Separating Myths from Truth - The True Story of Investing

© 2001-2007 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.

SEPARATING MYTHSSEPARATING MYTHSFROM TRUTHFROM TRUTH

The Story of Investing


Dispelling the Traditional Investing MythsDispelling the Traditional Investing Myths

Telling the True Story of InvestingTelling the True Story of Investing

OpportunityOpportunity to Achieve True Peace of to Achieve True Peace of MindMind

SEPARATING MYTHS FROM TRUTH


DISPELLING THE MYTHSDISPELLING THE MYTHS

Myth: A story made up to explain a phenomenon beyond the science of

the day.


TRADITIONAL INVESTING MYTHS

MYTH 1:Stock Selection

MYTH 2:Track-Record

InvestingMYTH 3:

Market Timing

MYTH 4:Costs of Investing


THE MYTH:Investment advisors can consistently

and predictably add value by exercising “superior skill” in individual

Stock selection.

Stock Selection: Choosing stocks based on a belief they will do well in the

future.

MYTH 1: STOCK SELECTION


Average U.S. Equity Mutual Fund

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Avg. US MutualFund S&P 500

Average of all US Equity funds available in the CRSP Survivor- Bias Free US Mutual Fund Database, data ending Dec. 2007S&P 500 Index and CRSP Market Index data obtained from DFA Returns software 12/07Past performance is no guarantee of future results and investors may experience a loss.

$3,824,323

$2,436,299

Wealth Lost to Active Stock Picking

$1,388,024


$6,358,777

$3,813,099

$1,242,204

Average of all mutual funds available in the CRSP Survivor- Bias Free US Mutual Fund Database, data ending Dec. 2007Hypothetical Portfolios based on data in endnote 8. Past performance is no guarantee of future results and investors may experience a loss.

8

$2,168,746

$9,134,358


Year Number of

Funds

Number of New Funds

Number of Dead Funds

1980 727 73 20

1981 828 117 16

1982 993 189 24

1983 1162 194 25

1984 1398 255 19

1985 1707 326 17

1986 2120 437 24

1987 2542 457 35

1988 2826 364 80

1989 2959 251 118

1990 3230 457 186

1991 3670 555 115

1992 4451 955 174

1993 5946 1655 160

1994 7689 1977 234

1995 8631 1440 498

1996 9756 1632 507

1997 11,169 1950 537

1998 12,518 1838 489

1999 14,267 1805 56

2000 15,587 2185 865

2001 16,391 1806 1002

2002 17,232 1860 1019

2003 17,683 1532 1081

2004 18,408 1576 851

2005 19,188 1847 1067

2006 20,276 2062 974

2007 20,316 1258 1218

YearNumber of Funds

Number of New Funds


1923 1 1 0

1924 4 3 0

1925 5 1 0

1926 6 1 0

1927 6 0 0

1928 10 4 0

1929 16 6 0

1930 17 1 0

1931 20 3 0

1932 35 15 0

1933 46 11 0

1934 48 2 0

1935 57 9 0

1936 59 2 0

1937 62 3 0

1938 71 9 0

1939 78 7 0

1940 86 8 0

1941 87 1 0

1942 87 0 0

1943 87 0 0

1944 93 6 0

1945 98 5 0

1946 103 5 0

1947 113 10 0

1948 117 4 0

1949 131 14 0

1950 138 7 0

1951 143 5 0

Year Number of Funds

Number of New Funds


1952 153 10 0

1953 166 13 0

1954 186 20 0

1955 189 3 0

1956 207 18 0

1957 227 20 0

1958 245 18 0

1959 270 25 0

1960 287 17 0

1961 280 26 33

1962 293 13 0

1963 303 10 0

1964 319 16 0

1965 344 25 0

1966 383 39 0

1967 421 38 0

1968 496 76 1

1969 586 98 8

1970 622 59 23

1971 635 45 32

1972 629 29 35

1973 621 28 36

1974 606 32 47

1975 599 24 31

1976 630 56 25

1977 642 39 27

1978 648 32 26

1979 674 51 25

Total Number of Funds Open 2007

20,316

Total Number Born

32,076

Total Number Killed

11,760

Survivorship Bias

For illustrative purposes only. Mutual fund data provided by CRSP Survivor Bias Free Mutual Fund Database. CRSP data provided by the Center for Research in Security Prices, University of Chicago.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.


