1. PERSONAL INVESTMENTS HELPING YOUR CLIENTS REACH THEIR GOALS

2. NOTICE
This presentation contains investments illustrations. The rates of return used in these illustrations are not guaranteed. Actual results will vary from those illustrated. The purpose of these illustrations is too help understand the potential of certain investment concepts and strategies.

3. EACH CLIENT IS DIFFERENT.
No “one-size-fits-all” solutions.
Solution as unique as your client; solution should correspond to client’s goals and profile.
Know your client
Some basic investment concepts and strategies are, in most situations key to investment success:
Time value of money
Avoiding market timing or major investment decisions based on emotions
Dollar cost averaging
In any industry, there’s never a “one-size-fits-all” solution that applies to everybody, and it’s no different in the financial services industry.
In past sessions, we have seen the importance of getting to know your client before making a recommendation. Each strategy should be tailor-made to fit the client’s situation and address their needs.
However, there are some basic concepts regarding investments that are considered general truths. They’re not necessarily solutions per say but more of key tips on how to deal with investing in general. These tips can easily be incorporated in the recommendations you will develop for your clients.

4. TIME IS AN INVESTOR’S BEST FRIEND.
To better explain the concept of time and its impact on investments, let’s look at the following story.
TIME IS AN INVESTOR’S BEST FRIEND.
A story about two investors…

5. TIME IS AN INVESTOR’S BEST FRIEND.
Similarities
Average annual return of 6.00%
Total amount invested over time: $36,000

6. TIME IS AN INVESTOR’S BEST FRIEND.
Differences
Investor A
Investment period from age 30 to age 60
Monthly investment =$100
Investor B
Investment period from age 45 to age 60
Monthly investment = $200

7. WHAT WILL BE THE OUTCOME?
- Both investors end up with the same market value at age 60.
- Investor A will have more money at age 60 than investor B.
Multiple choice question. Ask the question and wait for an answer from the participants. Go to next slide to see the answer.

8. TIME IS AN INVESTOR’S BEST FRIEND.
The Big Difference
Investor A
Market value at age 60 = $100,451.50
Investor B
Market value at age 60 = $58,163.74
To get the same end result as his friend, Investor B would have to invest $ per month for a total of $62,173.80

9. REQUIRED INVESTMENT TO MATCH INVESTOR A
TIME IS AN INVESTOR’S BEST FRIEND.
Another example with a 6% annual return
INVESTOR A
INVESTOR B
INVESTMENT PERIOD
FROM AGE 30 TO 45
FROM AGE 45 TO 60
MONTHLY INVESTMENT
$100.00
$200.00
TOTAL INVESTMENT
$36,000.00
MARKET VALUE AT 60
$139,392.79
$58,163.75$
REQUIRED INVESTMENT TO MATCH INVESTOR A
---
$479.31
Here’s another example of the benefit of time. In this case, each investor invests $200 per month for 15 years. The only difference is that Investor A invests from age 30 to age 45 and then stops, leaving his investment to grow until age 60. Investor B only starts to invest at age 45 and does so until age 60.
Again the difference is quite notable in favour of Investor A.

10. TIME IS AN INVESTOR’S BEST FRIEND.
While it’s never too late to start investing, the sooner you start, the better.
It is better to start earlier with small amounts, than to start later and trying to catch up.
To be motivated to start investing, your clients need to identify financial goals that are important to them.
REMEMBER…
NO GOALS
NO MOTIVATION
NO INVESTMENTS

11. It’s a question of choice
WHERE TO FIND THE MONEY?
It’s a question of choice
The most common excuse why people wait before they start investing their money is that they don’t have any discretionary income left to invest. In many cases, it’s just a question of looking closely at their monthly expenses and determine what’s more important: their financial goal such as retirement, or their everyday habit such as 3 coffees a day or a weekly trip to the cinema.
Your competition isn’t only from other brokers or financial institutions. Its from all the merchandise and social activities that consumers are drawn to because it is tangible and it gives immediate gratification. Investing money for a future financial goal isn’t always as appealing as a beer or a night at the restaurant.
Here’s the thing: none of the companies of which your client is a loyal and regular client will return the favour in the form of retirement income. The choice is up to your clients! Instead of indulging first and looking at retirement savings second (or any other financial goal), it’s better to address your retirement or other financial goal and then indulge.
If your clients’ goals are not in their top priorities, it will be harder for them to find the money and commit to an investment plan.

