2013 05-14 separating mythsfromtruthsthestoryofinvestingpowerpointpresentation

Copyright © 2013 Matson Money, Inc.
SEPARATING MYTHS
FROM TRUTH
The Story of Investing
All investing involves risks and costs. Your advisor can provide you with more information about the risks and costs associated with specific programs. No investment
strategy (including asset allocation and diversification strategies) can ensure peace of mind, assure profit, or protect against loss.
This PowerPoint is based on the views of Matson Money. Other persons may analyze investments and the approach to investing from a different perspective than that
reflected in this PowerPoint. Nothing included herein is intended to infer that the approach to investing espoused in this PowerPoint will assure any particular results.

• Dispelling the Traditional
Investing Myths
• Telling the True Story of Investing
• Opportunity to Achieve True
Investing Peace of Mind
SEPARATING MYTHS FROM TRUTH

DISPELLING
THE MYTHS
Myth: A story made up to explain a phenomenon
beyond the science of the day.

TRADITIONAL INVESTING MYTHS
MYTH 1:
Stock Selection
MYTH 2:
Track-Record Investing
MYTH 3:
Market Timing
MYTH 4:
Costs of Investing

THE MYTH:
Investment advisors can consistently
and predictably add value by exercising
“superior skill” in individual stock selection.
Stock Selection:
Choosing stocks based on a belief they
will do well in the future.
MYTH 1: STOCK SELECTION

Year Number Of
Funds
Number Of
New Funds
Number Of
Dead Funds
1923 1 1 0
1924 4 3 0
1925 5 1 0
1926 6 1 0
1927 6 0 0
1928 10 4 0
1929 16 6 0
1930 17 1 0
1931 21 4 0
1932 37 16 0
1933 46 9 0
1934 48 2 0
1935 57 9 0
1936 59 2 0
1937 62 3 0
1938 71 9 0
1939 78 7 0
1940 86 8 0
1941 87 1 0
1942 87 0 0
1943 87 0 0
1944 93 6 0
1945 98 5 0
1946 103 5 0
1947 113 10 0
1948 117 4 0
1949 130 13 0
1950 137 7 0
1951 142 5 0
1952 152 10 0
1953 163 11 0
SURVIVORSHIP BIAS
For illustrative purposes only. Mutual fund data provided by CRSP Survivor Bias Free Mutual Fund Database. CRSP data provided
by the Center for Research in Security Prices, University of Chicago. 12/31/2012
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.
* There were 265 funds opened and 47 funds closed in which the year was undisclosed.
Year
Number Of
Funds
Number Of New
Funds
Number Of
Dead Funds
1954 183 20 0
1955 186 3 0
1956 205 19 0
1957 222 17 0
1958 241 19 0
1959 267 26 0
1960 281 14 0
1961 273 25 33
1962 285 12 0
1963 296 11 0
1964 312 16 0
1965 331 19 0
1966 360 29 0
1967 390 30 0
1968 463 74 1
1969 555 100 8
1970 603 71 23
1971 619 48 32
1972 616 32 35
1973 609 29 36
1974 596 34 47
1975 590 25 31
1976 613 48 25
1977 639 53 27
1978 652 39 26
1979 678 51 25
1980 732 74 20
1981 862 146 16
1982 1043 205 24
1983 1231 213 25
Year
Number Of
Funds
Number Of
New Funds
Number Of
Dead Funds
1984 1471 259 19
1985 1816 362 17
1986 2266 474 24
1987 2779 548 35
1988 3165 466 80
1989 3377 330 118
1990 3682 491 186
1991 4177 610 115
1992 5061 1056 172
1993 6756 1855 160
1994 8739 2216 233
1995 9890 1643 492
1996 11205 1822 507
1997 12903 2231 533
1998 14398 2165 670
1999 16069 2187 516
2000 17993 2863 939
2001 19448 2483 1028
2002 20603 2427 1272
2003 21264 1877 1216
2004 22264 1981 981
2005 23525 2397 1136
2006 25234 2786 1077
2007 26353 2720 1601
2008 27562 2787 1578
2009 26721 1767 2608
2010 27537 2380 1564
2011 28319 2453 1671
2012 29152 2339 1506
NotDefined 29370 265 47
Total 29370 51905 22535
Total Number of Funds Open
2012
29,370
Total Number Born
51,905
Total Number Killed
22,535