-73.9%AVERAGE RETURN

The Worst 200 Dead Mutual Funds



Track-Record Investing:The use of performance history to determine

the best investments for the future.

THE MYTH:Finding funds that did well in the past

is a reliable method of indicating which funds will do well in the future.

MYTH 2: TRACK-RECORD INVESTING


Track Record Investing

Top 30 Funds Average Return

All Funds Average Return

S&P 500 Index

CRSP 1-10 Index

Total Funds 1988-1997

Total Funds 1998-2007

1988-1997

23.13

15.82

18.86

18.60

572

1998-2007

6.20

6.98

7.23

7.68

2228


Track Record Investing

Top 30 Funds Average Return

All Funds Average Return

S&P 500 Index

CRSP 1-10 Index

No. of Funds

1990-1994

18.77

9.40

8.69

9.04

569

1995-1999

21.66

22.24

28.55

27.42

1,524


A manager’s ability to pick stocks in the past has ZERO CORRELATION with his/her

ability to do so in the future.


Market Timing:Any attempt to alter or change the mix of assets based on

a prediction or forecast about the future.

THE MYTH: Money managers are able to utilize market timing to effectively predict

up & down markets.

MYTH 3: MARKET TIMING


As the chart below clearly indicates – The Average Investor earns significantly less than the market indices, and investors that time the market actually lose money over the period measured.

CATEGORY1988-2007

Annualized Return

S&P 500 Index 11.81%

Average Equity Fund Investor 4.48%

Systematic Equity Fund Investor 5.83%

Market Timer Equity Fund Investor (-1.35%)

Inflation 3.04%

•DALBAR, Inc., Quantitative Analysis of Investor Behavior, 2008

DALBAR Research Study Results


Return of Growth of $10,000 S&P 500 Index Investment *

Fully Invested 8.33% $22,252Missed 10 best days 3.32% $13,864Missed 20 best days -0.46% $9,548Missed 30 best days -3.71% $6,649Missed 40 best days -6.42% $5,148Missed 60 best days -10.98% $3,125

*Fact Set Research Systems Based on initial investment of $10,000

January 1, 1996 – December 31, 2006

WHY MARKET TIMING DOESN’T WORK

2,520 Trading Days


“Tactical Asset Allocation” is Market Timing in Disguise

BEWARE: MARKET TIMING


“The evidence on investment managers’

success with market timing is impressive - and overwhelmingly

negative.”

Charles D. Ellis, Investment Policy, 1993

Charles D. Ellis is a managing partner of

Greenwich Associates, the leading consulting

firm specializing in financial services

worldwide.

B.A. Yale, M.B.A (with distinction) Harvard and Ph.D. New York

University

CHARLES D. ELLIS


Costs of Investing: Fees incurred by investors to buy, sell, and

own stocks or mutual funds.

THE MYTH: What you don’t see can’t hurt

you.

MYTH 4: COSTS OF INVESTING


Bid/Ask Spread

Mutual Funds

THE COSTS OF INVESTING


BUY Price

$50.00

Market Maker

$.50 Sprea

d

Bid/Ask Spread

SELL Price

$49.50

© 2001-2008 McGriff Video Production, LLC., an Ohio limited liability company and a wholly-owned subsidiary of Abundance Technologies, Inc.Source: Reuters Trading Systems (Apr. 30, 2007)

The Bid/Ask Spread as a percent of price is a conservative estimate of actual trading costs. This estimate is almost 80 times as great for

the smallest market segment as for the largest market segment (2.40 vs 0.03).

The Bid/Ask Spread as a percent of price is a conservative estimate of actual trading costs. This estimate is almost 80 times as great for

the smallest market segment as for the largest market segment (2.40 vs 0.03).

Market Cap Range ($Millions)

Average Price Percent Spread

25,456-446,994 62.86 0.03

4,454-25,456 58.72 0.05

1,800-4,454 51.32 0.06

521-1,800 31.11 0.11

163-521 17.92 0.24

0-163 7.95 2.40

BID/ASK SPREADWhat Your Broker Won’t Tell You


“The key question under the new rules of the game is this: How much better must

a[n]...[actively trading]... manager be to at least recover the cost of...[portfolio turnover]? The answer is daunting.”