12. WHERE TO FIND THE MONEY? $27,719.76 Example
Going from 3 cups of coffee ($2 each) a day to 2 cups.
$2 x 5 work days x 4 weeks = $40 per month
Invested in a balanced fund and assuming a 6% annual return
So, by cutting out one $2 coffee per day, I’ve found money that will result in $27, in 25 years.
That was easy!
Now, imagine if I cut a $4 dollar latté from my daily consumption (or 2 coffees).
$27,719.76
in 25 years

13. WHERE TO FIND THE MONEY? Other example:
How often do your client eat out? Restaurants can add up quite fast. Why not cut one or two visits to the restaurant from the weekly routine and invest that amount?
Are all the bells and whistles included in a smart phone or cable package necessary? Or can your client go from 200 channels to channels and still be satisfied? If so, less money will go to the telecommunication company, more will go for your client’s financial goals.
There are many other areas where you can find money to invest (cinema, social outings, casino, etc.)
Remember: clients have the final say on where they spend their money. If they don’t see financial goals such as retirement as a priority, it will be difficult for them to make certain changes to their habits to “find money” to invest.
Restaurants can add up quite fast. Why not cut one or two visits to the restaurant from the weekly routine and invest that amount?
Or can your client go from 200 channels to 100 channels and still be satisfied? If so, less money will go to the telecommunication company, more will go for your client’s financial goals.

14. INVESTMENTS AND EMOTIONS
They don’t mix well!

15. INVESTOR EMOTION THROUGH THE MARKET CYCLE
When emotions dictate when to invest in the market and when to get out, disaster can occur. That’s because, for most people, human emotions tend to want to invest after a few good years of returns, after having missed the most of the positive return.
And then, during market declines, emotions tend to make us get out of the market around the market bottom, not being patient enough to wait and profit from the next rise in the market.
Being out of the market, emotions tend to tell us to wait a while when markets start rising again to make sure it lasts. After a certain period of positive returns, emotions make us comfortable to invest in the market at that time, and the vicious cycle starts again.
Correctly timing the market everytime is impossible, and it leaves too much room for emotions which can lead to disaster.
Source: Russell Investments

16. For someone who stayed invested instead of letting emotions dominate his investment decision, they have received a decent return. For the long-term investor, establish the investment strategy based on the client’s goals and investor profile, and keep them focused on the long term return, not the short term gyrations of the market.

17. INVESTMENTS AND EMOTIONS
Establish the investment strategy based on the client’s goals and investor profile.
Don’t let emotions dictate changes in the investment strategy.
Changes in the investment strategy may be necessary if its based on new financial goals or circumstances or a different investor profile.
Emotions tend to make us believe we can time the markets. Trying to time the markets is a bet most people lose.

18. Canadian Bull and Bear Markets Jan 1950–June 2012
Yellow bars represent Canadian recessions 6 3
24 months % 44.7%
40 months +81.9% 19.7%
40 months +57.0% 14.5%
25 months +43.6% 19.0%
89 months % 17.5%
137 months % total return 12.5% annualized
81 months % 22.3%
61 months % 28.1%
90 months % 15.9%
68 months % 19.0% $1 16 19 43
months to recover 20 29 15 34 24
No one likes to see significant drops in value in the markets. But as shown here, markets tend to bounce back after periods of correction.
Canadian Bull and Bear Markets
The Canadian stock market has had its fair share of bull and bear markets since In this analysis, a bear market is defined as the index closing at least 20% down from its previous high close. Its duration is the period from the previous high to the lowest close reached after it has fallen 20% or more. A bull market is measured from the lowest close reached after the market has fallen 20% or more to the next high. Recessions are defined as two or more consecutive quarters of negative GDP.
The nine bear markets illustrated have had varying levels of severity and different lengths of recovery. The worst downturn took place from June 2008 to February 2009, when the market fell 43.3% in nine months. This happened when the Canadian stock market was severely affected by the global banking and credit crisis.
However, after each bear market in the past, the market has been able to recover. Of course, stocks are a volatile investment and recoveries are never guaranteed, but in general periods of gain followed periods of decline. A word of caution, though: a loss of 30% (for example), followed by a gain of 30% doesn’t mean that the investor has recovered the full initial value of the investment. If an investor has, let’s say, $100 in the stock market, a 30% decline will leave the investment at $70. A subsequent 30% gain will bring the value up to $91, not $100. This means that higher relative returns are needed after each bear market in order to compensate for the lost value.
Returns and principal invested in stocks are not guaranteed, and stocks are more volatile than other asset classes.
About the data
Stocks are represented by the S&P/TSX Composite Index. An investment cannot be made directly in an index. The data assumes reinvestment of all income and does not account for taxes or transaction costs. 10
10 months –20.1%
7 months –26.9%
13 months –25.4%
4 months –25.4%
4 months –27.5%
11 months –35.0%
12 months –39.2%
25 months –43.2%
9 months –43.3%
0.4
1950’s
1960’s
1970’s
1980’s
1990’s
2000’s
All values are represented in CAD. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2012 Morningstar. All Rights Reserved. 9/1/2012

