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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?
BestPerforming
WorstPerforming
Indices are unmanaged and cannot be invested into directly. See attached page for disclosures.
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
S Growth51.2%
S Value29.1%
Intl 33.0%
Intl 8.1%
L Value38.3%
L Growth23.1%
L Value35.2%
L Growth38.7%
HFRI44.2%
S Value22.8%
S Value14.0%
Bonds 10.26%
S Growth48.5%
S Value22.25%
Intl 14.02%
Intl 26.86%
L Growth11.81%
S Value41.7%
HFRI21.3%
HFRI27.9%
L Growth2.7%
S&P 50037.6%
S&P 500
22.9%
S&P 500
33.4%
S&P 500
28.8%
S Growth43.1%
Bonds11.6%
Bonds8.4%
HFRI-4.7%
S Value46.0%
Intl 20.7%
HFRI10.6%
S Value23.48%
Intl 11.58%
L Growth41.2%
L Value13.8%
S Value23.9%
HFRI2.6%
L Growth37.2%
HFRI21.7%
S Value31.8%
Intl 20.3%
L Growth33.1%
HFRI9.1%
HFRI0.4%
S Value-11.4%
Intl 39.2%
L Value16.49%
L Value7.05%
L Value22.25%
HFRI10.65%
HFRI40.1%
S Growth7.8%
L Value18.1%
S&P 5001.3%
S Growth31.0%
L Value21.6%
L Growth30.5%
HFRI16.0%
Intl 27.3%
L Value7.0%
L Value-5.6%
L Value-15.5%
L Value30.0%
S Growth14.31%
L Growth5.26%
S&P 500
15.79%
S Growth7.05%
S&P 50030.5%
S&P 5007.6%
S Growth13.4%
S Value-1.5%
HFRI31.0%
S Value21.4%
HFRI23.4%
L Value15.6%
S&P 500
21.0%
S&P 500
-9.1%
S Growth-9.2%
Intl -15.7%
L Growth29.8%
S&P 500
10.9%
S&P 500
4.91%
S Growth13.35%
Bonds 6.97%
L Value24.6%
Bonds7.4%
S&P 50010.1%
L Value-2.0%
S Value25.8%
S Growth11.3%
S Growth13.0%
Bonds8.7%
L Value7.3%
Intl -14.0%
S&P 500
-11.9%
S&P 500
-22.1%
S&P 500
28.7%
L Growth6.30%
S Value4.71%
HFRI11.71%
S&P 500
5.49%
Bonds16.0%
L Growth5.0%
Bonds9.8%
S Growth-2.4%
Bonds18.5%
Intl 6.4%
Bonds9.7%
S Growth1.2%
Bonds-0.8%
S Growth-22.4%
L Growth-20.4%
L Growth-27.9%
HFRI20.9%
Bonds 4.34%
S Growth4.15%
L Growth9.07%
L Value-0.17%
Intl 12.5%
Intl -11.8%
L Growth2.9%
Bonds-2.9%
Intl 11.6%
Bonds3.6%
Intl 2.1%
S Value-6.4%
S Value-1.5%
L Growth-22.4%
Intl -21.2%
S Growth-30.4%
Bonds 4.1%
HFRI2.2%
Bonds 2.43%
Bonds 4.33%
S Value-9.78%
SourcesBonds: LB Aggregate Bond IndexL Growth: Russell 1000 Growth IndexL Value: Russell 1000 Value IndexS Growth: Russell 2000 Growth Index
S Value: Russell 2000 Value IndexIntl: MSCI EAFE IndexHFRI: HFRI Equity Hedge Index
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.
Our first investor, Peter, employs
an investing strategy known as
“chasing performance.” He invests
a hypothetical $10,000 at the end of
each year into the best-performing
market segment of that year and
continues this process for twenty
years.
A Tale of Three Investors
$496,731
$0
$200,000
$400,000
$600,000
$800,000
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.
Our second investor, Rhoda,
is always hoping for the
“rebound.” She invests at the
end of each year in the worst
performing segment of that
year and continues this
process for twenty years.
A Tale of Three Investors
$545,404
$0
$200,000
$400,000
$600,000
$800,000
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
Irvin is the insightful investor. He
allocates and diversifies his $10,000
by investing equally in six different
market segments each year for 20
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
distributed among six segments.
A Tale of Three Investors
$642,339
$0
$200,000
$400,000
$600,000
$800,000
Irvin
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.
$496,731$545,404
$642,339
$0
$200,000
$400,000
$600,000
$800,000
Irvin may be onto something.
His strategy combining asset
allocation and rebalancing
significantly outperformed the
other two approaches.
A Tale of Three Investors
Peter Rhoda Irvin
Maintaining a well-diversified portfolio worked
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:
$480,674
Account Value after 20 years:
$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
Asset Allocation
Security Selection
On-Going Review You
Step 1: Determine Your Objectives
Step 2: Build Asset Allocation Framework
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%
Growth with Income
Step 3: Select Underlying InvestmentsSmall 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 AmericaColumbia Marsico GrowthHarbor Capital AppreciationIXIS Advisor FundsT 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 Returns
Determine Objectives
OngoingReview
Security Selection
Asset Allocation
Strategic Asset ManagementA 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.
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