kootenay valley financial services inc. click to progress through presentation

Kootenay Valley Financial Services Inc.

Click to progress through presentation

Two Great Questions in Life

A$$ETSWhat do What do

You Have?You Have?What do What do

You Have?You Have?

GOAL What do What do You Need?You Need?What do What do

You Need?You Need?

Principles for Long Term Investment Success

Asset class performance is ________________over long time frames.

Investment expense are ________ importantthan returns.

Diversification is not always ____________ .

Mutual Funds are ____________ within asset classes.

______________ asset classes based on volatility enhances return.

PREDICTABLE

MORE

EFFICIENT

RANDOM

COMBINING

What are Your CORE BELIEFS?

Taxes WILL always go up, not down. ______ ______

To be financially SECURE incomemust keep pace with inflation. ______ ______

Life expectancies ARE greater than ever. ______ ______Managed Equities ARE safer than CD’s and Bonds. ______ ______

Risk is a necessary evil. ______ ______

Yes No

XX

XX

XX

XXXX

Speculative

Foundation

Investors typically have THREE types of Capital

To achieve a consistent investment return – You must avoid the BIG MISTAKE!

3. _______________ 2. _______

1.

Core

The S&P Average MarketReturn over the last 10 Years?

12.7%

Ibbotson, Morningstar andFidelity studies show

Average Investor Returns over the last 10 Years.

2.3%

The THREE Barriers to financial success

1. _____________________

2. _____________________

3. _____________________

Taxes

InflationInefficient

Diversification

INVESTMENT FRICTION

Let’s look at TAXES!!!

If $1 doubles every year for 20 years

$1,048,576$100 =In a

40% Tax Bracket$12,089

In a28% Tax Bracket

$51,353

Notice the huge impact TAXES can have on your wealth

3.0% 2.7% 1.6% 1.7% 3.3% 2.7% 2.7% 2.8% 3.0% 3.1% 6.1% 4.6% 4.4% 4.4% 1.1% 3.8% 4.0% 3.8% 3.9% 8.9%12.4%

200019991998199719961995199419931992199119901989198819871986198519841983198219811980

13.0% 9.0% 6.8% 4.8% 7.0% 12.2% 8.8% 3.4% 3.4% 5.5% 6.1% 4.7% 3.0% 3.3% 1.9% 1.2% 1.7% 1.2% 0.7% 1.5% 1.5%

1.8% 3.0% 2.0% 0.4% - 0.5% 0.6% 0.9% 5.9% 5.8% - 1.8% 2.7% 9.0% 18.2% 2.2% 2.1% 3.2% 9.3% 9,7% 1.0% - 0.5% - 2.8%

197919781977197619751974197319721771197019691968196719661965196419631962196119601959

195819571956195519541953195219511950194919481947194619451944194319421941194019391938

Now let’s look at INFLATION

AVERAGE 3.6% 4.8% 3.4%

StampWoman’s SkirtHouseCarLoaf of Bread½ Gal MilkMedian Income

$ .06$ 7.50$25,000$ 3,400$ .23$ .50$ 4,594

$ .33$ 85.00$235,000$ 25,000$ 2.39$ 2.15$ 18,500

5.85%8.43%7.76%6.68%8.12%4.98%4.66%

COMMODITY 1970 TODAY INFLATION

Does History Really Repeat Itself?

What is the TRUE Inflation rate?

24%?

1940 1960 1980 2000

7%

14%

% Over age 65Living to age 90

Why is Inflation such a PROBLEM?

The longer people livethe higher the risk theywill “Run Out of Money”

The longer people livethe higher the risk theywill “Run Out of Money”

How does inflation IMPACT you?

45 65

20 yrs 10 yrs10 yrs

85

$50,000

Age:

$18,000

$32,000

It’s the 2nd TEN Years of Retirement that matters

What is RISK?

Name the TWO kinds of risk:

1. _____________________________

2. _____________________________

Loss of Capital

Loss of Purchasing Power

What Causes LOSS of CAPITAL?

It’s all about Volatility

Whose Numbers are those?

They are notYours - UNLESSYou are Buying orSelling

How do you measure Volatility?

Average ROR

Index

Average ROR+/-

12% 17

+17%-17% 12%

High 29% Low - 5%

+29%- 5%

Risk is ALL ABOUT VolatilityRisk is ALL ABOUT VolatilityRisk is ALL ABOUT VolatilityRisk is ALL ABOUT Volatility

Retirement

But Remember – Risk is also Inflation

So, which Risk is Guaranteed to Happen?

What can you do to PROTECT yourWhat can you do to PROTECT yourPurchasing power?Purchasing power?

