Managing investment portfolios in chaotic markets

1. Build Wealth … Reduce Risk
Critical Factors to
Reduce Volatility and
Maximize Value
By Guy E. Baker CFP, MSFS, ChFC, MBA
Phone 949 900-0099 ● Toll free 877 282-7658 ● www.Wealth-Teams.com

2. Recent Dalbar QAIB Study
2
The AVERAGE Investor Received, Over The Last
20 Years, Less Than 3.4% Return On Investment
Compare This To The Overall Market Return Of
10.5%.
WHY?

3. Morningstar Returns
10Years ending 2009
3
5.3%
4.6%
4.0%
3.2% 3.3%
3.0%
2.6%
1.6% 1.7%
0.2%
US Equity International Equity Taxable Bonds Municipal Bonds All Mutual Funds
Fund Returns Investor Returns

4. “Wealth comes from knowing what others do NOT know.”
Aristotle Onassis
4
Purpose of this Primer
To Demonstrate How Our Proven, Effective Models
For Buying Markets Instead Of Stocks, Coupled With
The FOUR Critical Factors Can Build Your Wealth …
1. Reduce Volatility
2. Optimize Portfolio Construction
3. Reduce Expenses and Fees
4. Reduce Taxes

5. There is only one side to the stock market…not the bull side or the bear side, but the right side. It took me
longer to get that general principle fixed firmly in my mind than it did most of the technical phases.
Jesse Livermore–Successfulinvestor duringtheDepression
5
Risk vs.Return
What are the Building Blocks of Wealth?
Risk
Knowledge is the Cornerstone to Success

6. There are two times in a man’s life when he should not speculate - when he
can’tafford itand when he can.” - Mark Twain
6
Risk
Critical Factor #1: VOLATILITY
Volatility Forces Bad Decisions
It Destroys Portfolio Value Unless You Capture The Bounce!
Let Us Show You How To Make Volatility Work For You.

7. Why Managing Volatility is Important!!!
7
Can You Answer This Problem?
- 50% Down Up + 50%
Are you Even?

8. Understanding Internal Rate of Return
8
What is the AVERAGE?
- 50% Down + Up + 50%
((-50% +50%)/ 2) =0%

9. Understanding Internal Rate of Return
9
What is the REAL RATE OF RETURN?
- 50% Down X Up = -25%
Down
(-50% x 50%) =-25%

10. The Mathematics of Volatility
10
350%
Down Up
300% 5% 5.26%
10% 11.11%
250%
20% 25.00%
200%
30% 42.86%
150% 40% 66.67%
50% 100.00%
100%
60% 150.00%
50% 70% 233.33%
0%
75% 300.00%
5% 10% 20% 30% 40% 50% 60% 70% 75%

11. Capture the Bounce
11
New High
High
Manage the RED ZONE

12. Efficient Markets Hypothesis
12
• The Market incorporates ALL available information and
expectations, IMMEDIATELY
• The Market price approximates intrinsic value of the
underlying enterprises DAILY
• Abrupt changes in Market price are due SOLELY to
unforeseen events, such as 9-11.
• While “mispricing” does occur, it is not PREDICTABLE .
There is no pattern leading to consistent outperformance.
Eugene F. Fama, University of Chicago

13. Recessionary Period
January 2007 - March 2010
13
60%
40% Recession Began
December 2007
Unemployment
S&P 500 Index Total Return
Rate at 5.0%
20% Unemployment
Rate at 9.7%
March 2010
0%
-20%
Unemployment
Rate at 10.0%
November
-40% 2009
Recession Announced
December 1, 2008
-60%
2007 2008 2009 2010

