Investing- tame your fears and grow

Gwen Becker, CIM, CFP, FCSIVice-President, Associate Portfolio Manager

Whose Involved in Making Investments Decisions?

Overwhelmed

Women are still pulling double shiftsLife life’s usSo much information existso Industry jargono Why bother in this market?

Everything seems to work out okay in the end

The Factual Conversation

Women influence 70% of consumer spending decisions in this country1

In the next 10 to 20 years, many boomer women will inherit wealth twice – from their parents and their spouse1

82% of Canadian wealth will eventually be managed by women1

70% of women switch advisors after the death of a spouse1

Average age of a widow is 562

According to one Cornell study, 10 trillion dollars in inheritance will pass to baby boomers between now and 2040 – majority of inheritors will be women2

1 Source: TDWIS Newnet Article obtaining an uncommon understanding of your client interview with Dave Pickett: The Rise of High Net Worth Female Investors2 Source: My Money Mindset (www.mymoneymindset.com) by Dr. Deborah Nixon

The Factual ConversationWomen have been raised to be the keepers of the household purse, not the income generators. That legacy lives on for the majority of the population. Budgeting, borrowing and everyday saving is not a primary struggle for women – wise investing is.2

Women want a financial advisement process that accounts for her heart, not her ego. In other words, a process that incorporates her feelings, her perceptions, her life situation and her desires to take care of others.2

Two-thirds of women are single by the time they hit age 65—either because they never married, their spouses pass away, or they divorce.2

Don’t know what you don’t know. Start with what should I know?

1 Source: TDWIS Newnet Article obtaining an uncommon understanding of your client interview with Dave Pickett: The Rise of High Net Worth Female Investors2 Source: My Money Mindset (www.mymoneymindset.com) by Dr. Deborah Nixon

Solutions To ChallengesFINANCIAL PLAN & GOAL SETTINGo Regardless of your situation

TYPES OF ADVISORS & EXECUTIONo Not alone, Not all or nothing

INVESTMENT STRATEGIESo Constructing an “Investment Portfolio”o “Asset Classes”o Cash, “Fixed Income & Equities”

Cash, Bonds & Stocks

CYCLES & SEASONALITY

Written Financial Plan - 30% of Women Have One

Budget (www.mint.com)Cash FlowGoals vs. AbilityNet Worth Statement Projected Net WorthReport Card

"You've got to be very careful if you don't know where you are going because you might not get there." Yogi Bear

Goal vs. Ability

Specific and Obtainable GoalsShort term (less than 1 year)

emergency funds, down payment home, vacation

Mid term (2-5 years)fund child’s post secondary education, care for aging parents, revenue property, pay down debt

Long term (5+ years)buy a winter /summer home, comfortable retirement, philanthropy, estate

Investment Portfolio = Goal

Income• Need For Current

Income• Moderate Focus On

Growth Above Inflation

• Low Tolerance For Risk

• Short/Intermediate Investment Horizon

Balanced • Equal Focus On

Growth and Current Income

• Moderate Tolerance For Risk

• Intermediate Investment Horizon

• Emphasize Time Horizon Over Risk

Growth• Little Need For

Current Income• Focus On Growth For

Capital Appreciation• High Tolerance For

Risk• Intermediate/Long

Investment Horizon

INCREASING RISK, VOLATILITY AND RETURN EXPECTATIONS

Diversification of Asset ClassesParticipating in the gains while managing the down side risk

Constructing an Investment Portfolio

Asset Allocation Decision

Income Balanced Growth

50% Bonds / 50% Stocks 70% Bonds / 30% Stocks 30% Bonds / 70% Stocks

SOURCE: www.ishares.ca | Index Compound Returns shown BEFORE fees all in CAD $ ending December 31st, 2012

Asset Class ReturnsIndex Returns (ending December 31, 2012)

SIMPLE % COMPOUND %1 Mth 3 Mths 6 Mths 1 Yr. 3 Yrs* 5 Yrs* 10 Yrs*

S&P/TSX (TR) Index 1.95 1.72 8.86 7.19 4.79 -0.81 9.22

S&P/TSX Capped Energy Index (CAD$) 0.07 -3.58 7.07 -4.83 -3.25 -3.81 9.65S&P/TSX Small Cap (TR) Index 2.40 -2.00 6.16 -2.23 3.35 -0.46 5.70