Source: Charles D. Ellis, Investment Policy - How to Win the Loser's Game, 1985

1. Mutual fund trading plus bid/ask spread cost taken from Investment Policy - How to Win the Loser’s Game, 2nd Edition by Charles D. Ellis (1993) p.8-9.

CONSUMER “NO LOAD” MUTUAL FUNDS


• The Myths– Stock Selection– Track-Record Investing– Market Timing– Costs of Investing

• Next…– The Truth

SO FAR…


THE STORY OF INVESTING:THE STORY OF INVESTING:FREE MARKET PORTFOLIO FREE MARKET PORTFOLIO

THEORYTHEORY


Free Market Portfolio Theory is: • An investment approach firmly grounded

in the academic research of the last 50 years.

• A disciplined approach to capturing market returns while managing volatility.

WHAT IS FREE MARKET PORTFOLIO THEORY?


THE COMPONENTS OFFREE MARKET PORTFOLIO THEORY

COMPONENT 1:Free Markets Work

COMPONENT 3:The Three-Factor

Model

COMPONENT 2:Modern Portfolio

Theory


LEADING ACADEMICS WHO CONTRIBUTE TO FREE MARKET

PORTFOLIO THEORY• Harry Markowitz:

Nobel Prize Laureate, 1990, University of Chicago• Merton H. Miller:

Nobel Prize Laureate, 1990 - Robert R. McCormick Distinguished Service, University of Chicago

• Rex Sinquefield: Co-author Stocks, Bonds, Bills and Inflation, MBA, University of Chicago, BA, St. Louis University

• Roger G. Ibbotson: Co-author Stocks, Bonds, Bills and Inflation, Professor of Finance, School of Organization and Management, Yale University

• Eugene F. Fama: Robert R. McCormick Distinguished Service, Graduate School of Business, University of Chicago

• Kenneth French: Professor of Finance at the Tuck School of Business, Dartmouth College


Free Markets Work

“In [a free] market at any point in time the actual price of a security

will be a good estimate of its intrinsic value.”

-Eugene F. Fama, “Random Walks in Stock Market Prices,” Financial Analysts Journal, September/October

1965.

COMPONENT 1:


• The market fails to price goods and services appropriately.

• It is possible for some individuals to identify in advance which prices are inaccurate.

• Underpriced or overvalued markets can be forecast or predicted.

• By taking advantage of these mispricings either in stocks or market sectors, it is possible to both increase returns and avoid losses in investments.

• People with this view would utilize traditional investment myths and speculate with their assets.

FREE MARKETS FAIL


• Based on supply and demand the free market is the best determinant of market prices.

• All available information is factored into the current price.

• Only new and unknowable information and events change pricing.

• The randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns unrelated to risk.

• People with this view would utilize free market investment strategies.

FREE MARKETS WORK


BELIEFS DICTATE ACTION

FREE MARKETS WORK• Focus on capturing

market returns• Utilize asset-class or

structured funds• Diversify prudently• Identify your risk

tolerance• Eliminate traditional

investment strategies• Work with a financial

coach who shares your market belief

FREE MARKETS FAIL• Pursue traditional

investment strategies• Stay connected to all

sources of financial information

• Read every investment article you can find

• Work with a financial professional who shares your market belief


Modern Portfolio TheoryDiversification Works

Nobel Prize Winners, 1990

Harry MarkowitzWilliam SharpeMerton Miller

COMPONENT 2:


As a graduate student in economics at the University of Chicago in the 1950's, Dr. Markowitz won acclaim for his studies on portfolio design and risk reduction. These concepts were later crucial for the development of Modern Portfolio Theory. Nobel Prize Winner 1990

DR. HARRY MARKOWITZ


6 8 10 12 14 16 18 20

6

8

10

12

14

16

One Year Standard Deviation (Volatility)

Ann

uali

zed

Com

poun

d R

etur

n

Growth

Aggressive

S&P 500

Conservative

Moderate

MARKOWITZ EFFICIENT FRONTIERMaximizing Expected Returns for Any Level of

Volatility


DETERMINANTS OFPORTFOLIO PERFORMANCE

1.8

2.1

4.6

91.5


Time

Valu

e Investment A

Investment B

Portfolio

50/50 Combin

ed Portfoli

o

ASSET CLASS CORRELATIONExample Portfolio


Source: DFA Returns Software 12/07

Return(%)

Simplified Example Of Low Correlation BenefitsJanuary 1971 - December 2007 (in $U.S.)

