CRITICAL FACTORS IN THE PURSUIT OF A BETTER …
CRITICAL FACTORS IN THE PURSUIT OF A BETTER INVESTMENT EXPERIENCE
KEY INVESTMENT PRINCIPLES
UNDERSTAND MARKETS
? Let markets work for you. ? Take risks worth taking. ? Invest, don't speculate.
HARNESS THEIR POWER
? Hold multiple asset classes. ? Practice smart diversification. ? Keep costs low.
KNOW YOURSELF
? Don't confuse entertainment with advice. ? Manage your emotions and biases.
WORK YOUR PLAN
? Avoid common investment mistakes. ? Plan for the long term--and stay the course!
1 LET MARKETS WORK FOR YOU
MONTHLY GROWTH OF WEALTH ($1)
1926-2012
$1,000,000
$100,000
$10,000
$1,000
$100
$10
$1
$152,019 US Small Cap Value Stocks
$15,179 US Small Cap Stocks $14,041 US Large Cap Value Stocks
$3,569 S&P 500
$90 US Five-Year Treasury Bonds
$20 US Treasury Bills $13 US Inflation (CPI)
$0 1926 1931 1935 1940 1944 1949 1953 1958 1962 1967 1971 1976 1980 1985 1989 1994 1998 2003 2007 2012
In US dollars. Indices 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. US small, small value, and large value Research index provided by Fama/French. The S&P data are provided by Standard & Poor's Index Services Group. CRSP data provided by the Center for Research in Security Prices, University of Chicago. US long-term bonds, bills, inflation, and fixed income factor data ? Stocks, Bonds, Bills, and Inflation YearbookTM, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).
2 TAKE RISKS WORTH TAKING
SIZE AND VALUE EFFECTS AROUND THE WORLD
11.64 9.82 9.25
14.77 11.54 8.69
14.85 14.79
10.69 8.79
11.64 10.78
7.50
15.95
13.42 12.27 10.25
Annualized Compound Returns (%)
US
US
Large S&P Large
Value 500 Growth
US Large Capitalization
Stocks 1927?2012
Average Return (%) Standard Deviation (%)
14.96 11.82 26.87 20.30
11.23 20.33
US
US
Small CRSP Small
Value 6-10 Growth
US Small Capitalization Stocks 1927?2012
19.13 15.75 13.25 31.55 30.66 33.06
MSCI Intl. Intl. World Intl. Value Small ex US Growth
Non-US Developed Markets Stocks 1975?2012
17.54 18.19 12.83 10.96
24.48 27.93 21.41 21.81
CAN CAN CAN Value Market Growth
Canadian Market Stocks1
1977?2012
13.72 12.14 9.55
21.89 17.28 21.38
EM EM EM
EM
Value Small "Market" Growth
Emerging Markets Stocks
1989?2012
22.62 20.10 17.82 15.57 41.40 39.97 35.67 34.01
1. In CAD. All returns in USD except Canadian Market Stocks. Indices 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. US value and growth Research index data provided by Fama/French. Canadian index data provided by Fama/French. The S&P data are provided by Standard & Poor's Index Services Group. CRSP data provided by the Center for Research in Security Prices, University of Chicago. International Value data provided by Fama/French from Bloomberg and MSCI securities data. International Small data compiled by Dimensional from Bloomberg, Style Research, London Business School, and Nomura Securities data. MSCI World ex USA Index is gross of foreign withholding taxes on dividends; copyright MSCI 2013, all rights reserved. Emerging Markets index data simulated by Fama/French from countries in the IFC Investable Universe; simulations are free-float weighted both within each country and across all countries. Asset class filters were applied to data retroactively, rebalanced annually, and with the benefit of hindsight. Asset class returns are not representative of indices or actual portfolios and do not reflect costs and fees associated with an actual investment. Actual returns may be lower.
3 INVEST, DON'T SPECULATE
PERCENT OF WINNING ACTIVE MANAGERS
January 2007?December 2012
5%
0%
10%
US Equity
International Equity
Canadian Equity
Over time, only a very small fraction of money managers outperform the market after fees, and it is difficult to identify them in advance.
Source: Standard & Poor's Indices Versus Active (SPIVA) Funds Scorecard Canada, Fourth Quarter 2012.
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