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Building Ideal Futures

1ST QUARTER RETURNSBondsBarclays U.S. Agg. Bond Index

U.S. Large StocksS&P 500 Index

U.S. Small StocksRussell 2000 Index

International StocksMSCI EAFE Index

Emerging Market StocksMSCI Emerging Markets Index

Real EstateS&P Global REIT Index

CommoditiesBloomberg Commodity Index

Managed FuturesCS Managed Futures Index

+3.0%

+1.3%

-1.5%

-3.0%

+5.7%

+7.2%

+0.4%

+4.8%

4 Things You NEED TO KNOW About Evidence-Based Investing

Avoid the DAILY NOISE

COMMON CLIENT QUESTIONS

CYBERCRIME: How to Protect Yourself

Since the Great Recession in 2008 and throughout modern history, central banks around the globe have utilized different forms of economic stimuli to help lift their respective economies out of recession. QE, ZIRP, LIRP – while this may sound like robot lingo from the latest Star Wars movie, these are some common acronyms you might recognize from the media - “QE” (Quantitative Easing), “ZIRP” (Zero Interest Rate Policies), and “LIRP” (Low Interest Rate Policies). More recently, however, another central bank policy has been pulled out of the toolbox to help battle recessionary forces – “NIRP” (Negative Interest Rate Policies).

The Foundation of NIRPs The global banking system has been structured on the notion that banks and individual investors should earn interest on deposits held at central and commercial banks. This assumption is no longer a certainty, at least for commercial banks. The European Central Bank (ECB) and Bank of Japan (BOJ), among others, are now charging commercial banks 0.4% and 0.1%, respectively, on excess deposits held at their central banks. That’s right; it now costs commercial banks to save in the Eurozone and Japan! As odd as this may sound, negative interest rates are intended to have positive consequences. NIRP is intended to encourage banks to lend money rather than save it, leading to a higher level of borrower spending. In theory, an increase in spending is expected to boost economic activity and stock markets over time, which is beneficial during periods when deflation is present or a risk. Negative interest rates are also intended to encourage currency depreciation, benefitting domestic exporters as their products become cheaper to consumers abroad.

Possible Consequences As is common with all central bank policies, there are possible adverse consequences of NIRP. Commercial banks have not passed negative rates on to the individual consumer, e.g. charging consumers to hold their money in bank accounts. There is fear among policy makers that doing so would lead to a run on banks as individuals rush to empty their accounts to avoid paying a penalty for saving. Banks are now paying interest on their excess reserves held at central banks and crediting interest on savings within their own vaults. This is damaging bank profitability which poses a risk to financial stability. Another point of concern is directed toward bond investors. Declining interest rates increase bond prices; this translates into lower yields for investors who depend on bonds as a stable source of income and capital preservation. The current yields on AAA-rated five-year and ten-year government bonds in the Eurozone are -0.3% and 0.2%, respectively.1 Compare that to the five-year and ten-year Treasury bond yields of 1.3% and 1.9%2 here in the U.S. where short-term rates have been increased.

Are NIRPs Coming to the U.S.? Despite the reality of NIRP overseas, the U.S. is on the opposite path with respect to central bank policy. The Fed Funds futures contracts market is currently pricing in a 41.6% likelihood of one rate hike by June and a 30.3% likelihood of two rate hikes by December. Current levels of inflation in the U.S. expunge the need for NIRP to battle deflation. The Consumer Price Index for all items increased 1.0% over the past 12 months ending February 2016.3 Although below the Fed’s target of 2.0%, inflation is on the rise. All things considered, improving economic circumstances in the U.S. indicate that the likelihood of NIRP being implemented in the U.S. anytime in the near future is extremely low.

Data Sources: 1European Central Bank (www.ecb.europa.eu), 2U.S. Department of the Treasury (www.treasury.gov), 3Federal Reserve Economic Data (FRED) (research.stlouisfed.org)

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Q: I hear the U.S. could be headed for a recession. What does Savant think?

A: The short answer is the economic data does not reflect a pending recession. The main driver of the U.S. economy is consumer spending, which accounts for nearly 70% of our nation’s gross domestic product (GDP) – the official measure of our economy. Being that we are not highly dependent on other countries for our economic growth, the lackluster growth outside the U.S. has limited impact. Some of the factors that influence our consumer spending include jobs/wages, housing, and household wealth.