INCREASE RETURNSAND REDUCE VOLATILITY

Large U.S.

100% S&P 500 Index1,7

11.27

16.78Standard Deviation

70% S&P 5001,7 30%

EAFE1,5

Large U.S. EAFE

16.35

11.61

70% S&P 5001,7 20%

EAFE1,5 10% Int'l Small1,3,4

Large U.S. EAFE

Small Int'l

16.28

12.32


The Three-Factor Model

Source: Fama, Eugene F., and Kenneth R. French, 1992 “The cross-section of Expected Stock Returns”, Journal of Finance 47 (June), 427-465

COMPONENT 3:

Eugene Fama &

Kenneth French

Factor 1: The Market Factor Factor 2: The Size FactorFactor 3: The “Value” Factor


0

2

4

6

8

10

12

AnnualizedReturn

S&P 500

T-Bills

• Equities are riskier than fixed income.

• Equities historically provide a higher rate of return.

1926-2007 S&P 5001,7 T-Bills

Annualized Return 10.36 3.73

Standard Deviation 19.97 3.09

Source: DFA Returns Software, 12/07

FACTOR 1: THE MARKET FACTOR


9.5

10

10.5

11

11.5

12

12.5

13

AnnualizedReturn

S&P 500

U.S.SmallCo.

• Small companies are riskier than large companies.

• Small companies historically provide a higher return than large companies.


1926-2007 S&P 5001,7 U.S. Small Co.



FACTOR 2: THE SIZE FACTOR


9

9.5

10

10.5

11

11.5

12

12.5

AnnualizedReturn

S&P 500

U.S. Lg.Value

• High book-to-market (value) stocks are riskier than low book-to-market (growth) stocks.

• High book-to-market stocks historically provide higher return than low book-to-market stocks.


July 1926-2007 S&P 5001,7 U.S. Lg. Value1,2



FACTOR 3: THE VALUE FACTOR


Free Markets Work+ Modern Portfolio Theory+ The Three-Factor Model= Free Market Portfolio Theory

THE TRUTH


BUILDING A BETTER PORTFOLIOBUILDING A BETTER PORTFOLIOAVERAGE INVESTOR EQUITY AVERAGE INVESTOR EQUITY

PERFORMANCEPERFORMANCE


Portfolio 1 100%

Equity Mutual Funds

1988-2007

Portfolio 1 4.48 15.79

Annualized

Return(%)

AnnualizedStandard

Deviation (%)

60%

40%

Actual Investor Results100%

Equity Mutual Funds

Dalbar Investor Results

Research for period1988-2007

CREATING A DIVERSIFIED PORTFOLIO

Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007Past performance is no guarantee of future results.


1. Average Holding Period – 3.0 Years *2. Track-Record Investing – Chasing the

Market3. Hyperactive Stock Picking4. Market Timing

WHY ARE THE RETURNS SO LOW?

*Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007, 20-year period


S&P 500 Index

1973-2007

Annualized

Return(%)

AnnualizedStandard

Deviation (%)

Portfolio 1* 4.48 15.79Portfolio 2 10.97 17.23

Portfolio 1 100%Portfolio 2 100%

Equity Mutual Funds

100%

S&P 500

CREATING A DIVERSIFIED PORTFOLIOBasic Passively Invested Portfolio

•Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007; 1985-2007.Return and Standard Deviation data from DFA Returns Software updated through 12/31/06Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.


1973-2007Annualize

dReturn

(%)

60%

20%

20%

AnnualizedStandard

Deviation (%)

Portfolio 1* 4.48 15.79Portfolio 2 10.97 17.23Portfolio 3 10.12 10.78

S&P 500

Index

Portfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%

Equity Mutual Funds

5-Year Government Portfolio

One-Year Fixed

Income

CREATING A DIVERSIFIED PORTFOLIOIncluding Fixed Income Assets in the Portfolio

•Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007; 1985-2007.Return and Standard Deviation data from DFA Returns Software updated through 12/31/06.Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against loss.


