Kootenay Valley Financial Services Inc. Click to progress through presentation

Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Principles for Long Term Investment Success Asset class performance is ________________ over long time frames. Investment expense are ________ important than 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 income must 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 X X X X X

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 Market Return over the last 10 Years? 12.7% Ibbotson, Morningstar and Fidelity studies show Average Investor Returns over the last 10 Years. 2.3%

The THREE Barriers to financial success 1._____________________ 2._____________________ 3._____________________ Taxes Inflation Inefficient Diversification INVESTMENT FRICTION

Let’s look at TAXES!!! If $1 doubles every year for 20 years $1,048,576 $ 1 00 = In a 40% Tax Bracket $12,089 In a 28% 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% 2.8% 3.0% 3.1% 6.1% 4.6% 4.4% 1.1% 3.8% 4.0% 3.8% 3.9% 8.9% 12.4% % 9.0% 6.8% 4.8% 7.0% 12.2% 8.8% 3.4% 5.5% 6.1% 4.7% 3.0% 3.3% 1.9% 1.2% 1.7% 1.2% 0.7% 1.5% 1.8% 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% Now let’s look at INFLATION AVERAGE 3.6%4.8% 3.4%

Stamp Woman’s Skirt House Car Loaf of Bread ½ Gal Milk Median Income $.06 $ 7.50 $25,000 $ 3,400 $.23 $.50 $ 4,594 $.33 $ $235,000 $ 25,000 $ 2.39 $ 2.15 $ 18, % 8.43% 7.76% 6.68% 8.12% 4.98% 4.66% COMMODITY1970TODAYINFLATION Does History Really Repeat Itself? What is the TRUE Inflation rate?

24% ? % 14% % Over age 65 Living to age 90 Why is Inflation such a PROBLEM? The longer people live the higher the risk they will “Run Out of Money” The longer people live the higher the risk they will “Run Out of Money”

How does inflation IMPACT you? yrs 10 yrs 85 $50,000 Age: $18,000 $32,000 It’s the 2 nd 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 not Yours - UNLESS You are Buying or Selling

How do you measure Volatility? Average ROR Index Average ROR +/- 12% % -17% 12% High29% Low- 5% +29% - 5% Risk is ALL ABOUT Volatility

Retirement But Remember – Risk is also Inflation So, which Risk is Guaranteed to Happen?

What can you do to PROTECT your Purchasing power? Return on Investment ROI adjusted for Inflation ~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 Timing 2% Stock Selection 4% Asset Allocation 94% What IMPROVES Portfolio Performance

Where should I invest my MONEY? Name THREE basic Asset Classes? Cash Stocks Bonds

Historical Return on Investment Volatility Index Small Cap Large Cap Corporate Bonds Gov’t Bonds Inflation 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 Study Mutual Funds in the same asset class eventually Earn the same average rate of return. REGRESSION TO THE MEAN

Some asset classes move in OPPOSITE directions Zero+1 Negative – Moves in opposite directions Totally Random – no relationship Positive – Moves in the SAME direction

U.S. vs. International Rolling 12-Month 40% 30% 20% 10% 0% 10% 20% 30% 40% 50% 60% 70% Returns International outperforms U.S. U.S. outperforms International

Why are Correlation Coefficients important? VALUE TIME This is Called INEFFICIENT Diversification

We need to create DISSIMILAR Price Movements This is Called EFFICIENT Diversification VALUE TIME A A & BA & BA & BA & B B

Average return vs. Internal Rate of Return YEAR RETURN Ave ROI IRR 10%10%10%10%10% 10%10%

Average return vs. Internal Rate of Return YEAR % 20% - 5% - 10% 20% 20% 25% 25% Ave ROI IRR RETURN 10% 9.05%

Determine the REAL rate of return YEAR % 25% -30% RETURN Average ROI 14.00%

Determine the REAL rate of return YEAR % 14% 15% 15% 13% 13% 16% 16% 4% 4% RETURN Average ROI 12.40%

Determine the REAL rate of return YEAR % 25% -30%RETURN 14% 14% 15% 15% 13% 13% 16% 16% 4% 4%RETURN Average ROI 14.00%12.40% IRRIRR 11.3% 12.2%

Why is this IMPORTANT? This effect can ONLY be consistently achieved with EFFICIENT Diversification VALUE TIME 

What is the EFFICIENT FRONTIER? 100% 100% International International 100% 100% Large Cap Large Cap Return Risk Optimum Mix

100% Stocks 80% Stocks/20% Bonds 60% Stocks/40% Bonds 100% Bonds 20% Stocks/80% Bonds 40% Stocks/60% Bonds 50% Stocks/50% Bonds YEARS AGE Discover 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 Movements 4. Use Asset Allocation