Managing Our Biases
Does the Market Have You Feeling Like This?
Content of this presentation has been approved by the ING Investment Management (Americas) Compliance
Department. Certain copywrited and trademarked information illustrated or presented in this material are the property of their
respective firms. This material is for illustrative purposes only.
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Behavioral Finance and Managing Our Biases
Winning by not Losing
Today’s Agenda:

Investor Results in the Market

The Emotions of Investing

The Bedrock of Behavioral Finance
– Loss Aversion
It’s Important to Reduce the Chance of Losing
Rate at which to buy and sell
Content of this presentation has been approved by the ING Investment Management (Americas) Compliance Department. Certain copywrited and trademarked
information illustrated or presented in this material are the property of their respective firms. This material is for illustrative purposes only.
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Behavioral Finance and Managing Our Biases
Investor Results in the Market
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Behavioral Finance and Managing Our Biases
Investors Aren’t Keeping Up
Data source: Dalbar, Inc. (as of 12/31/10)
Past performance is no guarantee of future results. The Standard & Poor’s 500 Index is an unmanaged capitalization-weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Investors
cannot invest directly in an index.
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Behavioral Finance and Managing Our Biases
Stop Or Your Portfolio Gets It!
“For investors as a whole, returns
decrease as motion increases” –
Warren Buffet
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Behavioral Finance and Managing Our Biases
Long-Term Goals Giving Way to Short-Term Actions
Data source: Dalbar, Inc. (as of 12/31/10)
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Behavioral Finance and Managing Our Biases
Buy High, Sell Low?
Investors tend to . . .
$15,000
buy at market highs
40%
$10,000
20%
$5,000
0%
$0
-20%
-$5,000
-40%
Net New Flows – Rolling 3 month
R1000G Return – 12 months
60%
sell at market lows
-60%
-$10,000
1996-12 1997-12 1998-12 1999-12 2000-12 2001-12 2002-12 2003-12 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12
Past performance is no guarantee of future results. Russell 1000 Growth Index measures the large-cap growth segment of the U.S. equity market
including Russell 1000 companies with higher price-to-book ratios and forecasted growth. Investors cannot invest directly in an index.
Source: Strategic Insight; utilizes Morningstar Large Cap Growth category as definition
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Behavioral Finance and Managing Our Biases
The Emotions of Investing
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Behavioral Finance and Managing Our Biases
Investor Returns or Investment Returns?
Yahoo!® Finance – 6 Numbers Every Investor Should Follow
“Investor Returns
Morningstar® calculates "investor returns," which measure the average
investor's returns in a particular fund, versus its published returns. These
returns reveal how much money investors actually make or lose in a fund
based on when they buy and sell.
More volatile funds generally have lower investor returns because
investors make emotional decisions to buy or sell at the wrong times.”
Source: Yahoo! Finance. 6 Numbers Every Investor Should Follow. 5/10/11
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Behavioral Finance and Managing Our Biases
The Power of Not Losing
Where is an
Investor’s Trigger
Point?
Investment Loss
Gain Needed to
Recover
?
-10%
+11%
?
-20%
+25%
?
-30%
+43%
?
-40%
+67%
?
-50%
+100%
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
– Warren Buffet
Past performance is no guarantee of future results. This example is for illustrative purposes only.
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Behavioral Finance and Managing Our Biases
Our Biases – Emotional Reaction, Physical Impact
Losses have
DOUBLE the
psychological effect
of gains
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Behavioral Finance and Managing Our Biases
Our Biases – Emotional Reaction, Physical Impact
How Quickly Do You Return to
Normal After Winning $1,000?
How Long Does it Take to Get Over
Losing the Family Pet?
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Behavioral Finance and Managing Our Biases
Loss Aversion
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Behavioral Finance and Managing Our Biases
Bias: Loss Aversion
Loss Aversion - refers to people's tendency to strongly prefer avoiding losses to
acquiring gains, typically caused by recent losses.

Behavioral Observations
 Removing all money from the market, going to 100% cash
 Dramatically overweighting fixed income investments
 Quick to sell investments with short-term underperformance
 Losing focus on longer-term goals and concentrating on daily market volatility

Key Concepts
 Investors tend to be their own worst enemy, buying and selling at the wrong times
 This behavior is the main cause of poor investor outcomes
 Every investor has a Trigger Point that creates this reaction and it’s different for
everyone
 The most important part of achieving long-term goals is to build a plan designed to
help eliminate or diminish these behaviors
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Behavioral Finance and Managing Our Biases
Is the Image Moving?
This example is for illustrative purposes only.
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Behavioral Finance and Managing Our Biases
Which Fund Would You Rather Own?
10 Year Average Annual Returns of Two Large Cap Value Equity Funds
6.0%
5.0%
4.35%
4.18%
4.0%
3.0%
2.0%
1.0%
0.0%
Fund A
Fund B
-1.0%
As of 9/30/11
Past performance is no guarantee of future results. Hypothetical example, this is for illustrative purposes only.
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Behavioral Finance and Managing Our Biases
Which Fund Would You Rather Own Now?
250
Fund A loses over
55% during the 2008
downturn…
Investors Typically
Buy At The Peak
200
150
100
Investors Typically
Sell At The Bottom
Fund B experiences a 39%
loss during that same time
period
Fund B
50
Fund A
0
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
10 Year Rolling Returns of Two Large Cap Value Equity Funds
Past performance is no guarantee of future results. Hypothetical example, this is for illustrative purposes only.
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Behavioral Finance and Managing Our Biases
We All Have Our Trigger Point
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Behavioral Finance and Managing Our Biases
Understanding and Planning Around the Trigger Point
Identify The Trigger Point, Build A
Portfolio Aimed at Avoiding It
Ask a Few Questions To Help Clients
Think Through Their Decision
 Understand
this behavior is deeply
rooted in us and nearly impossible to
stop

Do you believe that an investment under
consideration produces a return with little
risk? Do you understand the risks?
the Trigger Point – What will
cause loss aversion behavior to kick in?