1973-2007Annualize

dReturn

(%)

30%

20%

20%

30% AnnualizedStandard

Deviation (%)

Portfolio 1* 4.48 15.79Portfolio 2 10.97 17.23Portfolio 3 10.12 10.78Portfolio 4 10.16 10.62

S&P 500

Index

Portfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%

Equity Mutual Funds

5-Year Governm

ent Portfolio

One-Year Fixed

IncomeEAFE Index

CREATING A DIVERSIFIED PORTFOLIOIncluding International Assets in the Portfolios

•Portfolio 1- Data from DALBAR, Inc. Quantitative Analysis of Investor Behavior, 2007; 1985-2007.Returns and Standard Deviation data from DFA Returns Software updated through 12/31/06.Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.


1973-2007Annualize

dReturn

(%)

20%

15%

20%

15%15%

15%

AnnualizedStandard

Deviation (%)

Portfolio 1* 4.48 15.79Portfolio 2 10.97 17.23Portfolio 3 10.12 10.78Portfolio 4 10.16 10.62Portfolio 5 11.48 11.31

S&P 500

Index

Portfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%Portfolio 5 15% 20% 20% 15% 15% 15%

Equity Mutual Funds

5-Year Governm

ent Portfolio

One-Year Fixed

IncomeEAFE Index

U.S. 9-10

Small Co.

Int’l Small Cap

Stocks

CREATING A DIVERSIFIED PORTFOLIOAdding Small Cap Stocks



Annualized

Return(%)

20%

20%

7.5%15%

7.5%

7.5%

15%

7.5%

AnnualizedStandard

Deviation (%)

Portfolio 1* 4.48 15.79Portfolio 2 10.97 17.23Portfolio 3 10.12 10.78Portfolio 4 10.16 10.62Portfolio 5 11.48 11.31Portfolio 6 12.06 10.98

S&P 500

Index

Portfolio 1100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%Portfolio 5 15% 20% 20% 15% 15% 15%Portfolio 6 7.5% 20% 20% 15% 7.5% 15% 7.5% 7.5%

Equity Mutual Funds

5-Year Governm

ent Portfolio

One-Year Fixed

IncomeEAFE Index

U.S. 9-10

Small Co.

Int’l Small Cap

Stocks

U.S. Small Cap

Value

U.S. Large Cap

Value

CREATING A DIVERSIFIED PORTFOLIOAdding High Book-to-Market [Value] Stocks

1973-2007



Directions:Answer each question “Yes” or “No.”

Your Answer must be 100% “Yes” to qualify as “Yes.”

THE 20 MUST-ANSWER THE 20 MUST-ANSWER QUESTIONS FOR YOUR QUESTIONS FOR YOUR

JOURNEY TOWARDJOURNEY TOWARDPEACE OF MINDPEACE OF MIND


QUESTION 1

Have you discovered your True Purpose for Money, that which is

more important than money itself?


Are you invested in the Market?

QUESTION 2


Do you know how markets work?

QUESTION 3


Have you defined yourInvestment Philosophy?

QUESTION 4


Have you identified your personal

risk tolerance?

QUESTION 5


Do you know how to measure diversification in your portfolio?

QUESTION 6


Do you consistently and predictably

achieve market returns?

QUESTION 7


Have you measured the total amount of commissions and

costs in your portfolio?

QUESTION 8


Do you know where you fall on the Markowitz Efficient Frontier?

QUESTION 9


When it comes to building your investment portfolio, do you

know exactly what you are doing and why?

QUESTION 10


Are you working with a financial coach versus a financial planner?

QUESTION 11


Do you have a customized lifelong game plan to guide all of

your investing and spending decisions?

QUESTION 12


Do you have an Investment Policy Statement?

QUESTION 13


Have you devised a clear-cut method

for measuring the success or failure of

your portfolio?

QUESTION 14


Do you fully understand the implications and applications of

diversification inyour portfolio?

QUESTION 15


Do you have a system to measure

portfolio volatility?

QUESTION 16


Are you aware of the incentives brokerage firms and the financial

community have when selling commission-based products?

QUESTION 17


Do you know the three warning signs that you are gambling and

speculating with your money versus prudently investing it?

QUESTION 18


Can you identify the cultural messages and personal mind-sets about money that destroy

your peace of mind?

QUESTION 19


Are you ready to shift your personal experience of money and investing from a scarcity mode to an abundance mode?

QUESTION 20


85-100: Amazing Investor Congratulations! You are among the most educated, diligent and confident investors. You have experience in the investment markets and understand what it takes to be successful. Now is the time to support your current knowledge with discipline and educational reinforcement.

