Transcript IAR - Read this first!

IAR - Read this first!
This presentation is for advisory clients and prospects only. You
must be a Investment Advisor Representative (IAR) to use this
presentation with clients/prospects. All slides and speaker note
scripts must be used in the format provided and cannot be altered.
Slides may not be provided in any form to clients and/or prospects.
Any modifications to this presentation must be submitted to LPL
Financial Advertising Review for approval prior to first use.
Speaker notes are accessed by going to View > Notes Page.
Microsoft PowerPoint (not Viewer) required to see Notes Pages.
S T R A T E G I C A S S E T M A N A G E M E N T (SAM)
A TIME-TESTED INVESTMENT STRATEGY
The LPL Financial family of affiliated companies includes LPL
Financial, UVEST Financial Services Group, Inc., IFMG
Securities, Inc., Mutual Service Corporation, Waterstone
Financial Group, Inc., and Associated Securities Corp., each of
which is a member of FINRA/SIPC.
Strategic Asset Management
• Asset Allocation and
Diversification
• My Role as an Advisor

The Consulting Process
• My Advisory Platform

Strategic Asset Management
There is no guarantee that a diversified portfolio will enhance overall
returns or outperform a non-diversified portfolio. Diversification does
not ensure against market risk.
Charting the Course for your
Financial Future
Strategic Asset Allocation
Divide your portions between
seven or eight for you do not
know what misfortune will
come to this world.
Asset Allocation Drives
Performance
Market Timing 1.8%
Other Factors 2.1%
Security Selection 4.6%
Asset
Allocation
Decision
91.5%
Source: “Determinants of Portfolio Performance II: An Update” - Brinson, Singer, & Beebower,
Financial Analysts Journal, May / June 1991
How Many Baskets Do You Have?
Best
Performing
1991
1992
1993
1994
1995
1996
1997
1998
1999
L
L
S Growth S Value
Intl
Intl
L Value
L Value
HFRI
Growth
Growth
51.2%
29.1%
33.0%
8.1%
38.3%
35.2%
44.2%
23.1%
38.7%
S&P
S&P
S&P
S
S Value
HFRI
HFRI
L Growth S&P 500
500
500
500 Growth
41.7%
21.3%
27.9%
2.7%
37.6%
22.9% 33.4% 28.8% 43.1%
L
L Growth L Value S Value
HFRI
L Growth HFRI S Value
Intl
Growth
41.2%
13.8%
23.9%
2.6%
37.2%
21.7% 31.8% 20.3%
33.1%
L
HFRI
S Growth L Value S&P 500 S Growth L Value
HFRI
Intl
Growth
40.1%
7.8%
18.1%
1.3%
31.0%
21.6%
16.0% 27.3%
30.5%
S&P
S&P 500 S&P 500 S Growth S Value
HFRI
S Value HFRI L Value
500
30.5%
7.6%
13.4%
-1.5%
31.0%
21.4% 23.4% 15.6%
21.0%
S
S
L Value
Bonds
S&P 500 L Value S Value
Bonds L Value
Growth Growth
24.6%
7.4%
10.1%
-2.0%
25.8%
8.7%
7.3%
11.3% 13.0%
S
Bonds L Growth Bonds S Growth Bonds
Intl
Bonds
Bonds
Growth
16.0%
5.0%
9.8%
-2.4%
18.5%
6.4%
9.7%
-0.8%
1.2%
Worst
Performing
Intl
12.5%
Intl
-11.8%
L Growth
2.9%
Bonds
-2.9%
Sources
Bonds: LB Aggregate Bond Index
L Growth: Russell 1000 Growth Index
L Value: Russell 1000 Value Index
S Growth: Russell 2000 Growth Index
Intl
11.6%
Bonds
3.6%
Intl
2.1%
2000
2001
2002
2003
2004
2005
2006
2007
S
L
S Value S Value Bonds
S Value
Intl
Intl
Growth
Growth
22.8% 14.0% 10.26%
22.25% 14.02% 26.86%
48.5%
11.81%
Bonds
11.6%
Bonds
8.4%
HFRI
9.1%
HFRI
0.4%
HFRI S Value
Intl
-4.7% 46.0% 20.7%
HFRI S Value
Intl
10.6% 23.48% 11.58%
S Value
Intl
L Value L Value L Value HFRI
-11.4% 39.2% 16.49% 7.05% 22.25% 10.65%
S
L Value L Value L Value L Value