First, unemployment is now at 5.0% (near the lowest level since 2008) after the U.S. added 2.7 million jobs last year and is on pace to add a similar number this year. The current wage growth of 2.2% (12-month average hourly earnings growth) is still considered moderate, but there are hints of pressures building. As there are fewer qualified candidates competing for jobs, employers will likely face pressure to increase wages. In addition, the labor force participation rate is picking up. These are all positive signs for our economy.

Second, the housing market has been improving for two years and continues to be supported by low interest rates. Bank lending standards have been relaxed which should continue to support housing demand.

Third, household wealth, or net worth, started off 2016 at an all-time high of nearly $87 trillion. The data reflects the value of homes, stocks, and other assets minus mortgages, credit card debt, and other borrowing. Again, these are positive signs which contribute to consumer confidence which in turn drives spending. Evidence of that spending strength is auto sales, currently at a record annual level of 17.4 million vehicles (up from 9.0 million in 2009).

A currently weak area of our economy is manufacturing, as measured by the ISM Index. It has slightly contracted recently; however, it did improve for a second consecutive month in February and its sub-components are expanding. Weak manufacturing and the recent correlation of stocks with falling oil prices caused many to conclude we are doomed for a recession. These are not typical drivers of recessions. We believe the Fed will continue on its path to raise interest rates – a sign the economy is on solid footing. Despite the pockets of weakness, in our view there is little evidence of a pending slowdown in growth, let alone signs of a recession.

Q: What can we do to avoid the anxiety of watching our portfolio go down?

A: Our advice has its roots in science. There is a term called “loss aversion” which in behavioral science means that losses hurt twice as much as gains feel good. Economist Richard Thaler demonstrated how this concept affects people.

He asked people to select one of two investment options, one heavier weighted in stocks (higher return and higher volatility), and the other with fewer stocks (lower return and less volatility). Half of the people were shown the investment results eight times in the next year, while the other half were only shown the result once during that year. In other words, some were looking at the stock market roller coaster eight times as often as the others.

You can probably guess the outcome: those who saw their results eight times a year only put 41% of their money into stocks. Those who saw the results just once a year invested 70% in stocks. The implications of this experiment are clear. The more often you look at your portfolio, in good times and bad, the more pain and anxiety you are likely to experience, and the more cautious you tend to be.

Most investors cannot afford to be overly cautious as they save for retirement, especially given the low interest rate environment we are in today. There is most often a need to invest in assets with growth potential, not just with a capital preservation objective.

So, the best way to avoid the mental anguish of these occasional sharp downturns is to spend less time looking at your overall returns. You miss the two steps forward, and, most importantly, you also miss the more traumatic one step backward.

Sources: Federal Reserve Bank of St. Louis, Bob Veres

COMMON CLIENT QUESTIONS

had large gains as shown by the three- and five-year periods. It is no coincidence that the Great Depression marks the only period in which the three- and five- year performance was still in the red after the 20% drop. Stretching our study out to five years, the S&P 500 averaged a return of over 70% after the initial 20% decline. Evidence seems to imply that after a correction, returns can be eye-popping and certainly nothing an investor would willingly miss!

These news headlines probably sound familiar because similar stories are retrieved from the archives every time the market stumbles. Undisciplined investors may read these articles and make the rash decision that now is the time to jump ship. Have we mentioned that market timing is hard and it fails more times than not? Psychologically, market corrections are understandably painful for investors as they watch their account dwindle by 10%, 20%, and sometimes greater than 30%. However, evidence boasts that investors who maintain discipline and do not attempt to time the market usually reap a greater total return after the bull market bounces back.

Calculated with monthly figures dating back to 1926, the S&P 500 Total Return Index has undergone a correction of at least 20% eight times, leading to an average loss of more than 40% for investors. When the market falters, investors can be enticed to pull their money out of the market until the storm has passed and then reinvest when they know the coast is clear. When looking back, it is human nature to think, “What if I had pulled my money out of the market and re-invested at the bottom? My portfolio would have increased by 30%!” But hindsight is 20/20. There is a reason market timing is so difficult; some of these declines have spanned almost 1,200 days, while others have lasted a mere two months. Corrections are not limited to being 60 days or 1,200 days long; historical examples litter the timeframes in between. Each correction, bear market, and bull market is driven by its own unique factors.

