Quarterly Investment Update Third Quarter 2017 David r. Johnson, cfp, clu, ch.fc Senior financial advisor/ Manulife securities incorporated Life insurance advisor, certified financial planner - d.R. Johnson financial services INC. Steven D. Johnson, CFP, PFP Financial advisor/ Manulife Securities Incorporated Manulife Securities incorporated D.R. Johnson Financial services Marsland centre, 20 erb st. w, suite 502 Waterloo, Ontario n2l 1t2 Ph: 519-884-4650 fax:519-884-0150 Manulife Securities Incorporated is a Member of the Canadian Investor Protection Fund. The Manulife Securities  logo and the Block Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license. This material is not to be construed as an offer or solicitation. The securities mentioned may not necessarily be considered suitable investments for all clients. Contact your Investment Advisor to discuss your individual investment needs. This presentation is for information purposes only. It should not be considered legal, tax or accounting advice and should not replace the advice of your legal, tax or accounting professionals. Every effort has been made to ensure the information contained in this presentation is accurate. Manulife cannot guarantee the accuracy of any information in this presentation that has been reproduced from a third party source. Manulife, Manulife Securities, Manulife Investments, Manulife Bank and Trust, Manulife Financial, the Block Design, the Four cubes and Strong, Reliable, Trustworthy, Forward-thinking are registered trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates, under license. Stocks, bonds and mutual funds are offered through Manulife Securities Incorporated. Insurance products and services are offered through D.R. Johnson Financial Services Inc. Banking products and services are offered through referral.  Dimensional Fund Advisors Canada ULC (“DFA Canada”) is not affiliated with David R. Johnson, CFP, CLU, CH.FC or Steven R. Johnson CFP, PFP at D.R. Johnson Financial Services Incorporated and Manulife Securities Incorporated DFA Canada is a separate and distinct company. .

Market Update: A Quarter in Review June 30, 2017 - September 30, 2017 CANADIAN STOCKS INTERNATIONAL STOCKS Large Cap Small Cap Growth Value Emerging +3.98% +1.44% +2.71% +4.70% +1.41% +3.48% +0.96% +1.85% +3.90% US STOCKS REAL ESTATE AND FIXED INCOME Large Cap Small Cap Growth Value Global REITs 1-Month T-Bills Short-Term Bonds Intermediate Bonds Global Bonds (hedged) +0.52% +1.66% +1.91% -0.65% -2.61% +0.16% -0.45% -1.84% +0.28% Data is in Canadian dollars. Market segment (index representation) as follows: Canadian stocks: Large Cap (S&P/TSX 60), Small Cap (MSCI Canadian Small), Growth (MSCI Canadian Growth), Value (MSCI Canadian Value); US stocks: Large Cap (S&P 500), Small Cap (Russell 2000), Growth (Russell 3000 Growth), Value (Russell 3000 Value); International stocks: Large Cap (MSCI EAFE [net div]), Small Cap (MSCI EAFE Small Cap [net div]), Growth (MSCI EAFE Growth [net div]), Value (MSCI EAFE Value [net div]), Emerging Markets (MSCI Emerging [net div]); Real Estate: Global REITs (S&P Global REIT [net div]); Fixed Income: Canadian (Canadian 1-month T-bills), Short Term Bonds (FTSE TMX Canada Short-Term Bond), Intermediate Bonds (FTSE TMX Canada Universe Bond), Global Bonds-Hedged (Citi World Government Bond Index 1-5 Years [hedged to CAD]). Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance does not guarantee future returns.  S&P/TSX data provided by S&P/TSX. MSCI data copyright MSCI 2017, all rights reserved. The S&P data are provided by Standard & Poor's Index Services Group. Russell data copyright © Russell Investment Group 1995-2017, all rights reserved. Canadian fixed income data provided by FTSE TMX Global Debt Capital Markets Inc., all rights reserved. Citigroup bond indexes copyright 2017 by Citigroup.