Growth
7.0% -5.6% -15.5% 30.0%
14.31%
S&P
S
L
S&P
Intl
500 Growth
Growth 500
-15.7%
-9.1% -9.2%
29.8% 10.9%
S&P
S&P
S&P
L
Intl
500
500
500 Growth
-14.0%
-11.9% -22.1% 28.7% 6.30%
S
L
L
HFRI Bonds
Growth Growth Growth
20.9% 4.34%
-22.4% -20.4% -27.9%
L
S
S Value S Value
Intl
Bonds HFRI
Growth
Growth
-6.4% -1.5%
-21.2%
4.1%
2.2%
-22.4%
-30.4%
S Value: Russell 2000 Value Index
Intl: MSCI EAFE Index
HFRI: HFRI Equity Hedge Index
Indices are unmanaged and cannot be invested into directly. See attached page for disclosures.
L
S&P
S
Growth 500 Growth
5.26% 15.79% 7.05%
S&P
S
Bonds
500 Growth
6.97%
4.91% 13.35%
S&P
S Value HFRI
500
4.71% 11.71%
5.49%
S
L
L Value
Growth Growth
-0.17%
4.15% 9.07%
Bonds
2.43%
Bonds S Value
4.33% -9.78%
How Many Baskets Do You Have?
Disclosure: Treasury bills are backed by the full faith and
credit of the United States Government. Please note that the
value of bonds generally have an inverse relationship to
interest rates. Stocks will experience market fluctuations
which can include loss of principal value while bonds offer a
fixed-rate of return. Small-cap stocks may be subject to a
higher degree of market risk than large-cap stocks, and the
illiquidity of the small-cap market may adversely affect the
value of these investments so that when redeemed, shares
may be worth more or less than their original cost. High-yield
securities inherently have a higher degree of market risk and
there are credit risks associated with the underlying issuers.
In addition, lack of liquidity associated with high-yield
securities may impair their value. International and emerging
market securities are also subject to additional risks such as
currency fluctuations and political instability. Prior to
investing in any security, consult with your financial
professional.
A Tale of Three Investors
Our first investor, Peter, employs
an investing strategy known as
“chasing performance.” He invests
$800,000
$600,000
$496,731
a hypothetical $10,000 at the end of
$400,000
each year into the best-performing
market segment of that year and
continues this process for twenty
years.
$200,000
$0
Peter
For purposes of this comparison, the overall market has been divided into six separate indices – Lehman Agg.
Bond Index, M.S. Capital International, Russell 1000, Russell 1000 Growth, Russell 1000 Value and Russell
2500. It is not possible to invest directly in an index.
Beginning 12/31/82 and ending 12/31/02, “Peter” invests $10,000 on January 1 of each year for twenty years
into the best-performing market segment of the previous year. The money is left in the specific sector for the
duration.
This is a hypothetical illustration and not representative of any specific investment. Your
situation will vary. Past performance is no guarantee of future results.
A Tale of Three Investors
Our second investor, Rhoda,
$800,000
is always hoping for the
“rebound.” She invests at the
end of each year in the worst
performing segment of that
$545,404
$600,000
$400,000
$200,000
year and continues this
process for twenty years.
$0
Rhoda
For purposes of this comparison, the overall market has been divided into six separate indices – Lehman Agg. Bond
Index, M.S. Capital International, Russell 1000, Russell 1000 Growth, Russell 1000 Value and Russell 2500.
It is not possible to invest directly in an index.