-79.3%
AVERAGE TOTAL RETURN
THE WORST 200 DEAD
MUTUAL FUNDS
For illustrative purposes only. Mutual fund data provided by 2012 CRSP Survivor Bias Free Mutual Fund Database.
CRSP data provided by the Center for Research in Security Prices, University of Chicago.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.

$-
$2,000,000.00
$4,000,000.00
$6,000,000.00
$8,000,000.00
$10,000,000.00
$12,000,000.00
$14,000,000.00
Average All Mutual Funds
Avg All Mutual Funds Aggressive Growth Moderate Conservative
Average of all Mutual funds available in the CRSP Survivor- Bias Free U.S. Mutual Fund Database, data ending Dec. 2012
Hypothetical Portfolios based on data in endnote 1. Past performance is no guarantee of future results and investors may experience a loss. Not actual investor results.
Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performance
does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially
different. Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.
$1,216,893
$3,074,899
$5,197,603
$7,929,713
$10,168,918

Track-Record Investing:
The use of performance history to determine
the best investments for the future.
THE MYTH:
Finding funds that did well in the past
is a reliable method of indicating
which funds will do well in the future.
MYTH 2: TRACK-RECORD
INVESTING

TRACK RECORD INVESTING
Top 30 Funds Average Return
All Funds Average Return
S&P 500 Index Average Return
CRSP 1-10 Index Average Return
Total # of Funds 1993–2002
Total # of Funds 2003–2012
1993–2002
25.64
16.00
11.18
10.64
725
2003–2012
0.18
2.83
8.84
9.78
3738
For illustrative purposes only. Mutual funds data provided by CRSP Survivor-Bias Free Mutual Fund Database, includes funds that are U.S. Equity mutual funds. The S&P data
are provided by Standard & Poor’s Index Services Group. CRSP data provided by the Center for Research in Security Prices, University of Chicago. Indices are not available for
direct investment, therefore their performance does not reflect the expenses associated with the management of an actual portfolio.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

TRACK RECORD INVESTING
Top 30 Funds Average Return
All Funds Average Return
S&P 500 Index
CRSP 1-10 Index
CRSP 9-10 Index
Number of Funds
2003–2007
23.07
1.89
13.15
14.21
21.72
5,237
2008–2012
5.06
2.73
4.53
5.36
11.16
6,207
For illustrative purposes only. Mutual funds data provided by CRSP Survivor-Bias Free Mutual Fund Database, includes funds that are U.S. Equity mutual funds. The S&P data
are provided by Standard & Poor’s Index Services Group. CRSP data provided by the Center for Research in Security Prices, University of Chicago. Indices are not available for
direct investment, therefore their performance does not reflect the expenses associated with the management of an actual portfolio.

A MANAGER’S ABILITY TO PICK
STOCKS IN THE PAST HAS
ZERO CORRELATION
WITH HIS/HER ABILITY TO DO
SO IN THE FUTURE.

Market Timing:
Any attempt to alter or change the mix of assets
based on a prediction or forecast about the future.
THE MYTH:
Money managers are able to utilize
market timing to effectively predict up
& down markets.
MYTH 3: MARKET TIMING

DALBAR RESEARCH STUDY
RESULTS
As the chart below clearly indicates,
The Average Investor earns significantly less
than the market indices, barely beating inflation
over the period measured.
CATEGORY
1993-2012
Annualized
Return
S&P 500 Index 8.21%
Average Equity Fund Investor 4.25%
Inflation 2.43%
Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products
to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012, the study utilizes
mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this
behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respective indices. PAST
PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