Survey of Long-Term Performance September 30, 2017 Annualized (%) Asset Class Index 1 Year 3 Years 5 Years 10 Years 20 Years Since Inception Inception date CANADIAN STOCKS Large Cap S&P/TSX 60 10.47 5.28 8.79 4.17 6.96 8.64 Feb-87 Small Cap MSCI Canadian Small 2.81 1.13 3.98 2.69 5.57 8.51 Jul-90 Growth MSCI Canadian Growth 3.21 3.32 6.73 2.12 5.54 7.12 Jan-82 Value MSCI Canadian Value 15.11 4.64 8.55 5.19 8.48 10.94 US STOCKS S&P 500 12.81 14.87 19.79 9.90 6.46 11.23 Feb-51 Russell 2000 14.84 16.29 19.34 10.32 6.99 11.86 Jan-79 Russell 3000 Growth 15.91 16.78 20.80 11.53 5.94 11.27 Russell 3000 Value 9.88 12.78 18.72 8.44 6.87 12.38 INTERNATIONAL STOCKS MSCI EAFE (net div.) 13.28 8.89 13.66 3.66 4.08 9.24 Jan-70 MSCI EAFE Small Cap (net div.) 15.94 15.38 18.39 7.07 6.83 7.05 Jan-93 MSCI EAFE Growth (net div.) 10.02 10.39 14.20 4.46 3.30 9.15 Jan-75 MSCI EAFE Value (net div.) 16.55 7.29 13.05 2.79 4.71 11.80 Emerging Markets MSCI Emerging Markets (net div.) 16.53 8.91 9.10 3.67 5.84 10.83 Jan-88 REAL ESTATE Global REITs S&P Global REIT (net div.) -5.81 10.48 4.98 7.09 8.38 Jul-89 FIXED INCOME Canadian Bills Canadian 1-Month T-Bills 0.54 0.56 0.71 0.95 2.30 6.07 Jun-73 Canadian Short-Term Bonds FTSE TMX Canada Short-Term Bond -0.70 1.44 1.71 3.29 4.24 7.59 Jan-80 Canadian Bonds FTSE TMX Canada Universe Bond -2.97 2.66 4.74 5.44 8.74 Global Bonds (hedged) Citi World Government Bond Index 1-5 Years 0.16 1.40 1.67 2.72 3.78 6.17 Jan-85 Data is in Canadian dollars. MSCI EAFE Small Cap Index return is price-only prior to January 1999 data inception. MSCI Emerging Markets Index return is gross dividends prior to January 1999 data inception. S&P Global REIT Index return is gross dividends prior to January 2001 data inception. S&P/TSX data provided by S&P/TSX. MSCI data copyright MSCI 2017, all rights reserved. The S&P data are provided by Standard & Poor's Index Services Group. Russell data copyright © Russell Investment Group 1995-2017, all rights reserved. Canadian fixed income data provided by FTSE TMX Global Debt Capital Markets Inc., all rights reserved. Citigroup bond indexes copyright 2017 by Citigroup. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Value of Stock Markets around the World January 1990–September 2017 Weights Number of Countries Number of Stocks Total Value September 30, 2017 Change from Previous Year 01/90-09/17 Average Canada 1 312 1.78 Trillion 3.3% -0.8% 3.1% United States 2,446 28.26 Trillion 51.6% -1.2% 46.8% Developed Markets 21 3,178 17.89 Trillion 32.7% +1.6% 43.2% Emerging Markets 24 2,666 6.80Trillion 12.4% +1.2% 6.9% Total 47 8,602 54.73 Trillion 100.0% Intl. Developed Markets Maximum 67.07% January 1990 US Stock Market Maximum 56.88% January 2002 Intl. Developed Markets Minimum 31.09% November 2016 US Stock Market Minimum 29.89% January 1990 Emerging Markets Maximum 15.15% September 2010 CAN Stock Market Minimum 2.01% December 1998 Emerging Markets Minimum 0.72% January 1990 CAN Stock Market Maximum 5.04% March 2011 Global market capitalization weights are not static; they change across time. Data is in US dollars and values are beginning of month. The proxies for the Canadian and US equity markets are based on the respective country markets from the MSCI All Country World IMI Index. The international developed market proxy is the MSCI All Country World IMI ex USA ex Canada Index. The proxy for emerging markets is the MSCI All Country World IMI Index (Emerging Markets). MSCI data copyright MSCI 2017, all rights reserved.