Beginning 12/31/82 and ending 12/31/02, “Rhoda” invests $10,000 on January 1 of each year for twenty years
into the worst-performing market segment of the previous year. The money is left in the specific sector for the
duration.
This is a hypothetical illustration and not representative of any specific investment. Your
situation will vary. Past performance is no guarantee of future results
A Tale of Three Investors
Irvin is the insightful investor. He
allocates and diversifies his $10,000
by investing equally in six different
$800,000
$642,339
$600,000
market segments each year for 20
$400,000
years. And not only does Irvin
allocate and diversify, but at the end
of every quarter, his portfolio’s assets
are rebalanced so that they are equally
$200,000
$0
Irvin
distributed among six segments.
For purposes of this comparison, the overall market has been divided into six separate indices – Lehman Agg. Bond
Index, M.S. Capital International, Russell 1000, Russell 1000 Growth, Russell 1000 Value and Russell 2500. It is
not possible to invest directly in an index. “Irvin” follows this process from 12/31/82 – 12/31/02, investing an
addiional $10,000 every January 1. This is a hypothetical illustration and not representative of any
specific investment. Your situation will vary. Past performance is no guarantee of future results.
A Tale of Three Investors
Maintaining a well-diversified portfolio worked
$800,000
Irvin may be onto something.
His strategy combining asset
allocation and rebalancing
$642,339
$600,000
$545,404
$496,731
$400,000
significantly outperformed the
$200,000
other two approaches.
$0
Peter
Rhoda
Irvin
This is a hypothetical illustration designed to demonstrate the effects of diversification and
rebalancing and is not intended to project performance. No strategy assures success or
protects against loss. Past performance is no guarantee of future results.
The Lehman Brothers Agg. Bond Index is a measure of the U.S. bond market. The MSCI EAFE Index is a
measure of the international stock market. The Russell 1000 Index measures the performance of large-cap
U.S. stocks. The Russell 1000 Growth Index measures the performance of large-cap U. S. growth stocks. The
Russell 1000 Value Index measures the performance of large-cap U.S. value stocks. The Russell 2500 Index
measures the performance of U.S. small-cap stocks
Consistency, Consistency, Consistency
Investor A: Invests $100,000
Chases Returns
Goes up 30% one year, down
10% the next. Continues this
pattern for 20 years.
Investor B: Invests $100,000
Disciplined, Diversified Portfolio
Goes up 10% one year, up 10%
the next. Continues this pattern
for 20 years.
Average Annual Return, Investor A:
10%
Average Annual Return, Investor B:
10%
Account Value after 20 years:
Account Value after 20 years:
$480,674
$672,735
This is a hypothetical illustration. Your results will vary. Diversification is an
investment strategy that seeks to reduce risk an provide competitive returns. No
investment strategy guarantees against a loss.
The hypothetical rates of return do not reflect the cost inherent in investing.
How Diversified Are You?
Many Assets, Little Diversification
Large Company Growth Stocks
Appreciation Fund
Stock investing involves risk, including loss of principal.
A World of Noise
Don’t Be That Guy!
Stuart and Mr. P
“Catch the wave of the future, m’man!”
Source: Ameritrade
My Role as Advisor:
Quiet the Noise and Remain Disciplined
Determine
Objectives
On-Going
Review
You
Security
Selection
Asset
Allocation
Step 1: Determine Your Objectives
Step 2: Build Asset
Allocation Framework
Growth with Income
Large Cap U.S. Growth - 23%
Large Cap U.S. Value - 23%
Small Cap U.S. Growth - 4%
Small Cap U.S. Value - 3%
Large Cap Foreign - 7%
Int/LT Hi-Quality Bond - 21%
Int/LT High Yield Bond - 3%
Int/LT Foreign Bond - 3%
Short Int Hi-Quality Bond- - 8%
Cash- 5%
Step 3: Select Underlying
Investments
Small Cap U.S. Growth
Small Cap U.S. Value
Small Cap/Emerging Market
Large Cap U.S. Growth
Large Cap U.S. Value
Large Cap Foreign
Int/LT Hi-Quality Bond
Int/LT High Yield Bond
Int/LT Foreign Bond
Cash
Large Cap U.S.Growth
Growth Fund of America
Columbia Marsico Growth
Harbor Capital Appreciation
IXIS Advisor Funds
T Rowe Price Growth Stock Fund
Investors should consider the investment objectives, risks, charges and
expenses of the investment company carefully before investing. The
prospectus contains this and other information about the investment
company. You can obtain a prospectus from your financial representative.