19. THE LONGER THE INVESTMENT PERIOD, THE LOWER THE VOLATILITY
This graph is for Canadian Equity, taken from the Navi Plan software.
In volatile times such as these, it’s easy for long term investors to lose focus of the fact there invested for the long run. Volatility (or risk) is relative to the investment period. As you can see, the differences between one-year returns is huge. However, when we look at the results for 10 years (average annual return), the minimum return is positive, and the difference between the minimum and maximum average return shrinks as we increase the investment period.
So, when fear becomes a problem for your long-term investors, help them refocus on why they are invested the way they are (profile, goals) and how risk lowers dramatically over longer term periods.

20. DOLLAR COST AVERAGING
Investment on a regular basis (i.e. monthly or bi-weekly) set-up to be done automatically which will average out the unit costs of an investment fund.
Great way to keep emotions in check.
Reduces risk of near or at a market high.
Painless way to invest as it becomes part of the client’s routine. It’s the principle of “paying yourself first”.
set-up to be done automatically which will average out the unit costs of an investment fund.

21. DOLLAR COST AVERAGING
Prevents being victim of bad luck by investing near market highs. CLICK
With dollar cost averaging, you limit significantly the risk of bad market timing and, it’s much easier to get started and stay committed by making automatic, monthly or bi-weekly contributions, compared with trying to come up with an larger annual contribution.
With dollar cost averaging, you know you’ll be investing in the market downturns, giving you more fund units for the same price. This will be beneficial when the markets rise.

22. DIVERSIFICATION
Just as it is nearly impossible to time the market, it’s just as difficult to determine which asset class will be the best perform in any given year.
By diversifying, you lower the volatility of the portfolio.
Diversification can be achieved at different levels:
Asset class
Geography
Economic sectors
Management style
Managers

23. This table shows the ranking of different asset classes for each calendar year since 1993, from the best performer to the worst.
As you can see based on the color scheme, it varies from year to year. A balanced portfolio may never be the top performer for a given year, but it probably won’t be the worst performer either.

24. How should one invest during retirement?
REACHING RETIREMENT
When discussing investments, we tend to focus more on the pre-retirement years.
How should one invest during retirement?

25. INVESTMENT STRATEGY DURING RETIREMENT
As clients start to withdraw funds from their portfolio on a regular basis, it’s important to consider protecting the amounts to be withdrawn in the next few years.
However, growth still plays a part in a retirement portfolio as some of the money will not be needed for another 10 years or more.
While the majority of people want to lower volatility of their portfolio when they reach retirement, there is a risk in being too conservative: that of outliving your money.

26. Probability of Meeting Income Needs Various withdrawal rates and portfolio allocations over a 25-year retirement
91%
64%
34%
13% 4%
97%
80%
47%
19% 5%
83%
57%
29%
12%
93%
79%
58%
37%
20%
88%
74%
40%
26%
4% Withdrawal rate 5% 6% 7% 8%
The higher the withdrawal rate, the lower the odds of the portfolio lasting 25 years.
Highlighted are the portfolios with the best odds of lasting for each withdrawal levels. Notice than none of those are 100% bonds. They all have some equities.
Probability of Meeting Income Needs
There are a number of factors that can impact whether a portfolio will last through retirement.
The table shows how the amount of withdrawal and various portfolio allocations can affect the chance of meeting income needs over a 25-year retirement. It is assumed that a person retires at year zero and withdraws an inflation-adjusted percentage of the initial portfolio wealth each year beginning in year 1. Annual investment expenses were assumed to be 1.36% for stock mutual funds and 0.80% for bond mutual funds.
A high probability indicates that an investor is more likely to meet income needs in retirement, while a low probability indicates that an investor is less likely to do so and may face shortfall. Generally, the chance of a portfolio running out over a long retirement is less likely as the amount withdrawn decreases and as equities are added. Keep in mind that returns and principal invested in stocks are not guaranteed and they have been more volatile (risky) than bonds.
The image was created using Monte-Carlo parametric simulation that estimates the range of possible outcomes based on a set of assumptions including arithmetic mean (return), standard deviation (risk), and correlation for a set of asset classes. The inputs used are historical 1950–2011 figures. The risk and return of each asset class, cross-correlation, and annual average inflation over this time period follow. Stocks: risk 17.1%, return 11.4%; Bonds: risk 9.8%, return 8.1%; Correlation 0.05; Inflation: return 3.8%. Other investments not considered may have characteristics similar or superior to those being analyzed. The simulation is run 5,000 times, to give 5,000 possible 25-year scenarios. A limitation of this simulation model is that it assumes a constant inflation-adjusted rate of withdrawal, which may not be representative of actual retirement income needs. This type of simulation also assumes that the distribution of returns is normal. Should actual returns not follow this pattern, results may vary.
Government bonds are guaranteed by the full faith and credit of the Canadian government as to the timely payment of principal and interest, while returns and principal invested in stocks are not guaranteed.
About the data
Stocks are represented by the S&P/TSX Composite—Canadian Financial Markets Research Center for 1950–1955 and Standard and Poor’s/TSX Composite Index total return series thereafter. Bonds are represented by the DEX Long Bond Index—data from PC-Bond, a business unit of TSX, Inc. Inflation is represented by the Consumer Price Index from Statistics Canada, and mutual fund expenses from Morningstar. An investment cannot be made directly in an index. The data assumes reinvestment of income and does not account for taxes.
100%
Bonds
75% B
25% S
50% B
50% S
25% B
75% S
Stocks
All values are represented in CAD. IMPORTANT: Projections generated by Morningstar regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary over time and with each simulation. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2012 Morningstar. All Rights Reserved. 9/1/2012