Return onReturn onInvestmentInvestment

ROI ROI adjusted foradjusted for

InflationInflation

~2.2 x~4 x

Small Cap

Large Cap

Corporate Bonds

Gov’t Bonds

Inflation

12.4%

11.3%

5.6%

5.1%

3.3%

9.1%

8.0%

2.3%

1.8%

Brinson Study

60

80

100

0

20

40

Timing

2%2%

StockSelection

4%4%

AssetAllocation

94%94%

What IMPROVES Portfolio PerformanceWhat IMPROVES Portfolio Performance

1.

2.

3.

Where should I invest my MONEY?Where should I invest my MONEY?

Name THREE basic Asset Classes?

Cash

Stocks

Bonds

HistoricalHistoricalReturn on Return on InvestmentInvestment

Volatility IndexVolatility Index

Small Cap

Large Cap

Corporate Bonds

Gov’t Bonds

Inflation

Is asset class performance PREDICTABLE?Is asset class performance PREDICTABLE?

12.4%

11.3%

5.6%

5.1%

3.3%

39.62%

20.17%

8.78%

9.43%

16.61%

8.51%

4.57%

4.69%

1 Year 5 Year

4.42% 3.29%

The Lipper StudyThe Lipper Study

Mutual Funds in the same asset class eventuallyEarn the same average rate of return.

REGRESSION TO THE MEAN

Some asset classes move in Some asset classes move in OPPOSITE directionsOPPOSITE directions

-1 Zero +1

Negative – Moves in opposite directionsTotally Random – no relationshipPositive – Moves in the SAME direction

U.S. vs. InternationalU.S. vs. International

Rolling

12-Month

40%

30%

20%

10%

0%

10%

20%

30%

40%

50%

60%

70%

Returns

72 76 80 84 86 90 94 98

International outperforms U.S.

U.S. outperforms International

Why are Correlation CoefficientsWhy are Correlation Coefficientsimportant?important?

VA

LU

EV

AL

UE

TIMETIME

This is Called INEFFICIENT Diversification

We need to create DISSIMILARWe need to create DISSIMILARPrice MovementsPrice Movements

This is Called EFFICIENT Diversification

VA

LU

EV

AL

UE

TIMETIME

AA

AA && BB

BB

Average return vs. Internal Rate of ReturnAverage return vs. Internal Rate of Return

YEARYEAR

1122334455

RETURNRETURN

Ave ROIAve ROIIRRIRR

10%10%10%10%10% 10% 10% 10% 10% 10%

10%10%10%10%

Average return vs. Internal Rate of ReturnAverage return vs. Internal Rate of Return

YEARYEAR

1122334455

20%20%- 5%- 5%- 10% - 10% 20% 20% 25% 25%

Ave ROIAve ROIIRRIRR

RETURNRETURN

10%10%9.05%9.05%

Determine the REAL rate of returnDetermine the REAL rate of return

YEARYEAR

1122334455

25%25% 25%25% 25%25% 25%25%-30%-30%

RETURNRETURN

Average ROIAverage ROI 14.00%14.00%


YEARYEAR

1122334455

14%14% 15%15% 13%13% 16%16% 4%4%

RETURNRETURN

Average ROIAverage ROI 12.40%12.40%


YEARYEAR

1122334455

25%25% 25%25% 25%25% 25%25%-30%-30%

RETURNRETURN

14%14% 15%15% 13%13% 16%16% 4%4%

RETURNRETURN

Average ROIAverage ROI 14.00%14.00% 12.40%12.40%

IRRIRRIRR 11.3%11.3% 12.2%12.2%

Why is this IMPORTANT?Why is this IMPORTANT?

This effect can ONLY be consistently achieved with EFFICIENT Diversification

VA

LU

EV

AL

UE

TIMETIME

What is the EFFICIENT FRONTIER?What is the EFFICIENT FRONTIER?

100%100% InternationalInternational

100% 100% Large CapLarge Cap

Retu

rn

Risk

Optimum MixOptimum Mix

100% Stocks100% Stocks

80% Stocks/20% Bonds80% Stocks/20% Bonds


100% Bonds100% Bonds




YEARS

30

25

20

15

10

5

1

35 40 45 50 55 60 65 70AGE

Discover your optimal risk allocationDiscover your optimal risk allocation

Three Professors from the Chicago School of Economics (Miller, Sharpe and Markowitz) received the NOBEL PRIZE in 1990 for these

research conclusions:

1. Reduce Investment Risk

2. Increase Return

3. Create Dissimilar Price Movements4. Use Asset Allocation

NobelPrize

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Documents

money slide

core slide

presentation slide

wealth slide

x x x x x slide

inflation average

inflation impact

kinds of risk