65-80: Better Investor As a Better Investor, you have been around the block a time or two and maybe had some less than successful investing experiences. Now is the time to expand your knowledge about investing and begin to make some solid choices about your financial future. To achieve this, seek answers to the questions you missed.

45-60: Common Investor You are not alone. Like many investors, you may frequently find yourself uncertain and confused about how to make the right investment choices. If you don’t already have an Investor Coach that you trust completely, now is the time to build a relationship to last a lifetime.

25-40: Discouraged Investor It’s easy to feel discouraged when you have been doing what you thought were the right things with your money without success. You may have followed all of the advice that you’ve read in financial magazines and newspapers, yet you are not getting the exponential results you had expected.

0-20: Frustrated Investor Flustered and confused, you may wonder where to begin – how is it even possible to wade through all of the information that you are being bombarded with on a daily basis. Sort through the chaos and find a path that is right for you.

Give yourself 5 points for every “Yes” answer.SCORING:


Learn more about what this means for you

THE OPPORTUNITYTHE OPPORTUNITY


1. No reinvestment of dividends or other earnings were included in the calculations. No commissions or fees have been deducted from the market performance figures because the intent is to show the benefits of diversification of asset classes and not to indicate the results Matrix would have achieved if it managed a client’s funds. If an investor invested in mutual funds designed to reflect asset class performance, the investor would, in effect, be paying an advisory fee to the mutual fund manager and brokerage commissions because these fees and commissions would be relected in the mutual fund’s expenses that are deducted from the value of each share of the mutual fund. If, in addition, an investor engaged an investment advisor to manage the assets, the investor would pay an investment advisory fee to this manager. If an investor also utilized the services of a separate custodian, the investor would pay additional fees to the custodian. The returns of the hypothetical asset class mixes frequently exceeded the results of Matrix clients’ portfolios with similar investment objectives for the period Matrix has managed clients’ funds from 1991 to present. This difference is due to differing allocations over the time periods shown. These allocations differed because of different asset classes used, new research applied, and because of deduction of commission. Also, it is not possible to invest in an index. Past performance of markets is no guarantee of future performance and clients may experience a loss.

2. US Large Value = U.S. Large Cap Value Portfolio:

• July 1926-March 1993: Fama-French Large Cap Value Strategy. Simulates Dimensional’s hold range and estimated trading costs. Courtesy of Fama-French and CRSP: deciles 1-5 size, (.7) BtM.

• April 1993-Present: U.S. Large Cap Value Portfolio net of all fees.3. DFA International Small Company Strategy/DFA International Large Company Strategy:

• January 1970-June 1998: 50% DFA Japanese Portfolio, 50% DFA U.K. Portfolio net of all fees.• July 1998-September 1989: 50% DFA Japanese Portfolio, 20% DFA UK Portfolio, 30% DFA Continental Portfolio net of all

fees.• October 1989-March 1990: 40% DFA Japanese Portfolio, 30% DFA Continental Portfolio, 20% DFA UK Portfolio, 10% DFA

Asia/Australia Portfolio net of all fees.• April 1990-December 1992: 40% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 10% DFA

Asia/Australia Portfolio net of all fees.• January 1993-March 1997: 35% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 15% DFA

Asia/Australia Portfolio net of all fees.• April 1997-March 1998: 30% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 20% DFA

Asia/Australia Portfolio net of all fees.• April 1998-Present: 25% DFA Japanese Portfolio, 40% DFA Continental Portfolio, 20% DFA UK Portfolio, 15% DFA

Asia/Australia Portfolio net of all fees.

4. DFA International Small Company Portfolio:

• January 1970-September 1996: DFA International Small Company Strategy.• October 1996-Present: DFA International Small Company Portfolio net of all fees.

5. EAFE Index: Courtesy of Morgan Stanley Capital International. Europe, Australia, and Far East Index net dividends ($).

• January 1969-Present: EAFE Index Including gross dividends ($).6. US Small Co = CRSP 9-10 Index: Courtesy of Center for Research in Security Prices, University of Chicago. Small Company Universe Returns (Deciles 9 &10) all Exchanges.