Read carefully before investing.
The Fund Selection Process
•
•
•
•
•
Management Team
Investment Philosophy
Risk
Expenses
Adherence to Style
Investing in mutual finds involves risk, including loss of principal.
Investments in specialized industry sectors have additional risks, which
are outlined in the prospectus.
Step 4: Ongoing Portfolio
Review
• Discuss Account Performance
• Revisit Client Objectives
• Review Asset Allocation
• Explain Rebalancing
• Implement Decisions
Staying in Balance
•Source: LPL Financial. Values represent the total return of unmanaged indices assuming full reinvestment of capital
gains and dividends. Equity allocation represented by the Russell 3000 Index; Bonds represented by the Lehman Brothers
Aggregate Bond Index; Cash represented by the Lehman Brothers 3-month T-Bill. Past performance is no
guarantee of future results. Indices may not be invested into directly. No strategy assures
success or protects against loss. This hypothetical example is intended to demonstrate the
effects of rebalancing and is not intended to project performance.
My Advisory Process:
By building a relationship based on advice,
rather than transactions, my success is
directly linked to that of my client.
Benefits of Strategic Asset
Management
• Multiple Investment Choices
• Flexibility
• World Class, Unbiased
•
Research
One Account, One Statement,
One Fee
Multiple Investment Choices
•
•
•
•
•
6,250+ No-load /Load Waived
Mutual Funds*
Individual Stocks & Bonds**
No-Load Variable Annuity
Previously Purchased Investments
Certain funds in SAM pay 12b-1 fees. Nominal transaction charges apply.
** Stock investing involves risk, including loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity.
Bond values will decline as interest rates rise and are subject to availability
and change in price.
Sample Fund Families
•
•
•
•
•
•
•
•
•
AIM
Allianz
American Funds
Dreyfus
Fidelity
Franklin/Templeton
Janus
MFS
Neuberger/Berman
•
•
•
•
•
•
•
•
•
Oppenheimer
PIMCO
Putnam
RS Funds
Scudder
TCW
Transamerica
T Rowe Price
Vanguard
Investors should consider the investment objectives, risks, charges and expenses
of the investment company carefully before investing. The prospectus contains
this and other information about the investment company. You can obtain a
prospectus from your financial representative. Read carefully before investing.
Flexibility
• Change Asset Allocation as
Your Objectives Change
• Aligned Interest
• Trade Without Paying
Commissions*
* Certain funds in SAM pay 12-b1 fees. Nominal
transaction charges occur.
LPL Financial World Class
Research
• One of the Largest Independent
Investment Research Organizations
• Analysts Covering Individual
Securities and Mutual Funds
• No Investment Banking, No
Proprietary Products
LPL Financial Resources
LPL Financial Research
One Account, One Statement,
One Fee
•
•
•
Consolidated, Quarterly Report
Consolidated Tax Statement
Predictable Expenses Linked to
Portfolio Performance
The End Result
•
Consistent,
Risk-Adjusted
Investment
Ongoing
Returns
Review
Security Selection
Asset Allocation
Determine Objectives
Strategic Asset Management
A Time-Tested Investment Strategy
“The only thing new in this world
is the history you don’t know.”
-Harry S. Truman
Your Next Step
Schedule a meeting for a more in depth
look at my practice and receive a
complimentary investment analysis.