1. Kootenay Valley Financial Services Inc. Click to progress through presentation

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

3. 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

4. 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

5. 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

6. 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%

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

8. 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

9. 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% 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 13.0% 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% 1979 1978 1977 1976 1975 1974 1973 1972 1771 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960 1959 1958 1957 1956 1955 1954 1953 1952 1951 1950 1949 1948 1947 1946 1945 1944 1943 1942 1941 1940 1939 1938 Now let’s look at INFLATION AVERAGE 3.6%4.8% 3.4%

10. 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 $ 85.00 $235,000 $ 25,000 $ 2.39 $ 2.15 $ 18,500 5.85% 8.43% 7.76% 6.68% 8.12% 4.98% 4.66% COMMODITY1970TODAYINFLATION Does History Really Repeat Itself? What is the TRUE Inflation rate?

11. 24% ? 1940196019802000 7% 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”

12. How does inflation IMPACT you? 45 65 20 yrs 10 yrs 85 $50,000 Age: $18,000 $32,000 It’s the 2 nd TEN Years of Retirement that matters

13. What is RISK? Name the TWO kinds of risk: 1. _____________________________ 2. _____________________________ Loss of Capital Loss of Purchasing Power

14. What Causes LOSS of CAPITAL? It’s all about Volatility

15. Whose Numbers are those? They are not Yours - UNLESS You are Buying or Selling

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

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

18. 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%

19. Brinson Study 60 80 100 0 20 40 Timing 2% Stock Selection 4% Asset Allocation 94% What IMPROVES Portfolio Performance

20. 1. 2. 3. Where should I invest my MONEY? Name THREE basic Asset Classes? Cash Stocks Bonds

21. 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%

22. The Lipper Study Mutual Funds in the same asset class eventually Earn the same average rate of return. REGRESSION TO THE MEAN

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

24. U.S. vs. International Rolling 12-Month 40% 30% 20% 10% 0% 10% 20% 30% 40% 50% 60% 70% Returns 72 76 80 84 86 90 94 98 International outperforms U.S. U.S. outperforms International

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

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

27. Average return vs. Internal Rate of Return YEAR 12345 RETURN Ave ROI IRR 10%10%10%10%10% 10%10%

28. Average return vs. Internal Rate of Return YEAR 12345 20% 20% - 5% - 10% 20% 20% 25% 25% Ave ROI IRR RETURN 10% 9.05%

29. Determine the REAL rate of return YEAR 12345 25% 25% -30% RETURN Average ROI 14.00%

30. Determine the REAL rate of return YEAR 12345 14% 14% 15% 15% 13% 13% 16% 16% 4% 4% RETURN Average ROI 12.40%

31. Determine the REAL rate of return YEAR12345 25% 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%

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

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

34. 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 30 25 20 15 10 5 1 35 40 45 50 55 60 65 70 AGE Discover your optimal risk allocation

35. 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