WHY MARKET TIMING DOESN’T WORK
$44,087
7.70%
$29,258
5.51%
$22,050
4.03%
$17,257
2.77% $13,747
1.60%
$11,123
0.53%
$9,090
-0.48%
January 1, 1993 – December 31, 2012
5040 Trading Days
Source: ChartSource®, S&P Capital IQ Financial Communications. For the period from January 1, 1993, through December 31, 2012. Based on total returns of
Standard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. It is not possible
to invest directly in an index. Past performance is not a guarantee of future results. Copyright © 2013, S&P Capital IQ Financial Communications. All rights
reserved. Not responsible for any errors or omissions.
$6,183
-2.38%

―Tactical Asset Allocation‖
is Market Timing in Disguise
BEWARE: MARKET TIMING
Tactical Asset Allocation (Def.) – An active management portfolio strategy that rebalances the percentage of
assets held in various categories in order to take advantage of market pricing anomalies or strong market
sectors.
Market Timing (Def.) – The practice of switching among mutual fund asset classes in an attempt to profit
from the change in their market outlook.
Definitions provided by investodpedia.com

“The evidence on
investment managers’
success with market
timing is impressive – and
overwhelmingly negative.”
Charles D. Ellis,
Investment Policy, 1993
Charles D. Ellis is a managing
partner of Greenwich Associates,
a leading consulting firm
specializing in financial
services worldwide.
B.A. Yale, M.B.A (with distinction)
Harvard and Ph.D. New York
University
CHARLES D. ELLIS

Costs of Investing:
Fees incurred by investors to buy, sell, and
own stocks or mutual funds.
THE MYTH:
What you don’t see can’t hurt you.
MYTH 4: COSTS OF INVESTING

Bid/Ask Spread
Mutual Funds
THE COSTS OF INVESTING

BID/ASK SPREAD
Market Maker
$.50
Spread
BUY Price
$50.00
SELL Price
$49.50

US data as of November 8, 2012. Data provided by Instinet. © 2013, Instinet Incorporated and its subsidiaries. All rights reserved. International and emerging
markets data as of November 15, 2012. Data provided by Bloomberg. The bid/ask spread is generally regarded as an indication of the cost of liquidity.
The Bid/Ask Spread as a percent of price is a conservative estimate of actual
trading costs. This estimate is almost 30 times as great for the smallest market
segment as for the largest market segment (1.77 vs. 0.06).
Market Cap Range
($Millions)
Market Cap
(%)
Percent Spread
> 5,000 85.3 0.06
1,500 – 5,000 9.9 0.12
500 – 1,500 3.4 0.23
200 - 500 1.0 0.58
50 - 200 0.4 1.77
BID/ASK SPREAD
Costs That You May Not Be Told About

“The key question under the new rules
of the game is this: How much better
must a[n]...[actively trading]...
manager be to at least recover the
cost of...[portfolio turnover]? The
answer is daunting.”
- Charles D. Ellis
1. Mutual fund trading plus bid/ask spread cost taken from Investment Policy - How to Win the Loser’s Game,
2nd Edition by Charles D. Ellis (1993) p.8-9.
CONSUMER ―NO LOAD‖ MUTUAL FUNDS

The Myths
–Stock Selection
–Track-Record Investing
–Market Timing
–Costs of Investing
Next…
–The Truth
SO FAR…

THE STORY OF
INVESTING:
FREE MARKET
PORTFOLIO THEORY

Free Market Portfolio Theory is:
• An investment approach firmly
grounded in the academic research
of the last 50 years.
• A disciplined approach to capturing
market returns while managing
volatility.
WHAT IS FREE MARKET PORTFOLIO THEORY?