27. INVESTMENT STRATEGY DURING RETIREMENT
As previously shown, diversification still plays an important part during retirement.
Another approach one should consider is diversification of sources of income.
General idea: match the type of expenses with corresponding types of income.

28. EXPENSES AT RETIREMENT
Essential Expenses:
Discretionary Expenses:
Food
Travel
Clothing
Entertainment
Shelter
Club Membership
Health & Wellness
Etc.
“Need to have”
“Nice to have”
To simplify the retirement income plan for retirees, determine which expense is essential, and which expense is discretionary. These expense categories will come into play in the retirement income plan blueprint.
Essential Expenses tend to be ongoing for life and fixed or at least fairly predictable (cost of living increases).
Discretionary Expenses shouldn’t be fixed as they are optional.

29. MATCH THE INCOME WITH THE EXPENSES
Non-flexible reliable income
CPP/OAS
Company pension
Life annuities
Essential Expenses
Food, Clothing, Shelter, Health & Wellness, Etc.
Limited flexibility
LIF
Discretionary Expenses
Travel, Entertainment, Club Membership, Etc.
Surplus
Once you’ve determined the expected expenses during retirement and categorized them, and that you’ve identified the retirement income sources available to your client, it’s time to match the retirement income with the expenses.
The sources of income are divided in 3 categories:
Non-flexible reliable income, fixed amount guaranteed for life. No changes are permitted.
Limited flexibility; client maintains control on the investment and the amounts of withdrawals but the latter must fall within a prescribed annual minimum and maximum.
Flexible income; client maintains control on the investment and has complete liberty to withdraw any amount he wishes.
The idea behind this blue print is to match similar types of income with similar types of expenses. Of course, the first priority is to cover the essential expenses which are ongoing for the lifetime. Therefore, the first type of income that should be used to cover these expenses are the non-flexible reliable income. If the essential expenses are not fully covered, use the limited flexible income. If the two first income categories are not sufficient to cover essential expenses, you will need to use the flexible income to cover that gap, leaving less money for discretionary expenses. Using flexible income to cover essential ongoing expenses will also impact the investment strategy for this category.
On the other hand, if the non-flexible and limited flexibility income covers the essential expenses and there’s a surplus available, that surplus can be used for discretionary expenses along with the flexible income.
In an ideal retirement income plan, there would be a portion of the flexible income that would be kept for unforeseen expenses.
Using a retirement income blue-print such as this one can go a long way in helping clients understand where their income is coming from and help them budget their expenses, setting their financial goals for retirement and managing their cash flow as well as their expectations with regards to what is possible and what is not.
Flexible income
RRIF
TFSA
Non-registered investments
Cover Gap
Unforeseen Expenses

30. FINAL WORD
The investment concepts we have just seen can be part of your client’s tailor-made solution.
Remember, find out why your client wants to invest before making recommendations. Get them committed!
Establish their goals (how much?, when?) and their investor profile, bridge the gaps between the two, and then implement an investment strategy.

31. YOU CAN NEVER KNOW TOO MUCH…

32. ? ?
QUESTIONS ?