The Randomness of Quarterly Returns September 30, 2017 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 9.26 13.67 11.38 6.41 4.99 13.77 14.37 0.14 6.26 10.18 4.54 9.02 10.68 6.68 10.37 3.48 3.90 ? 6.25 9.01 6.12 4.16 1.31 9.16 13.00 0.02 0.66 8.75 1.39 8.05 6.21 3.68 4.15 7.29 6.06 2.87 1.06 2.70 11.49 -0.71 0.15 8.56 1.13 5.60 5.98 1.64 4.73 1.11 1.41 3.58 5.00 4.76 1.99 0.71 0.70 11.01 -0.79 0.12 4.36 0.38 5.11 5.45 2.41 0.45 0.61 0.68 2.09 3.62 1.21 0.50 0.23 -1.26 -0.91 0.98 4.93 1.29 -0.56 1.24 0.28 0.26 2.77 0.79 2.58 -1.63 -4.10 0.11 -0.77 3.31 1.19 -1.90 0.47 0.13 0.16 0.78 -0.59 -0.94 0.82 -1.71 -7.86 -0.06 -5.23 3.11 -2.86 0.21 -0.99 -1.84 -2.23 0.24 0.20 -1.19 -1.47 -9.19 -12.28 -1.40 -8.96 0.06 -3.44 -1.64 -2.61 Highest Return This table shows from top to bottom the highest returning asset classes each quarter over the last 15 quarters. Each asset class is color coded based on the legend below. Lowest Return Canadian Stocks US Stocks International Developed Markets Emerging Markets Global REITs Canadian 1-Month T-Bills Canadian Bonds Global Bonds The lack of a pattern indicates that picking which asset classes will be the best or worst performers is virtually impossible. Portfolios combining these various investments will avoid extreme returns. Data is in Canadian dollars. Indexes represented as follows: Canadian stocks (S&P/TSX Composite Index), US stocks (Russell 3000 Index), International Developed Markets (MSCI EAFE Index), Emerging Markets (MSCI Emerging Markets Index), Global REIT (S&P Global REIT Index), Canadian 1-Month T-Bills, Canadian Bonds (FTSE TMX Canada Universe Bond Index), Global Bonds (Citi World Government Bond Index Canada 1-5 Years). Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.   S&P/TSX data provided by S&P/TSX. MSCI data copyright MSCI 2017, all rights reserved. The S&P data are provided by Standard & Poor's Index Services Group. Russell data copyright © Russell Investment Group 1995-2017, all rights reserved. Canadian fixed income data provided by FTSE TMX Global Debt Capital Markets Inc., all rights reserved. Citigroup bond indexes copyright 2017 by Citigroup.

Currency September 30, 2017 IMPACT OF CURRENCY FLUCTUATIONS CHANGE IN FOREIGN EXCHANGE RATES (%) FX/$CAD Currency Q3 2017 One Year Three Years $ US Dollars -3.79% -4.89% 3.67% € Euro -0.44% 0.07% 1.40% £ Pounds -1.02% -1.67% -2.71% ¥ Yen -3.83% -14.29% 2.78% IMPACT OF CURRENCY FLUCTUATIONS Annual Returns in CAD and Local Currency Three-Year Annualized Returns in CAD and Local Currency CAD Local Currency Data is in Canadian dollars. The market for the United States, International Developed Markets, and Emerging Markets is defined as: Russell 3000 Index, MSCI EAFE Index, and MSCI Emerging Markets Index, respectively. The S&P data are provided by Standard & Poor's Index Services Group. Russell data copyright © Russell Investment Group 1995-2017, all rights reserved. MSCI data copyright MSCI 2017, all rights reserved. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. FX Rates courtesy of Federal Reserve of New York.

MSCI Country Returns in Canadian Dollars and Local Currency June 30, 2017 - September 30, 2017 THIRD QUARTER 2017 RETURNS Return in CAD Return in Local Currency Impact of Currency 1. Brazil 19.25% 18.22% 1.03% 2. Norway 14.03% 12.53% 1.50% . 19. Canada 3.70% 0.00% 25. United States 0.72% 4.59% -3.87% 46. Greece -12.08% -11.92% -0.16% 47. Pakistan -15.48% -11.82% -3.66% ONE YEAR RETURNS IN CAD AND LOCAL CURRENCY Return in CAD Return in Local Currency Impact of Currency 1. Poland 44.63% 44.71% -0.07% 2. Italy 41.02% 40.87% 0.15% . 24. United States 12.88% 18.62% -5.74% 33. Canada 9.03% 0.00% 46. Qatar -19.46% -15.40% -4.07% 47. Pakistan -25.84% -19.54% -6.31% MSCI data copyright MSCI 2017, all rights reserved. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

MSCI Country Returns Country Rankings—Ten-Year Annualized Returns as of September 30, 2017 United States Canada Percent Return Data in Canadian dollars gross of fees. MSCI data copyright MSCI 2017, all rights reserved. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Bond Returns June 30, 2017 - September 30, 2017 Return (%) Index Q3 2017 One Year Three Years Annualized Canadian 1-Month T-Bills 0.16% 0.54% 0.56% FTSE TMX Canada Short-Term Bond Index -0.45% -0.70% 1.44% FTSE TMX Canada Mid-Term Bond Index -1.48% -3.27% 2.99% FTSE TMX Canada Long-Term Bond Index -4.09% -5.95% 4.43% FTSE TMX Canada Universe Bond Index -1.84% -2.97% 2.79% Citi World Government Bond Index 1-5 Years 0.28% 1.40% (hedged to CAD) CAN Treasury Yield Curve Data is in Canadian dollars. Canadian fixed income data provided by FTSE TMX Global Debt Capital Markets Inc., all rights reserved. Data provided by Citibank. Treasury yield data provided by Bank Of Canada; copyright © 1995-2017, Bank of Canada.