THE COMPONENTS OF
FREE MARKET PORTFOLIO THEORY
COMPONENT 1:
Free Markets Work
COMPONENT 3:
The Three-Factor Model
COMPONENT 2:
Modern Portfolio Theory

LEADING ACADEMICS WHO CONTRIBUTE TO
FREE MARKET PORTFOLIO THEORY
• Harry Markowitz:
Nobel Prize Laureate, 1990, University of Chicago
• Merton H. Miller:
Nobel Prize Laureate, 1990 - Robert R. McCormick Distinguished
Service, University of Chicago
• Rex Sinquefield:
Co-author Stocks, Bonds, Bills and Inflation, MBA, University of
Chicago, BA, St. Louis University
• Roger G. Ibbotson:
Co-author Stocks, Bonds, Bills and Inflation, Professor of
Finance, School of Organization and Management, Yale University
• Eugene F. Fama:
Robert R. McCormick Distinguished Service, Graduate School of
Business, University of Chicago
• Kenneth French:
Professor of Finance at the Tuck School of Business,
Dartmouth College

Free Markets Work
“In [a free] market at any point in time
the actual price of a security will be a
good estimate of its intrinsic value.”
- Eugene F. Fama, “Random Walks in Stock Market Prices,”
Financial Analysts Journal, September/October 1965.
COMPONENT 1:

• The market fails to price goods and services
appropriately.
• It is possible for some individuals to identify in
advance which prices are inaccurate.
• Underpriced or overvalued markets can be
forecasted or predicted.
• By taking advantage of these mispricings, either in
stocks or market sectors, it is possible to both
increase returns and avoid losses in investments.
• People with this view would utilize traditional
investment myths and speculate with their assets.
BELIEFS THAT FREE MARKETS FAIL

• Based on supply and demand the free market is
the best determinant of market prices.
• All available information is factored into the
current price.
• Only new and unknowable information and events
change pricing.
• The randomness of the market makes it
impossible for any individual or entity to
consistently predict market movements and
capture additional returns unrelated to risk.
• People with this view would utilize free market
investment strategies.
BELIEFS THAT FREE MARKETS WORK

BELIEFS DICTATE ACTION
FREE MARKETS WORK
• Focus on capturing
market returns
• Utilize asset-class or
structured funds
• Diversify prudently
• Identify your risk tolerance
• Eliminate traditional
investment strategies
• Work with a financial
coach who shares your
market belief
FREE MARKETS FAIL
• Pursue traditional investment
strategies
• Stay connected to all sources
of financial information
• Read every investment article
you can find
• Work with a financial
professional who shares
your market belief

Modern Portfolio Theory
Diversification Works
Nobel Prize Winners, 1990
Harry Markowitz
William Sharpe
Merton Miller
COMPONENT 2:

As a graduate student in
economics at the University
of Chicago in the 1950's,
Dr. Markowitz won acclaim
for his studies on portfolio
design and risk reduction.
These concepts were later
crucial for the development
of Modern Portfolio Theory. Nobel Prize Winner 1990
DR. HARRY MARKOWITZ

6 8 10 12 14 16 18 20
6
8
10
12
14
16
One Year Standard Deviation (Volatility)
AnnualizedCompoundReturn
Growth
Aggressive
S&P 500
Conservative
Moderate
MARKOWITZ EFFICIENT FRONTIER
Maximizing Expected Returns for Any Level of Volatility
For Illustrative purposes only.

DETERMINANTS OF
PORTFOLIO PERFORMANCE
1.8
2.1
4.6
91.5
1.8
2.1
4.6
91.5

Time
Value
Investment A
Investment B
Portfolio
50/50
Combined
Portfolio
ASSET CLASS CORRELATION
Example Portfolio

Source: DFA Returns Software 12/12.
Annualized Return(%)
Simplified Example Of Low Correlation Benefits
January 1970–December 2012 (Quarterly Data in $US)
INCREASE RETURNS
AND REDUCE VOLATILITY
Large U.S.
100% S&P
500 Index
9.94
17.05
Annualized Standard
Deviation
70% S&P 500
30% EAFE
Large U.S.
EAFE
16.74
10.11
70% S&P 500
20% EAFE
10% Int'l Small
Large U.S.
EAFE
Int’l Small
16.65
10.61
Past performance is no guarantee of future results and investors may experience a loss. See Endnote 1. These hypothetical investment results are for illustrative
purposes only and should not be deemed a representation of past or future results. actual investment results may be more or less than shown. This does not
represent any specific product or service. Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, the index is
unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual
portfolio. Actual results of accounts under Matson Money’s management may have been materially different. Performance results and comparative indices assume
reinvestment of dividends and income plus capital appreciation.