S&P 500 Index (CAD$) 0.80 -0.24 5.86 13.00 8.8 1.70 2.30

MSCI EAFE Index (CAD$) 3.26 7.62 12.76 17.65 2.63 -4.93 5.29MSCI World (TR) Index (CAD$) 2.12 3.71 6.81 13.26 5.11 -1.01 2.66

DEX Universe Bond Index -0.13 0.30 1.54 3.60 6.64 6.35 5.97

SOURCE: www.ishares.ca | Index Compound Returns shown BEFORE fees all in CAD $ ending December 31st, 2012

Risk (4-Letter Word) /Return Trade-OffThe Efficient Frontier

Asset Class diversification works over the long run

• Bonds negatively correlated with stocks (“Defense”)

• Pure income portfolios have ~2/3 the risk of stocks

• Pure bond investors benefits from small addition of stock exposure given negative correlation

Asset Class ReturnsJanuary 1, 1950 – June 30, 2011

Despite the financial crisis, long term stock returns continue to lead all asset classes.

• Bonds performed well over the last 61 years. ¾ of the return & only ¼ of the risk vs. Canadian Equities

• Interest Rates peaked in early 1980s

• Inflation rate has been remarkably steady over the postwar period

Chasing Last Years Return - Asset Class Performance

The Problem With Going With The Flow

Herding: Our Tendency Is to Follow the Crowd

Common Mistakes

Unclear investment objectivesPoor asset allocationExtremely concentratedo 15 – 20 stocks to reduce risk

Over diversificationFocusing on returns without riskEmotional or trend investingHot stock tip

Dividend Investing

Styles of Investor (Jargon)

Deep Valueo Seek out companies trading at deep discounts relative to asset valueo Low price to earnings multiple or price to net asset value or price to booko Eg: Research in Motion (RIM)

Valueo Value typically describes a relationship of the price a particular company is trading at relative to the

stream of earnings or cash flow company produces. All else equal – pay lower price for large stream of earnings or cash flow

o Eg: Microsoft (MSFT), McDonalds (MCD), Magna (MG)

Growtho Focus on companies growing earnings stream and assets typically at a high rate. Investment themes.o Often willing to pay higher price for those assets because expect company to grow much more in the

future. o Eg: Facebook (FB), Lululemon (LLL)

Income o Focus on income generating investments – high dividends o Eg: Canadian Oil Sands (COS), Gamehost (GH), REIT’s Boardwalk (BEI.UN)

Cycles & Seasonality

“My ears cannot listen longer than my behind can endure”

-Ambrose Bierce

Business Cycle & Stock Market CycleLeading Indicators

TRAP

RBC & DOL

Global Industry Classification Standard

Challenging Returns in Junior Oil & Gas Space Junior Oil and Gas companies outperform Large Caps over past 25 years

Asset Mix DecisionLong Canada Bonds vs. S&P/TSX Dividends

Short Duration

Price to Earnings Multiples for S&P 500 & TSX Valuations are Compelling

Current Trailing P/E = 15.2 Canada, 14.2 U.S.

Types of Advisors

Investment Advisor

Client prefers:Variety of ProductsSpecializationDeal FlowActive InvolvementTransaction based focus

Reporting:Monthly account statements

Cost:1-3% of equity trade valueSpread on bond yields1% fund trailer fees

Financial Planner

Client prefers:Variety of investment optionsPlanning focusAdvisory relationshipFee based focus

Reporting:Monthly/Quarterly account statements & fund performance

Cost:Average MER 2.56%Declining DSCs 6%-1%1% fund trailer fees

Investment CounsellorClient prefers:

Variety of investment optionsPlanning and portfolio approachService focusFiduciary RelationshipFee based focus

Reporting:Monthly account statements, quarterly portfolio & performance reports, customized benchmarksCost:

1%-1.25% of AUM on a Declining fee scheduleTax deductible

12 Questions to Ask an AdvisorWhat are your qualifications?What experience do you have?How big is your book of business? What services / products do you offer?What is your approach to financial planning?Will you be the only person working with me (other partners lawyers, accountants, etc.)?How will I pay for your services?How much do you typically charge?How many clients do you have?Could anyone besides me benefit from your recommendations (conflicts of interest)Are you regulated by an organization?Can I have it in writing?