Growth of Wealth One Year as of September 30, 2017 - $1.17 $1.13 $1.13 $1.09 $1.05 - $1.01 $0.97 $0.94 In Canadian dollars. T-Bills is Canadian 1-Month T-Bills, Canadian Bonds is FTSE TMX Canada Universe Bond Index, International Stocks is MSCI EAFE Index (net div.), Emerging Markets Stocks is MSCI Emerging Markets Index (gross div.) from 01/1988 to 12/1998 and MSCI Emerging Markets Index (net div.) from 01/1999, US Stocks is S&P 500 Index, Global Real Estate is S&P Global REIT Index (gross div.) from 07/1989 to 12/2000 and S&P Global REIT (net div.) from 01/2001 and Canadian Stocks is S&P/TSX Composite Index. Balanced Portfolio is 10% T-Bills, 30% Canadian Bonds, 20% Canadian Stocks, 15% US Stocks, 15% International Stocks, 5% Emerging Markets Stocks and 5% Global Real Estate. Canadian fixed income data provided by FTSE TMX Global Debt Capital Markets Inc., all rights reserved. MSCI data copyright MSCI 2017, all rights reserved. The S&P data are provided by Standard & Poor’s Index Services Group. S&P/TSX data provided by S&P/TSX. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Growth of Wealth Three Years as of September 30, 2017 - $1.52 $1.35 $1.29 $1.29 $1.21 $1.14 $1.09 $1.02 In Canadian dollars. T-Bills is Canadian 1-Month T-Bills, Canadian Bonds is FTSE TMX Canada Universe Bond Index, International Stocks is MSCI EAFE Index (net div.), Emerging Markets Stocks is MSCI Emerging Markets Index (gross div.) from 01/1988 to 12/1998 and MSCI Emerging Markets Index (net div.) from 01/1999, US Stocks is S&P 500 Index, Global Real Estate is S&P Global REIT Index (gross div.) from 07/1989 to 12/2000 and S&P Global REIT (net div.) from 01/2001 and Canadian Stocks is S&P/TSX Composite Index. Balanced Portfolio is 10% T-Bills, 30% Canadian Bonds, 20% Canadian Stocks, 15% US Stocks, 15% International Stocks, 5% Emerging Markets Stocks and 5% Global Real Estate. Canadian fixed income data provided by FTSE TMX Global Debt Capital Markets Inc., all rights reserved. MSCI data copyright MSCI 2017, all rights reserved. The S&P data are provided by Standard & Poor’s Index Services Group. S&P/TSX data provided by S&P/TSX. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Growth of Wealth Five Years as of September 30, 2017 - $2.47 $1.90 $1.79 $1.55 $1.51 $1.47 $1.14 $1.04 In Canadian dollars. T-Bills is Canadian 1-Month T-Bills, Canadian Bonds is FTSE TMX Canada Universe Bond Index, International Stocks is MSCI EAFE Index (net div.), Emerging Markets Stocks is MSCI Emerging Markets Index (gross div.) from 01/1988 to 12/1998 and MSCI Emerging Markets Index (net div.) from 01/1999, US Stocks is S&P 500 Index, Global Real Estate is S&P Global REIT Index (gross div.) from 07/1989 to 12/2000 and S&P Global REIT (net div.) from 01/2001 and Canadian Stocks is S&P/TSX Composite Index. Balanced Portfolio is 10% T-Bills, 30% Canadian Bonds, 20% Canadian Stocks, 15% US Stocks, 15% International Stocks, 5% Emerging Markets Stocks and 5% Global Real Estate. Canadian fixed income data provided by FTSE TMX Global Debt Capital Markets Inc., all rights reserved. MSCI data copyright MSCI 2017, all rights reserved. The S&P data are provided by Standard & Poor’s Index Services Group. S&P/TSX data provided by S&P/TSX. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Growth of Wealth Ten Years as of September 30, 2017 $2.57 $1.65 $1.63 $1.59 $1.49 $1.43 $1.43 $1.10 In Canadian dollars. T-Bills is Canadian 1-Month T-Bills, Canadian Bonds is FTSE TMX Canada Universe Bond Index, International Stocks is MSCI EAFE Index (net div.), Emerging Markets Stocks is MSCI Emerging Markets Index (gross div.) from 01/1988 to 12/1998 and MSCI Emerging Markets Index (net div.) from 01/1999, US Stocks is S&P 500 Index, Global Real Estate is S&P Global REIT Index (gross div.) from 07/1989 to 12/2000 and S&P Global REIT (net div.) from 01/2001 and Canadian Stocks is S&P/TSX Composite Index. Balanced Portfolio is 10% T-Bills, 30% Canadian Bonds, 20% Canadian Stocks, 15% US Stocks, 15% International Stocks, 5% Emerging Markets Stocks and 5% Global Real Estate. Canadian fixed income data provided by FTSE TMX Global Debt Capital Markets Inc., all rights reserved. MSCI data copyright MSCI 2017, all rights reserved. The S&P data are provided by Standard & Poor’s Index Services Group. S&P/TSX data provided by S&P/TSX. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Growth of Wealth Twenty Years as of September 30, 2017 - $3.93 $3.56 $3.50 $3.11 - $3.08 $2.88 $2.22 $1.58 In Canadian dollars. T-Bills is Canadian 1-Month T-Bills, Canadian Bonds is FTSE TMX Canada Universe Bond Index, International Stocks is MSCI EAFE Index (net div.), Emerging Markets Stocks is MSCI Emerging Markets Index (gross div.) from 01/1988 to 12/1998 and MSCI Emerging Markets Index (net div.) from 01/1999, US Stocks is S&P 500 Index, Global Real Estate is S&P Global REIT Index (gross div.) from 07/1989 to 12/2000 and S&P Global REIT (net div.) from 01/2001 and Canadian Stocks is S&P/TSX Composite Index. Balanced Portfolio is 10% T-Bills, 30% Canadian Bonds, 20% Canadian Stocks, 15% US Stocks, 15% International Stocks, 5% Emerging Markets Stocks and 5% Global Real Estate. Canadian fixed income data provided by FTSE TMX Global Debt Capital Markets Inc., all rights reserved. MSCI data copyright MSCI 2017, all rights reserved. The S&P data are provided by Standard & Poor’s Index Services Group. S&P/TSX data provided by S&P/TSX. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Quit Monkeying Around! Third Quarter 2017 In the world of investment management there is an oft-discussed idea that blindfolded monkeys throwing darts at pages of stock listings can select portfolios that will do just as well, if not better, than both the market and the average portfolio constructed by professional money managers. If this is true, why might it be the case? For the purposes of this analogy you can think of Exhibit 1 as a proxy for the overall stock market and therefore similar to a portfolio that, in aggregate, professional money managers hold in their competition with their simian challengers. Because for every investor holding an overweight to a stock (relative to its market cap weighting) there must also be an investor underweight that same stock, this means that, in aggregate, the average dollar invested holds a portfolio that looks like the overall market.1 The Dart Board Exhibit 1 shows the components of the Russell 3000 Index (regarded as a good proxy for the US stock market) as of December 31, 2016. Each stock in the index is represented by a box, and the size of each box represents the stock’s market capitalization (share price multiplied by shares outstanding) or “market cap” in the index. For example, Apple (AAPL) is the largest box since it has the largest market cap in the index. The boxes get smaller as you move from the top to the bottom of the exhibit, from larger stocks to smaller stocks. The boxes are also color coded based on their market cap and whether they are value or growth stocks. Value stocks have lower relative prices (as measured by, for instance the price-to-book ratio) and growth stocks tend to have higher relative prices. In the exhibit, blue represents large cap value stocks (LV), green is large cap growth stocks (LG), gray is small cap value stocks (SV), and yellow is small cap growth stocks (SG). Exhibit 1. US Stocks Sized by Market Capitalization For illustrative purposes only. Illustration includes constituents of the Russell 3000 Index as of December 31, 2016, on a market-cap weighted basis segmented into Large Value, Large Growth, Small Value, and Small Growth. Source: Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Please see Appendix for additional information. 1. For more on this concept, please see “The Arithmetic of Active Management” by William Sharpe.