The Three-Factor Model
Source: Fama, Eugene F., and Kenneth R. French, 1992 “The cross-section of Expected Stock Returns”,
Journal of Finance 47 (June), 427-465
COMPONENT 3:
Eugene Fama
&
Kenneth French
Factor 1: The Market Factor
Factor 2: The Size Factor
Factor 3: The ―Value‖ Factor

0
1
2
3
4
5
6
7
8
9
10
Annualized
Return
S&P 500
T-Bills
• Equities are riskier than fixed
income.
• Equities historically provide a
higher rate of return.
1926–2012 S&P 500 T-Bills
Annualized Return 9.84 3.53
Standard Deviation 20.18 3.10
Source: DFA Returns Software, 12/12.
FACTOR 1: THE MARKET FACTOR
Past performance is no guarantee of future results and investors may experience a loss. See Endnote 1. Index performance returns do not reflect any
management fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performance does not
reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have
been materially different. Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.

9.5
10
10.5
11
11.5
12
12.5
13
Annualized
Return
S&P 500
U.S.
Small Co.
• Small companies are riskier
than large companies.
• Small companies historically
provide a higher return than
large companies.
1926–2012 S&P 500 U.S. Small Co.
(CRSP 6-10)
FACTOR 2: THE SIZE FACTOR

9
9.5
10
10.5
11
11.5
12
Annualized
Return
S&P 500
U.S. Lg.
Value
• High book-to-market (value)
stocks are riskier than low
book-to-market (growth)
stocks.
• High book-to-market
stocks historically provide
higher return than low
book-to-market stocks.
July 1926–2012 S&P 500 U.S. Lg.
Value
FACTOR 3: THE VALUE FACTOR

Free Markets Work
+ Modern Portfolio Theory
+ The Three-Factor Model
= Free Market Portfolio Theory
THE TRUTH

BUILDING A BETTER
PORTFOLIO
AVERAGE INVESTOR EQUITY PERFORMANCE

Portfolio 1 100%
Average Equity Mutual Funds
1993–2012
Portfolio 1* 4.25 19.70
Annualized
Return
(%)
Annualized
Standard
Deviation (%)
60%
40%
Average 100% Equity
Mutual Fund Investor
Results
Dalbar Investor Results
Research for period
1993-2012
CREATING A DIVERSIFIED
PORTFOLIO
*Portfolio Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index
Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012, the study
utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on
this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respective indices. Past
performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.

1. Average Holding Period—3.31 Years*
2. Track-Record Investing—Chasing
the Market
1. Hyperactive Stock Picking
2. Market Timing
WHY ARE THE RETURNS SO LOW?
*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital
Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012, the
study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average
investor.” Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of
respective indices. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.

S&P 500 Index
1970–2012
Annualized
Return
(%)
Annualized
Standard
Deviation (%)
Portfolio 1 100%
Portfolio 2 100%
Avg. Equity Mutual Funds
100%
S&P 500
CREATING A DIVERSIFIED PORTFOLIO
Basic Passively Invested Portfolio
Portfolio 1* 3.49 19.58
Portfolio 2 9.94 17.55
Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012,
the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.”
Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respective
indices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot
insure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations,
political/economic stability and differences in accounting standards.