Hiring an Advisor

Are you being heard?Has your best interest at heart?Can you have an honest open conversation?Are you being pressured into making a decision?Do you trust this person?Use emotional intelligence and your voice

SummaryFINANCIAL PLAN & GOAL SETTINGo Regardless of your situation

TYPES OF ADVISORS & EXECUTIONo Not alone, Not all or nothing

INVESTMENT STRATEGIESo Constructing an “Investment Portfolio”o “Asset Classes”o Cash, “Fixed Income & Equities”

Cash, Bonds & Stocks

CYCLES & SEASONALITY

Lesson

“We must be careful to get only the knowledge out of a lesson. The cat who sits on a hot stove top will never sit on a hot stove again. But she will never sit on a cold one either.”

- Mark Twain

Questions & Answers

Personal & Private

Here until 2:00 ish

Or…….

Contact Information Email: gbecker@matcofinancial.ca

Call: 403-718-2125

Blog: www.matcofinancialinc.com

Twitter: @Gwenbecker

Website: www.winkcalgary.com

WINK Facebook and LinkedIn Pages

Survey Monkey

Honest Criticism is hard to take,Particularly from a relative, a friend, an acquaintance, or a stranger”

-Franklin P. Jones

Thank You

GuestsDirectorsFamily, Friends & MatcoBLG conference roomDoor Prize donated by Studio GorgeousNext Speaker –Sharon Gray “Evaluating Assets”

Disclaimer

For your information:MATCO FINANCIAL INC. is a privately owned and independent wealth management

office. The material presented is intended to provide information to Matco Financial clients, contacts and affiliates. Readers should not act on this information without first consulting their investment advisor, tax advisor, financial planner or lawyer. This communication does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.Management fees, commissions, and expenses may be associated with investment management services and mutual fund investments. Before investing, please read the applicable information such as the prospectus, which contains detailed investment information and is available from your advisor. Most marketable securities such as mutual funds are not guaranteed or insured, their values change frequently and past performance may not be repeated. All statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and are not guarantees of future performance. Investors should not rely on forward-looking statements. Actual results, actions or events, could differ materially from those set forth in the forward-looking statements.

2011 & 2012 Global Market Returns (USD)

Volatility Index (VIX)

Height of pessimism

Seek lower volatility to enhance returns

LESS VOLATILITY = GREATER WEALTH

Consistent Investment: $1,000,000 Volatile Investment: $1,000,000

Year Rate of Return Ending Value Rate of Return Ending Value1 8% $ 1,080,000 30% $ 1,300,000 2 8% $ 1,166,400 -20% $ 1,040,000 3 8% $ 1,258,712 25% $ 1,300,000 4 8% $ 1,360,489 -20% $ 1,040,000 5 8% $ 1,469,328 25% $ 1,300,000

Arithmetic annual return 8% 8% (Net 40%/5)

Compound annual return 8% 5.39%

Source: CEG Worldwide. Note: This is a hypothetical series of returns to indicate the significance of volatility and does not represent any specific investments at any specific time.

Types of Advisors

IIROCCSCInvestment DealerAgency relationshipKYCDomestic & US Stocks, Bonds, Mutual Funds, IPOs, InsuranceCommission and some Fee based compensation

MFDAIFIC, CFPMutual Fund DealerAgency RelationshipKYCDomestic, International & Specialty Mutual Funds, InsuranceFront end load, DSC & Trailer Fee compensation

Investment Counsel / PMCFA, CIM, CFPPortfolio Management FirmInvestment Policy StatementDomestic, US & International stocks, bonds & Specialty pooled fundsFee based compensation as a % of assets

Investment Advisor Financial Planner Investment Counsellor

Investor vs. Trader (doesn’t work with a Plan) Fundamental (Buy and Hold)o Look at everything from financial statements, industry statistics to

broader economic environment to gain insight on company’s future performance

Technical (Active)o Study historical stock price and market behaviour. Look for recurring

patterns in charts to time purchases and sales of securitiesQuantitativeo Screens and factors based on metrics and ratios drive investment

selections. Agnostic to company specifics oftenTop Down vs. Bottom Upo Focus on macro environment or company specific

Current Asset Mix (tactical)

Underweight Bonds

Overweight Equities (Stocks)

Market Weight (Canadian Equities)

Overweight (Global Equities US in particular)

Market OutlookBond Bull EndsDividend growth over incomeChina – Looking to Regain its SwaggerEurope – Back from the BrinkUS Energy IndependenceLNG – Closer to realityUS Recovery Gains TractionCanada Faces HeadwindsCanadian Housing Feels the ChillValuations Expand