Are you looking to this investment to help
you reach your long-term—10 years—
investment goals?

Do you expect the value to decline the
day after you make an investment?

If the value does decline immediately, will
you withdraw your funds?

What if the value declines over the next
12-24 months?
 Establish
 Build
Point
a portfolio to help avoid the Trigger
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Behavioral Finance and Managing Our Biases
Planning Ahead to Manage the Trigger Point
If the Trigger Point is Hit, Ask a Few Questions Before Acting

Other than the price, what else has changed?

What other information do I need to determine if this is truly bad news?

Are my original reasons to invest still valid?

If I liked this investment enough to buy at a higher price, shouldn’t I like it even more at
a lower price?

Has this investment ever gone down this much before, and if so would I have done
better selling out or increasing my position?
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Behavioral Finance and Managing Our Biases
Everyone’s Relationship to Money is Unique
My View of Money
Your View of Money

Each of us views the value of money differently

Which means we each will view loss and risk differently

All of us will have a Trigger Point…but the actual number will be unique to us
Content of this presentation has beem approved by the ING Investment Management (Americas) Compliance Department. Certain copywrited and trademarked
information illustrated or presented in this material are the property of their respective firms. This material is for illustrative purposes only.
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Behavioral Finance and Managing Our Biases
The Lesson of Behavioral Finance – Managing Loss

High negative returns have the potential to put portfolios in a deep hole and trigger our
emotional biases

Biases are typically deeply engrained in us and can cause us to make poor decisions

Understand your biases

Don’t fight them, use them to plan in a way that gives you a higher probability of not
veering from your established goals
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Behavioral Finance and Managing Our Biases
This information is proprietary and cannot be reproduced or distributed. Certain information may be
received from sources ING Investment Management (“ING IM”) considers reliable; ING IM does not
represent that such information is accurate or complete. Certain statements contained herein may
constitute "projections," "forecasts" and other "forward-looking statements" which do not reflect
actual results and are based primarily upon applying retroactively a hypothetical set of assumptions
to certain historical financial data. Actual results, performance or events may differ materially from
those in such statements due to, among other things, (i) general economic conditions, in particular
economic conditions in ING IM's core markets, (ii) performance of financial markets, including
emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and
morbidity levels and trends, (v) persistency levels, (vi) interest rate levels, (vii) currency exchange
rates (viii) general competitive factors, (ix) changes in laws and regulations, (x) changes in the
policies of governments and/or regulatory authorities, (xi) conclusions with regard to purchase
accounting assumptions and methodologies, (xii) ING IM's ability to achieve projected operational
synergies. Any opinions, projections, forecasts and forward looking statements presented herein
are valid only as of the date of this document and are subject to change. Nothing contained herein
should be construed as (i) an offer to buy any security or (ii) a recommendation as to the
advisability of investing in, purchasing or selling any security. ING IM assumes no obligation to
update any forward-looking information.
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Behavioral Finance and Managing Our Biases
Appendix
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Behavioral Finance and Managing Our Biases
Understanding Our Decision Making
Which return is more attractive to you?
+5%
or
+6%
-5%
or
-6%
+10%
or
+15%
-10%
or
-15%
+15%
or
+22%
-15%
or
-22%
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Behavioral Finance and Managing Our Biases
Evaluating Portfolios - Definitions
Standard Deviation
The variance or dispersion of a portfolio’s returns around its average returns over a period of time. This is a good tool, but
it’s important to remember that it’s relative to Fund’s own average.
Beta
The portfolio's volatility in comparison to the market or benchmark. This helps investors identify a fund’s risk relative to
benchmarks either low (beta < 1) or high (beta >1). It’s important to review the Fund’s benchmark performance when
considering beta.
Alpha
The difference between a portfolio’s actual returns and its expected performance, given its level of risk as measured by
Beta. This helps investors identify the value a manager is adding relative to a benchmark.
Sharpe Ratio
The reward per unit of risk, with the higher the ratio the better the historical risk-adjusted performance. This helps
investors measure risk-adjusted performance. This is not relative to a benchmark and enables comparison of portfolios
with different risk levels
Downside Capture Ratio
A portfolio’s overall performance relative to an index in down markets. This helps investors evaluate how well (<100) or
poorly (>100) a manager performed relative to an index’s down periods.
Information Ratio
A special version of the Sharpe Ratio that uses a portfolio’s benchmark in evaluating risk. This helps investors measure
both excess return against a benchmark and the consistency of those returns. In other words, did a manager obtain
strong returns by beating the benchmark a lot in a few months or consistently by a little each month.
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Behavioral Finance and Managing Our Biases
Bias: Loss Aversion
Loss Aversion - loss aversion refers to people's tendency to strongly prefer
avoiding losses to acquiring gains. Some studies suggest that losses are twice as
powerful, psychologically, as gains

Key Concepts
 Investors tend to be their own worst enemy, buying and selling at the wrong times
 This behavior is the main cause of poor investor outcomes
 Every investor has a Trigger Point that creates this reaction and it’s different for
everyone
 The most important part of achieving long-term goals is to build a plan designed to
help eliminate or diminish these behaviors
 Your Financial Advisor can help you build a portfolio designed to help reduce the
chances of experiencing Loss Aversion
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Behavioral Finance and Managing Our Biases