An investor attempting to time the market based on the news or gut feelings is more likely to shoot themselves in the foot rather than hit their target. As painful as it may be, evidence shows that a disciplined, long-term investor usually benefits from sticking to their plan. Historically, once the market fell 20%, it had mixed results after one year. Beyond one year, however, markets typically

Source: Morningstar Direct. In measurement used, decline does not officially end until the market reaches its previous peak.

Return after S&P falls 20%

End of Decline Total Decline (%) 1 Year 3 Year 5 Year

6/30/1932 -83.4% -44.4% -52.2% -47.9%

11/30/1946 -21.8% -3.6% 17.9% 93.7%

6/30/1962 -22.3% 20.6% 55.6% 79.1%

6/30/1970 -29.3% 29.9% 33.2% 50.6%

9/30/1974 -42.6% 16.3% 29.0% 28.1%

11/30/1987 -29.6% -4.4% 19.6% 50.8%

9/30/2002 -44.7% 56.4% 101.0% 259.5%

2/28/2009 -50.9% -11.2% 12.2% 59.9%

Average -40.6% 7.4% 27.0% 71.7%

SUBSEQUENT MARKET RETURNS AFTER 20% DECLINE

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When investors focus on the short term, mistakes are made. While it can be agonizing watching the market drop with seemingly no end in sight, you must be present at all times to truly reap the rewards of investing. Remaining disciplined in treacherous markets remains a key step for investors looking to build their ideal future.

Avoid the DAILY NOISE

Science has produced many tremendous advances, from lifesaving medical treatments to instantaneous communication. Historically, though, science has had little influence on investing. Instead of keeping pace with advancements in modern portfolio theory along with historical and statistical evidence, investors and money managers often rely on conventional wisdom and flawed assumptions. How can investors sort through the vast amount of available data to maximize after-tax return and minimize risk?

To expose the many shortcomings of the conventional approach and provide a road map to investing success, our white paper, Evidence-Based Investing (EBI), illustrates the methods and conclusions of EBI. The goal of EBI is to maximize after-tax returns for the individual investor while minimizing risk and protecting portfolios from market downturns. Approaching a problem or a set of questions from an evidence-based point of view has profoundly affected the field of medicine, and now investing. EBI offers a way to answer investment questions in a systematic, analytical, and scientific manner as described in the four steps below.

1. The conventional investment approach rests on spurious assumptions and false hopes. Whether one seeks investing success by picking stocks, timing the market, or by picking skilled money managers, the costs of these speculative techniques are greater than any gains derived by their practice.

2. Meaningful questions need to be formulated. That means asking questions that can be proven or disproven with reference to evidence. The questions must also have significance for the individual investor. This requires the experience and knowledge of an objective financial advisory team.

3. Once the right questions have been asked, evidence can be applied to solve problems and integrate both advisor expertise and the individual investor’s values and goals. The implementation of the portfolio includes several key areas: investment selection, rebalancing, and managing taxes.

4. The last step, monitoring for effectiveness, is a very important part of the process. We refer to it as “robust investment oversight” which we believe significantly enhances investment results by eliminating needless risk. The Investment Committee is at the helm of Savant’s investment management and is responsible for overseeing all investment-related activities including the firm’s investment philosophy and process, forward-looking return expectations, asset allocation, investment selection, ongoing due diligence, and implementation.

4 Things You NEED TO KNOW

About Evidence-Based Investing

COMING SOON! The third edition of our Evidence-Based Investing white paper will be available in May 2016. Email EBI@savantcapital.com to request your copy.

1 2 3 4EliminateMeaninglessQuestions

AskMeaningfulQuestions

ApplytheEvidence

Monitorfor Effectiveness

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1. SECURE YOUR DEVICESEnsure anti-virus, anti-spam, and firewalls are installed, updated, and properly configured.

5. DON’T DUMP DATAShred all personal documents and delete personal information before discarding a

digital device.

2. LOCK IT DOWNUse strong passwords and encryption on

your laptop, tablet, or mobile device.

6. TAKE CARE WITH CREDITCheck your credit report annually; review

statements, and cut up unused or expired cards.

