2. Why does Long-term Investing Success Seem Unattainable
for so Many People?
Average Mutual Fund Investor Returns to 12/31/2013
Source: Dalbar. Survey began in 1984.
3. 1. Peopleare uncomfortabletalkingabout money.
2. Riskis hard to Understand.
3. Mutual Funds are a flawed model for Main Street investors.
4. The cost of Financial Adviceis too high, and invisiblyeats away at
returns.
4. How Your Brain Thinks About Sex Money
Civili
zed
LOGIC
13. And You Have to Pay Taxes on Capital Gains!
“The Horror of Mutual Fund Taxes”
John Waggoner, USA TODAY October 31, 2013
I DON’T
LIKE SPAM !
14. Over Time, This Compounding Drag
Becomes
ENORMOUS
Bogle, “The Arithmeticof“All-In”Investment Expenses,” FinancialAnalysts Journal Vol. 70, No.1, 2014.
6.64%
3.98%
21. ETFs Come in All Asset Classes
Asset Class “Characteristics”
U.S. Stocks Return Risk Correlation
Large-cap
Mid-cap
Small-cap
ForeignStocks
Developed
Emerging
US Fixed Income
US Treasuries
Corporate
Municipal
ForeignFixed Income
Sovereign
Corporate
RealEstate Investment Trusts
MasterLimited Partnerships
Commodities/PreciousMetals
VALUE
GROWTH
VALUE
GROWTH
Investment
Grade
High
Yield
Developed Emerging
Bills Notes Bonds
22. A Two-factor ETF Strategy 2005-2014
VTI
Vanguard
US Total
Market Index
AGG
I-shares Core
Aggregate US
Bond Market
24. ETF Portfolios with Dividends Reinvested and Annual Rebalancing
These are hypothetical portfoliosandare for illustrative purposesonly. Returnsdonotinclude advisoryfeesorfactorin taxes.
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
Combinations of a Stock and a Bond ETF
Dividends Reinvested, AnnualRebalancing, 2005-2014
50/50 60/40 70/30 80/20 100
Stock ETF: VanguardTotal Stock Market (VTI).
Bond:iSharesCore US Aggregate Bond (AGG)
25. Asset Allocation/Rebalancing Controls Volatility (= RISK)
6.7%, 7.26% 8.4%, 7.67%
10.1%, 8.01%
12.0%, 8.30%
15.9%, 8.67%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Risk vs. Return in Five Portfolios
2005-2014 with stock/bond allocations
Stock ETF: VanguardTotal Stock Market (VTI).
Bond:iSharesCore US Aggregate Bond (AGG)
ReturnCAGR
StandardDeviation
50/50
80/2070/3060/40
100
26. Building Blocks of Asset Allocation
VTI
Vanguard US Total Market
Index (blend of growth +
value, large + small cap)
Expense ratio: 0.05%
Allocation range: 30%-40%
BND
Vanguard Total Bond Market
(US Treasury +Corporate bonds)
Expense ratio: 0.07%
Allocation range: 25%-35%
DBEF
Deutsche X-trackers MSCI
EAFE Index Currency Hedged
Developed Market Stocks
Expense ratio: 0.35%
Allocation range: 20%-30%
PGX
PowerShares Preferred Stock
Preferred shares of (mostly)
Financial corporations
Expense Ratio: 0.50%
Allocation Range: 5%-10%
27. Want Something More Aggressive?
DBEF
Deutsche X-trackers MSCI EAFE Index
Currency Hedged
20%
HEDJ
Wisdom Tree Hedged
European Equity Fund
DXJ
Wisdom Tree Hedged
Japan Equity Fund
+
30. Over 50% of Betterment’s
“moderate” risk portfolio is in
Unhedged foreign currencies !!
31. How Well Do Your Investments Need to Perform
To Achieve Your Retirement Goal?
32. In the End the Return You Make is Equal* to the Risk You Take
Moderate Allocation, 10 yrs
GlobalAllocation, 10 yrs
Large Cap Value, 10 yrs
Large Growth, 10 yrs.
S&P 500, 10 yrs.
+Large Growth, 1926-2012
+Large Value, 1926-2012
+Small Growth, 1926-2012
+Small Value, 1926-2012
Cash 1926-2012
ST Treasuries 1926-2010
LT Treasuries, 1926-2010
R² = 0.7709
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00
Risk and Return Long-term and for the decade to 12/31/2014.
Annualized
Return (CAGR%)
Volatility(StandardDeviation)
Sources:Morningstar, +KennethFrenchdatalibrary. *not equal,but proportionateto.
33. What if the Stock Market Doesn’t Perform up to Historical Norms?
34. This is Probably Not What You Had in Mind
Source: Bernstein, Rational Expectations: Asset Allocation for Investing Adults, 2014.
35. The Impact of Costs is Greater When Market Returns are Lower
Forbes5/27/2013 The Heavy Toll Of Investment Fees, Rick Ferri, Contributor
Total Portfolio Cost as a Percentage of 5.3 Percent Expected Gross Return
Source: Morningstar, Portfolio Solutions LLC.