• January 1926-June 1962: NYSE, rebalanced semi-annually.• July 1962-December 1972: CRSP Database, NYSE & AMEX, rebalanced quarterly.• January 1973-September 1988: CRSP Database, NYSE, AMEX & OTC, rebalanced quarterly.• October 1988-Present: CRSP Index (NYSE & AMEX & OTC).

7. S&P 500: Courtesy of Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: The Past and the Future, Dow Jones, 1989. Ibbotson Associates, Chicago, annually updates work by Roger Ibbotson and Rex A. Sinquefield. Used with Permission. All rights reserved. The S&P 500 is an unmanaged market value-weighted index which measures the change in aggregate market value of 500 stocks relative to the base period 1941-1943. This index does not incur fees and charges typically associated with investing and values would be lower if such fees and charges were taken into consideration. Individuals may not invest directly in an index. Past performance is not a guarantee of future results.

ENDNOTES


6. US Small Co = CRSP 9-10 Index: Courtesy of Center for Research in Security Prices, University of Chicago. Small Company Universe Returns (Deciles 9 &10) all Exchanges.• January 1926-June 1962: NYSE, rebalanced semi-annually.• July 1962-December 1972: CRSP Database, NYSE & AMEX, rebalanced quarterly.• January 1973-September 1988: CRSP Database, NYSE, AMEX & OTC, rebalanced quarterly.• October 1988-Present: CRSP Index (NYSE & AMEX & OTC).

7. S&P 500: Courtesy of Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: The Past and the Future, Dow Jones, 1989. Ibbotson Associates, Chicago, annually updates work by Roger Ibbotson and Rex A. Sinquefield. Used with Permission. All rights reserved. The S&P 500 is an unmanaged market value-weighted index which measures the change in aggregate market value of 500 stocks relative to the base period 1941-1943. This index does not incur fees and charges typically associated with investing and values would be lower if such fees and charges were taken into consideration. Individuals may not invest directly in an index. Past performance is not a guarantee of future results.

8. 35- Year performance figures taken from Dimensional Fund Advisor, Inc. (DFA) Returns software 12/07. Some data provided to DFA by the Center for Research & Security Pricing (CRSP), University of Chicago. Asset Classes defined as: Consumer Price Index for inflation, CRSP 30 day bill index for Treasury Bills, CRSP Long-term U.S. Government Bond Index for Long-Term Government Bonds, S&P 500 Index for U.S. large stocks, CRSP 9-10 Index for U.S. small stocks, Morgan Stanley Europe, Australia, Far East (EAFE) Index for international large stocks, and the international small stock index created by DFA using CRSP data. CONSERVATIVE, MODERATE, GROWTH, & AGGRESSIVE These results are based on the performance of 30 day T-Bills, Dimensional’s One-Year Fixed Strategy [1972- July 1983 – Simulated CD Fixed Income Strategy (maximum maturity 1 year) Aug. 1983 – DFA Fixed Income Portfolio returns net of all fees (weighted average maturity under 1 year)], Dimensional’s Five-Year Government Portfolio [Average maturity: Under Five Years, 1953-May 1987 – Simulation using U.S. Government Instruments (maximum maturity five years) June 1987 – DFA Five Year Government Portfolio net of all fees], S&P 500 Index, CRSP Large Value Index, CRSP (Center for Research & Security Pricing) 9-10, CRSP 6-10, CRSP Small Value Index, EAFE Index, and Dimensional’s Small International Index (1970-June 1988 – 50% Japan, 50% United Kingdom. July 1988- September 1989 – 50% Japan, 30% Continental, 20% United Kingdom, October 1989 – March 1990 -40% Japan, 40% Continental, 20% United Kingdom, 10% Asia-Australia. April 1990 – December 1992 – 40% Japan, 35% Continental, 15% United Kingdom, 10% Asia-Australia. January 1993 to present – 35% Japan, 35% Continental, 15% United Kingdom, 15% Australia.], and assume the asset allocation among these indices as shown under “Conservative”, “Moderate”, “Growth”, and “Aggressive” in the chart entitled Allocation of Sample Asset Class Mixes.

All investing involves risk and costs. Your advisor can provide you with more information about the risks and costsassociated with specific programs. No investment strategy (including asset allocation and diversification strategies) canensure peace of mind, assure profit, or protect against loss.

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Separating Myths from Truth - The True Story of Investing

Economy & Finance

Transcript of Separating Myths from Truth - The True Story of Investing