Annualized
Return
(%)
1970–2012
60%
20%
20%
Annualized
Standard
Deviation (%)
S&P
500
Index
Portfolio 1 100%
Portfolio 2 100%
Portfolio 3 60% 20% 20%
Avg.
Equity
Mutual
Funds
5-Year
Government
Portfolio
One-Year
Fixed
Income
Including Fixed Income Assets in the Portfolio
Portfolio 1* 3.49 19.58

1970–2012
Annualized
Return
(%)
30%
20%
20%
30%
Annualized
Standard
Deviation (%)
S&P 500
Index
Portfolio 1 100%
Portfolio 2 100%
Portfolio 3 60% 20% 20%
Portfolio 4 30% 20% 20% 30%
5-Year
Government
Portfolio
One-Year
Fixed
Income
EAFE
Index
Including Non-U.S. Assets in the Portfolio
Portfolio 1* 3.49 19.58
Avg.
Equity
Mutual
Funds

1970–2012
Annualized
Return
(%)
20%
15%
20%
15%
15%
15%
Annualized
Standard
Deviation (%)
S&P 500
Index
Portfolio 1 100%
Portfolio 2 100%
Portfolio 3 60% 20% 20%
Portfolio 4 30% 20% 20% 30%
Portfolio 5 15% 20% 20% 15% 15% 15%
5-Year
Government
Portfolio
One-Year
Fixed
Income
EAFE
Index
U.S. 9-10
Small Co.
Int’l Small
Cap Stocks
Adding Small Cap Stocks
Portfolio 1* 3.49 19.58
Portfolio 5 10.25 12.17
Avg.
Equity
Mutual
Funds

Annualized
Return
(%)
20%
20%
7.5%
15%
7.5%
7.5%
15%
7.5%
Annualized
Standard
Deviation (%)
S&P 500
Index
Portfolio 1 100%
Portfolio 2 100%
Portfolio 3 60% 20% 20%
Portfolio 4 30% 20% 20% 30%
Portfolio 5 15% 20% 20% 15% 15% 15%
Portfolio 6 7.5% 20% 20% 15% 7.5% 15% 7.5% 7.5%
5-Year
Government
Portfolio
One-Year
Fixed
Income
EAFE
Index
U.S. 9-10
Small Co.
Int’l Small
Cap Stocks
U.S. Small
Cap Value
U.S. Large
Cap Value
Adding High Book-to-Market Stocks
1970–2012
Portfolio 1* 3.49 19.58
Portfolio 5 10.25 12.17
Portfolio 6 10.76 11.84
Avg.
Equity
Mutual
Funds

Directions:
Answer each question ―Yes‖ or ―No.‖
Your Answer must be 100% ―Yes‖ to qualify as ―Yes.‖
THE 20 MUST-ANSWER QUESTIONS
FOR YOUR JOURNEY TOWARD
INVESTING PEACE OF MIND

QUESTION 1
Have you discovered your
True Purpose for Money,
that which is more important
than money itself?

Are you invested
in the Market?
QUESTION 2

Do you know how
markets work?
QUESTION 3

Have you defined your
Investment Philosophy?
QUESTION 4

Have you identified your
personal risk tolerance?
QUESTION 5

Do you know how to
measure diversification
in your portfolio?
QUESTION 6

Do you consistently and
predictably achieve
market returns?
QUESTION 7

Have you measured the
total amount of commissions
and costs in your portfolio?
QUESTION 8

Do you know where
you fall on the
Markowitz Efficient Frontier?
QUESTION 9

When it comes to
building your investment
portfolio, do you know
exactly what you are
doing and why?
QUESTION 10

Are you working with a
financial coach versus
a financial planner?
QUESTION 11

Do you have a customized
lifelong game plan to guide
all of your investing and
spending decisions?
QUESTION 12

Do you have an
Investment Policy Statement?
QUESTION 13

Have you devised a
clear-cut method for
measuring the success
or failure of your portfolio?
QUESTION 14

Do you fully understand the
implications and applications
of diversification in
your portfolio?
QUESTION 15

Do you have a
system to measure
portfolio volatility?
QUESTION 16

Are you aware of
the incentives brokerage
firms and the financial
community have when selling
commission-based products?
QUESTION 17

Do you know the three
warning signs that you
are gambling and speculating
with your money versus
prudently investing it?
QUESTION 18

Can you identify the
cultural messages and
personal mind-sets about
money that destroy your
peace of mind?
QUESTION 19

Are you ready to shift
your personal experience
of money and investing
from a scarcity mode to
an abundance mode?
QUESTION 20

THE OPPORTUNITY
Learn more about what this means for you.