36. Don’t Pay Advisors for Stuff You Don’t Need !
0.6% Fee on accounts from $100,000 to $250,000
0.5% Fee on accounts over $250,000
Over $1 million is negotiable
37. Here’s What You Could be Saving
PORTFOLIO SIZE WHAT YOU PAY AT WHAT YOU PAY WHAT
MEGA ADVISOR FIRM AT CONFLUENCE YOU SAVE
$250,000 $4,650 $1,500 $3,150
68%
$500,000 $7,775 $2,500 $5,275
68%
$1 million $14,000 $4,000 $10,000
71%
Fee rates for Confluence correspond to 0.50% per annum on an account of $250,000 to $999,999 and 0.40% on an account of
$1 million. Fees for “Mega Advisor Firm” are based on the published fee schedule for the top-rated independent advisory
firm in several of Barron’s recent surveys.
38. What Confluence IS:
1. Simple. A few broad index ETF holdings.
2. Inexpensive. ETFs havevery low management fees—as low as 0.05%. My advisory fees are0.5% to 0.6%,
making the total costto you 0.55% to 0.75%. Equity Mutual funds chargeon average 0.9% and financial
advisors/planners can add up to 1.5% on top of that, plus any load charges on mutual funds they
recommend. The savings willallow you to reap closeto the full performanceof the ETFs you own.
3. Tax-efficient. Low portfolio turnover in your account and ETFs’ ability to sell shares “in kind” minimize
capital gains taxes. Dividends taxable at the normal15%-20% rate. 1099’s and 5498’s fromFidelity.
4. Risk Managed with AssetAllocation/Rebalancing as the foundation of a portfolio based on your investment
goals and risk tolerance.
5. Strategic. Very low turnover. Notreacting to sudden market swings; sticking with a long-termplan.
6. Professional. Fidelity is custodian with full standard guarantees; LLC structurewith contracts.
7. Personal. I amworking with you and for you, not for Fidelity or any other firm.
8. Accessible and Transparent. ETF constituents, performance, your portfolio holdings and analysis all
available on Fidelity.com.
9. For taxable, tax-deferred and trust accounts.
10.For large and small investors. A minimum of $100,000 with a 0.60% fee; over $250,000, a 0.5% fee.
What it’s NOT:
1. A Mutual Fund product. Not trying to outperforman index.
2. One sizefits all. ETF portfolios will be constructed based on your goals and risk tolerance.
3. Comprehensivefinancial planning. I can’tadvise you on insurance, taxes, estate planning or stocks.
4. For all of your investible assets. If you like the way your investments are performing, you should stick with
at least someof them.
5. A hedge fund.
39. How it Works
1. You establish an account at Fidelity Investments and fund it with a transfer of cash and/or securities from
another institution.
2. You complete a “trading authority” formfromFidelity that gives me the ability only to trade securities in
your account, not to withdraw or transfer any assets.
3. Taking advantageof Fidelity’s low commission rates ($7.95), I makeany necessary sales of transferred
securities, and proceed to invest according to the plan wehave arranged.
4. Fees and payment. Fees will be assessed pro-rata on the outstanding balance in your accountat the end of
each calendar year quarter.
5. Fee structure. 0.6% per annum for accounts up $250,000; 0.5%on amounts over $250,000. $100,000
minimum.
6. Contractual agreement. For our mutual legal protection, we will sign a contract outlining precisely the
terms of the service, my fiduciary duties, and your responsibilities.
Why Choose me?
1. Many financial firms havetheir own ETFs—Schwab, Vanguard, Fidelity. Knowing whether these are the
right ones for you, how their fees compare, etc. depends on the thoroughness and honesty of your broker.
I am completely independent and can offer unbiased advice.
2. I have over 25 years in the investment business as a financial analyst, a fund manager and investment
advisor. I know overseas markets equally well as the US. As Fidelity customer for almost20 years, I also
know how to take advantage of their portfolio analysis, planning and performancemeasurementtools.
3. As you get closer to retirement, your financial future is moreimportant than ever. At the sametime, you
have to be more careful with spending money and making investments. I’min the same situation you are
in, and I understand the challenges you’refacing.
40. Why Invest inETFs, and not Mutual Funds or Individual Stocks?
1. Exchange-traded funds (ETFs) are a low-costway to investin stock and bond market indexes, such as the
S&P 500, the Nasdaq 100, or the Barclay’s US Treasury Bond Index. They chargeas little as 0.05%,
averaging 0.12%. They are similar to index mutual funds butcan be traded during regular exchange hours.
2. On the other hand, mutual funds charge an averageof 0.89% and 0.65% for actively managed stock and
bond funds, respectively. While the fees can be worth paying if a fund performs significantly better than its
benchmark index over a long period of time, in fact very few managers can consistently outperform.
3. Individualstocks arean inexpensive way to get stock market exposure, and dividend reinvestment
programs enable you to buy new shares withoutcost. But investors can take a significantamount of
“stock-specific” risk without knowing it, and see a stock “blow up” on them. The fact is, for people in or
near retirement, individual stock investing is probably unnecessary precisely becauseof this risk.
4. Many stock market experts believe that returns on investing in stocks and bonds may be lower than their
historical averages in the coming years. In fact, they already are. The following table illustrates the
situation and underlines the importance of low-costinvesting in a low-return environment:
S&P 500 3-mo. 10-yr
T-bills Treasuries
1928-2014 9.60% 3.49% 5.00%
1965-2014 9.84% 4.99% 6.70%
2005-2014 7.60% 1.42% 4.88%
Source: Aswath Damodaran,NYU Stern Business School.