YOUR ROLE

We’re Here to Help: Data security, cybercrime, and identity theft are growing concerns for all of us. Team Savant is dedicated to helping ensure your information is safe and secure. If you ever have security-related concerns, please do not hesitate to call us. We will work closely with you to ensure a rapid and personal response to your concerns. If you are the victim of fraud or identity theft, please contact your Savant advisor or client services representative immediately.

Source: priv.gc.ca6

CYBERCRIME: How to Protect Yourself

3. PROTECT YOUR MAILKeep paper files in a locked location. Pick up sensitive documents in-person; follow up on

bills or statements that never arrive.

7. SPOT THE SCAMDo not click on links or provide personal

information requested by email, phone calls, or texts. If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov,’

forward the link to phishing@irs.gov.

4. CONSIDER WHAT YOU CARRYDo not carry your Social Security card in your

wallet or purse.

8. WHEN IN DOUBT, DON’T GIVE IT OUT

If asked for your personal information, ask how it will be used, why it is needed,

and how it will be protected.

Savant understands that you have entrusted us with vital personal information. We want you to know that we take our responsibility to protect your information seriously. Savant regularly reviews and evaluates both its privacy and security policies and adapts them as necessary to deal with the constantly changing data security landscape. We remain current with the regulatory requirements surrounding privacy laws and make changes as appropriate. We use the latest encryption services on our systems and regularly provide employee training and policy oversight.

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OUR ROLE In Protecting Your Data

Savant Capital Management and its employees are independent of and are not employees or agents of Charles Schwab & Co., Inc. (“Schwab”). Schwab does not prepare, verify or endorse information distributed by Savant Capital Management. The Best-in-Business IMPACT Award™ is not an endorsement, testimonial endorsement, recommendation or referral to Savant Capital Management with respect to its investment advisory and other services.

Savant Capital Management is a Registered Investment Advisor. This information is not intended as personalized investment advice. The index returns herein assume reinvestment of all dividends and interest and do not reflect fees or expenses. Index portfolios reflected in this publication are not representative of any actual client returns. Savant’s marketing material should not be construed by any existing or prospective client as a guarantee that they will experience a certain level of results if they engage the advisor’s services.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Savant Capital Management), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Savant Capital Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult with the professional advisor of their choosing. Please Note: “Ideal” is not intended to give assurance as to achieving successful results. Savant Capital Management is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. If you are a Savant Capital Management client, please remember to contact Savant Capital Management, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Savant Capital Management’s current written disclosure statement discussing our advisory services and fees is available upon request.

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Savant Capital Management190 Buckley DriveRockford, IL 61107

815.227.0300Toll Free: 866.489.0500

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Savant is the proud recipient of the 2015 Best-in-Business IMPACT Award™, part of Schwab’s IMPACT Awards® program to recognize excellence in the business of independent financial advice.

Jeff Lanza, a retired FBI Special Agent, learned the tricks of the criminal mind through years of experience. He uses real-life FBI cases to expose a world of new and emerging technology threats. He brings knowledge and humor to the presentation, all of which is related to key take-home learning points.The presentation will include these topics and more:

THURSDAY, JUNE 2, 2016Rockford, ILNIU Rockford

8500 E. State StreetRockford, IL 61108

6:30pm - Registration7:00pm - Presentation

Refreshments will be provided.

SATURDAY, JUNE 4, 2016Potomac, MD

TPC Potomac at Avenel Farm10000 Oaklyn Drive

Potomac, MD 2085411:30am - Registration

Noon - PresentationLunch will be provided.

FRIDAY, JUNE 3, 2016Naperville, IL

Chicago Marriott Naperville1801 N. Naper Boulevard

Naperville, IL 6056311:30am - Registration

Noon - PresentationLunch will be provided.

• Protecting Your Identity• Cyber Fraud

• Credit Card Fraud• Social Networking Scams

• Phishing Emails• Fraud Against Seniors

• Mobile Security• Social Engineering

Simple Safeguards: Preventing Identity TheftFeaturing Jeff Lanza

P L E A S E J O I N U S F O R A S P R I N G I D E A L P E R S P E C T I V E E V E N T

For more information and to register go towww.savantcapital.com/events or call 866.489.0500.