Aboslute Capital Univ. Presentation

& How to Avoid Them

Presented by:

Terry Elder, CFP

Cash Flow Planners

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

Critical Mistake #1

Failing to establish a definitive gameplan & investment strategy

Critical Mistake #2

Not devoting sufficient timeto learning & research

Critical Mistake #3

Not taking action due to information overload

$$$

?“I don’t want to be poor.”

(FEAR)

“I want to be rich!”

(GREED)

Critical Mistake #4

Falling prey to the “Mental Accounting” tendency

Critical Mistake #5

Falling prey to the “Loss Aversion” tendency

Critical Mistake #6

Using the “Rearview Mirror” technique

Critical Mistake #7

Not diversifying assets

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)

13.2%

3.7% 3.0%

Stocks Average Inflation Equity Fund

Investor

As measured by the S&P 500 Index

Source: Oppenheimer Funds, Pulse of the Market 2006

The Importance of Risk Management

Market Risk

Is it just the “price of admission” to be

invested in the market?

-100.0%

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

% Decline

% Needed toBreak Even

The Importance of Avoiding Big Losses

-25%

-75%-50%

-33%

50%

100%

300%

33%

Investment Risk

Investment Risk: The variation of returns over time

Market Risk

Inflation

RiskCurrency Risk

Industry Risk

Geopolitical Risk

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

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?

What’s Your Time Horizon?

Annual Rolling Period Results for S&P 500 Index1

(1926-12/30/05)

HoldingPeriod

Number of Periods

Periods withLoss

1 Year 80 29

3 Years 78 15

5 Years 76 13

10 Years 71 1

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.


Risk Perceptions

Fear

Greed

Risk Management Solutions

to current market conditions

Where to begin?

Growth?Growth? Small Cap?Small Cap?

BLEND?BLEND?

Value?Value? Mid Cap?Mid Cap?

Large Large Cap?Cap?

Stocks? Bonds?

High Yield?High Yield?

International?

Master Asset Classes

Domestic Domestic

EquityEquity

International International

EquityEquity

BondsBonds

Money MarketMoney Market

(Stable Value)(Stable Value)

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

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

Source: Federated Investors

Different Times, Different Styles

-30

-20

-10

0

10

20

30

40

50

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

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


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 CapLarge Cap

Mid CapMid Cap

Small CapSmall 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.

Does It Matter Which Cap You Choose?

Small Cap vs. Mid Cap vs. Large Cap (1996–12/30/05)1

(Annual Returns)

200019981996 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.


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

The International Component

Annual Total Returns (%) of S&P 500 Index vs. MSCI EAFE Index 1980 - 2005

The 1980s The 1990s


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


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

Source: Federated InvestorsPerformance 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.

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.


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


The Step by Step Formula

Assess Market Assess Market ConditionsConditions

Select Asset Classes Select Asset Classes for Investmentfor Investment

Construct Diversified Construct Diversified Portfolio (%)Portfolio (%)

Analyze Available Analyze Available Investment Options / Investment Options /

Select ManagersSelect Managers

Rebalance as Rebalance as NecessaryNecessary

Monitor & Respond to Monitor & Respond to Changing Market Changing Market

ConditionsConditions

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?

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

What You Get:

Full time monitoring of your investments

Reallocation of your portfolio based on current

market conditions

Risk Management

AssetAllocator

Invests in asset classes and styles that are anticipated to perform well and avoids those that are expected to lag

Generally fully invested

How it works…

• Determine your tolerance for risk

• Diversify your portfolio accordingly

• Choose the appropriate investments

• Regularly rebalance your portfolio

• Continuously review

Five Different Strategies

Income

GrowthCore

Conservative

Domestic Equity 30%

Bonds 70%

Domestic Equity 35%Bonds 55%International Equity 10%



Aggressive Growth

Domestic Equity 65%International Equity 35%

So Many Choices!

Growth?Growth? Small Cap?Small Cap?

BLEND?BLEND?

Value?Value? Mid Cap?Mid Cap?

Large Large Cap?Cap?

Stocks? Bonds?

High Yield?High Yield?

International?

Choosing the Correct Style Boxes

DomesticDomestic InternationalInternational

BondBond

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

JapanEmergin

g Markets

Investment Grade Corporate Bonds

Government Bonds

High Yield Corporate Bonds

Step 1Step 1: Determine relative : Determine relative weightings for market weightings for market capitalization (Big Cap, capitalization (Big Cap,

Mid Cap, Small Cap)Mid Cap, Small Cap)

Step 2Step 2: Determine which style: Determine which style to use (Value, Blend,to use (Value, Blend,

Growth)Growth)

Step 3Step 3: Allocate to style : Allocate to style categories based on your categories based on your investor profileinvestor profile

Style Box BreakdownStyle Box Breakdown

ValueValue BlendBlend GrowthGrowth

Smal

lSm

all

Mid

Mid

Lar

geL

arge

How It’s Done

Example: Domestic Equity

Professional Investment Selection

Number of Equity Mutual Funds

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

105% more equity funds in 5 years!

Source: Investment Company Institute

Positioning Your Investments

Assess Market Assess Market ConditionsConditions

Select Asset Classes Select Asset Classes for Investmentfor Investment

Construct Diversified Construct Diversified Portfolio (%)Portfolio (%)

Analyze Available Analyze Available Investment Options / Investment Options /

Select ManagersSelect Managers

Rebalance as Rebalance as NecessaryNecessary

Monitor & Respond to Monitor & Respond to Changing Market Changing Market

ConditionsConditions

The Process…

A 45 minute, no obligation interview

Receive a FREE risk profile

Friendly, non sales environment

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.

Aboslute Capital Univ. Presentation

Economy & Finance

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