ENDNOTES
1. 42 Year Performance figures taken from Dimensional Fund Advisor, Inc. (DFA) Returns software 12/12. Some data provided to DFA by the Center for Research & Security Pricing(CRSP), University
of Chicago. No commissions or fees have been deducted from the market performance figures because the intent is to show the benefits of diversification of asset classes and not to indicate the results
Matson Money, Inc. would have achieved if it managed a client’s funds. If an investor invested in mutual funds designed to reflect asset class performance, the investor would, in effect, be paying an
advisory fee to the mutual fund manager and brokerage commissions because these fees and commissions would be reflected in the mutual fund’s expenses that are deducted from the value of each share
of the mutual fund. If, in addition, an investor engaged an investment advisor to manage the assets, the investor would pay an investment advisory fee to this manager. If an investor also utilized the
services of a separate custodian, the investor would pay additional fees to the custodian. The returns of the hypothetical asset class mixes frequently exceeded the results of Matson Money, Inc. clients’
portfolios with similar investment objectives for the period Matson Money, Inc. has managed clients’ funds from 1991 to present. This difference is due to differing allocations over the time periods
shown. These allocations differed because of different asset classes used, new research applied, and because of deduction of commission. Also, it is not possible to invest in an index. Past performance of
markets is no guarantee of future performance and clients may experience a loss. Asset Classes are defined below.
U.S. Large Value = U.S. Large Cap Value Portfolio: July 1926-March 1993: Fama-French Large Cap Value Strategy. Simulates Dimensional’s hold range and estimated trading costs. Courtesy of
Fama-French and CRSP: deciles 1-5 size, (.7) BtM. April 1993-Present: U.S. Large Cap Value Portfolio net of all fees.
DFA International Small Company Strategy/DFA International Large Company Strategy:
January 1970-June 1998: 50% DFA Japanese Portfolio, 50% DFA UK Portfolio net of all fees.
July 1998-September 1989: 50% DFA Japanese Portfolio, 20% DFA UK Portfolio, 30% DFA Continental Portfolio net of all fees.
October 1989-March 1990: 40% DFA Japanese Portfolio, 30% DFA Continental Portfolio, 20% DFA UK Portfolio, 10% DFA Asia/Australia Portfolio net of all fees.
April 1990-December 1992: 40% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 10% DFA Asia/Australia Portfolio net of all fees.
January1993-March 1997: 35% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 15% DFA Asia/Australia Portfolio net of all fees.
April 1997-March 1998: 30% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 20% DFA Asia/Australia Portfolio net of all fees.
April 1998-Present: 25% DFA Japanese Portfolio, 40% DFA Continental Portfolio, 20% DFA UK Portfolio, 15% DFA Asia/Australia Portfolio net of all fees.
DFA International Small Company Portfolio: January 1970-September 1996: DFA International Small Company Strategy.
October 1996-Present: DFA International Small Company Portfolio net of all fees.
EAFE Index: Courtesy of Morgan Stanley Capital International. Europe, Australia, and Far East Index net dividends ($).
January 1969-Present: EAFE Index Including gross dividends ($).
U.S. Small Co = CRSP 9-10 Index: Courtesy of Center for Research in Security Prices, University of Chicago. Small Company Universe Returns (Deciles 9 &10) all Exchanges.
January 1926-June 1962: NYSE, rebalanced semi-annually.
July 1962-December 1972: CRSP Database, NYSE & AMEX, rebalanced quarterly.
January 1973-September 1988: CRSP Database, NYSE, AMEX & OTC, rebalanced quarterly.
October 1988-Present: CRSP Index (NYSE & AMEX & OTC).
U.S. Large Company Stocks - S&P 500: Courtesy of Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: The Past and the Future, Dow Jones, 1989.
Ibbotson Associates, Chicago, annually updates work by Roger Ibbotson and Rex A. Sinquefield. Used with Permission. All rights reserved. The S&P 500 is an unmanaged market
value-weighted index which measures the change in aggregate market value of 500 stocks relative to the base period 1941-1943. This index does not incur fees and charges typically
associated with investing and values would be lower if such fees and charges were taken into consideration. Individuals may not invest directly in an index.
DFA One-Year Fixed Income Portfolio:
August 1983-Present: DFA One-Year Fixed Income Portfolio
November 1971-July 1983: Stimulation Using CD Returns
DFA Five-Year Government Portfolio:
June 1987-Present: DFA Five-Year Government Fixed Income Portfolio
July 1952-May 1987: Stimulation Using U.S. Government Instruments
Lehman Brothers Government/Credit Bond Index 1-30+ Years:
January 1973-Present: Lehman Brothers Government/Credit Bond Index Range 1-30+ Years