Quit Monkeying Around! (continued from page 14) Consider as an example something seemingly as straightforward as a strategy that holds every stock in the Russell 3000 Index at an equal weight (the equivalent of buying the whole dart board in Exhibit 2). In order to maintain an equal weight in all 3,000 securities, an investor would have to rebalance frequently, buying shares of companies that have gone down in price and selling shares that have gone up. This is because as prices change, so will each individual holding’s respective weight in the portfolio. By not considering whether or not these frequent trades add value over and above the costs they generate, investors are opening themselves up to a potentially less than desirable outcome. Exhibit 2, on the other hand, represents the dart board the monkeys are using to play their game. Here, the boxes represent the same stocks shown in Exhibit 1, but instead of weighting each company by market cap, the companies are weighted equally. For example, in this case, Apple’s box is the same size as every other company in the index regardless of its market cap. If one were to pin up pages of newspaper stock listings to throw darts at, Exhibit 2 would be much more representative of what the target would look like. When looking at Exhibits 1 and 2, the significant differences between the two are clear. In Exhibit 1, the surface area is dominated by large value and large growth (blue and green) stocks. In Exhibit 2, however, small cap value stocks dominate (gray). Why does this matter? Research has shown that, historically over time, small company stocks have had excess returns relative to large company stocks. Research has also shown that, historically over time, value (or low relative price) stocks have had excess returns relative to growth (or high relative price) stocks. Because Exhibit 2 has a greater proportion of its surface area dedicated to small cap value stocks, it is more likely that a portfolio of stocks selected at random by throwing darts would end up being tilted towards stocks which research has shown to have had higher returns when compared to the market. So…Throw Away? This does not mean, however, that haphazardly selecting stocks by the toss of a dart is an efficient or reliable way to invest. For one thing, it ignores the complexities that arise in competitive markets. Exhibit 2. US Stocks Sized Equally For illustrative purposes only. Illustration includes the constituents of the Russell 3000 Index as of December 31, 2016 on an equal-weighted basis segmented into Large Value, Large Growth, Small Value, and Small Growth. Source: Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Please see Appendix for additional information.

Quit Monkeying Around! (continued from page 15) Conclusion Appendix Instead, if there are well-known relationships that explain differences in expected returns across stocks, using a systematic and purposeful approach that takes into consideration real-world constraints is more likely to increase your chances for investment success. Considerations for such an approach include things like: understanding the drivers of returns and how to best design a portfolio to capture them, what a sufficient level of diversification is, how to appropriately rebalance, and last but not least, how to manage the costs associated with pursuing such a strategy. Conclusion So what insights can investors glean from this analysis? First, by tilting a portfolio towards sources of higher expected returns, investors can potentially outperform the market without needing to outguess market prices. Second, implementation and patience are paramount. If one is going to pursue higher expected returns, it is important to do so in a cost-effective manner and to stay focused on the long term. Appendix The Long Game Large cap is defined as the top 90% of market cap (small cap is the bottom 10%), while value is defined as the 50% of market cap of the lowest relative price stocks (growth is the 50% of market cap of the highest relative price stocks). For educational and informational purposes only and does not constitute a recommendation of any security. The determinations of Large Value, Large Growth, Small Value, and Small Growth do not represent any determinations Dimensional Fund Advisors may make in assessing any of the securities shown. Finally, the importance of having an asset allocation well suited for your objectives and risk tolerance, as well as being able to remain focused on the long term, cannot be overemphasized. Even well-constructed portfolios pursuing higher expected returns will have periods of disappointing results. A financial advisor can help an investor decide on an appropriate asset allocation, stay the course during periods of disappointing results, and carefully weigh the considerations mentioned above to help investors decide if a given investment strategy is the right one for them. Source: Dimensional Fund Advisors LP. There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal. Diversification does not eliminate the risk of market loss. All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.