1. Cont’d CONSERVATIVE, MODERATE, GROWTH, & AGGRESSIVE
These results are based on the performance of the Indices defined above, using the below mixes.
The objective of allocation for each asset class shown in the charts is to reduce the likelihood that different assets move together in tandem. The asset class mixes shown in these charts were rebalanced
annually in order to continually preserve the original investment allocations. No reinvestment of dividends or other earnings were included in the calculations. No commissions or fees have been
deducted from the market performance figures shown in the charts because the intent is to show the benefits of diversification of asset classes and not to indicate the results Matson Money, Inc. would
have achieved if Matson Money, Inc. had managed a client’s funds. If an investor invested in mutual funds designed to reflect asset class performance, the investor would, in effect, be paying an
advisory fee to the mutual fund manager and brokerage commissions. These fees and commissions would be reflected in the mutual fund’s expenses that are deducted from the value of each share of the
mutual fund. If, in addition, an investor engaged an investment advisor to manage the assets, the investor would also pay an investment advisory fee to this manager. If an investor also utilized the
services of a separate custodian, the investor would pay additional fees to the custodian. Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, the
index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE.
All investing involves risk and costs. Your advisor can provide you with more information about the risks and costs
associated with specific programs. No investment strategy (including asset allocation and diversification strategies) can
ensure peace of mind, assure profit, or protect against loss.
ENDNOTES

ENDNOTES
2. Some data provided to DFA by the Center for Research & Security Pricing (CRSP), University of Chicago. Asset Classes defined as:
U.S. Large Company Stocks - S&P 500 Index
U.S. Small Company Stocks - CRSP (Center for Research & Security Pricing) 9-10 Index
International Large Company Stocks - Morgan Stanley (MSCI) Europe, Australia, Far East (EAFE) Index (Gross Div)
International Small Company Stock - index created by DFA using CRSP data, Dimensional’s Small International Index [1970 - June 1988 - 50% Japan, 50% United Kingdom.
July 1988 - September 1989 - 50% Japan, 30% Continental, 20% United Kingdom, October 1989 - March 1990 - 40% Japan, 40% Continental, 20% United Kingdom,
10% Asia-Australia. April 1990 - December 1992 - 40% Japan, 35% Continental, 15% United Kingdom, 10% Asia-Australia. January 1993 to present - 35% Japan,
35% Continental, 15% United Kingdom, 15% Australia.]
U.S. Small Company Value Stocks - Fama/French US Small Value Research index
U.S. Large Company Value Stocks - Fama/French US Large Value Research index
5 Year Government Portfolio - Dimensional’s Five-Year Government Portfolio [Average maturity: Under Five Years, 1953-May 1987 - Simulation using U.S. Government
Instruments (maximum maturity fie years) June 1987- DFA Five Year Government Portfolio net of all fees]
One Year Fixed Income - Dimensional’s One-Year Fixed Strategy [1972 - July 1983 - Simulated CD Fixed Income Strategy (maximum maturity 1 year) Aug. 1983 - DFA Fixed
Income Portfolio returns net of all fees (weighted average maturity under 1 year)]

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