14. Equity Values Change Daily
14
Average

15. Distribution of Market Returns
1949
20.2
1951
20.7
1963
15 21.0
1982
21.0
1970 1944
 CRISP 1-10 Index Annual 0.0
1953 1993
21.3
1996
Returns
0.7 11.1 21.4
1960 2004 1983
1.2 12.0 22.0
 1926 -2010 1987
1.7
1959
12.1
1979
22.6
1948 1952 1998 1997
2.1 13.4 24.3 31.4
1939 1968 1955 2003
2.9 14.1 25.2 31.6
1947 1965 1999 1985
3.6 14.5 25.3 32.2
1973 1966 1934 2006 1976 1936
63 POSITIVE YEARS (74%) -18.1 -8.7 4.3 15.5 26.8 32.3
1929 1932 1984 1942 1961 1980
22 NEGATIVE YEARS (26%) -14.6 -8.7 4.5 16.0 26.9 32.8
2000 1940 2007 2064 1938 1927
-11.4 -7.1 5.8 16.1 28.1 33.4
2001 1990 2005 1971 1943 1991
-11.1 -6.0 6.2 16.2 28.4 34.7
1969 1946 1978 1986 1967 1995
-10.9 -5.9 7.5 16.2 28.7 36.8
1930 1962 1977 1956 1972 2009 1945 1935
-26.5 -10.2 -4.3 8.3 16.8 28.8 38.1 44.3
2008 1974 1957 1981 1926 1988 1989 1975 1958
-36.7 -27.0 -10.1 -3.6 9.2 18.0 28.9 38.8 45.0
1931 1937 2002 1941 1994 1992 2010 1950 1928 1954 1933
-43.5 -34.7 -21.1 -10.0 -0.1 9.8 17.9 29.6 38.9 50.0 57.1
-50% to -40% -40% to -30% -30% to -20% -20% to -10% -10% to 0% 0% to -10% 10% to 20% 20% to -30% 30% to 40% 40% to 50% 50% to 60%
Annual Return Range

16. Distribution of Market Returns
1949
20.2
1951
20.7
1963
16 21.0
1982
21.0
1970 1944
 CRISP 1-10 Index Annual 0.0
1953 1993
21.3
1996
Returns
0.7 11.1 21.4
1960 2004 1983
1.2 12.0 22.0
 1926 -2010 1987
1.7
1959
12.1
1979
22.6
1948 1952 1998 1997
2.1 13.4 24.3 31.4
1939 1968 1955 2003
2.9 14.1 25.2 31.6
1947 1965 1999 1985
3.6 14.5 25.3 32.2
1973 1966 1934 2006 1976 1936
63 POSITIVE YEARS (74%) -18.1 -8.7 4.3 15.5 26.8 32.3
1929 1932 1984 1942 1961 1980
22 NEGATIVE YEARS (26%) -14.6 -8.7 4.5 16.0 26.9 32.8
2000 1940 2007 2064 1938 1927
-11.4 -7.1 5.8 16.1 28.1 33.4
2001 1990 2005 1971 1943 1991
-11.1 -6.0 6.2 16.2 28.4 34.7
1969 1946 1978 1986 1967 1995
-10.9 -5.9 7.5 16.2 28.7 36.8
1930 1962 1977 1956 1972 2009 1945 1935
-26.5 -10.2 -4.3 8.3 16.8 28.8 38.1 44.3
2008 1974 1957 1981 1926 1988 1989 1975 1958
-36.7 -27.0 -10.1 -3.6 9.2 18.0 28.9 38.8 45.0
1931 1937 2002 1941 1994 1992 2010 1950 1928 1954 1933
-43.5 -34.7 -21.1 -10.0 -0.1 9.8 17.9 29.6 38.9 50.0 57.1
-50% to -40% -40% to -30% -30% to -20% -20% to -10% -10% to 0% 0% to -10% 10% to 20% 20% to -30% 30% to 40% 40% to 50% 50% to 60%
Annual Return Range

17. Distribution of Market Returns
1949
20.2
1951
20.7
1963
17 21.0
1982
21.0
1970 1944
 CRISP 1-10 Index Annual 0.0
1953 1993
21.3
1996
Returns
0.7 11.1 21.4
1960 2004 1983
1.2 12.0 22.0
 1926 -2010 1987
1.7
1959
12.1
1979
22.6
1948 1952 1998 1997
2.1 13.4 24.3 31.4
1939 1968 1955 2003
2.9 14.1 25.2 31.6
1947 1965 1999 1985
3.6 14.5 25.3 32.2
1973 1966 1934 2006 1976 1936
63 POSITIVE YEARS (74%) -18.1 -8.7 4.3 15.5 26.8 32.3
1929 1932 1984 1942 1961 1980
22 NEGATIVE YEARS (26%) -14.6 -8.7 4.5 16.0 26.9 32.8
2000 1940 2007 2064 1938 1927
-11.4 -7.1 5.8 16.1 28.1 33.4
2001 1990 2005 1971 1943 1991
-11.1 -6.0 6.2 16.2 28.4 34.7
1969 1946 1978 1986 1967 1995
-10.9 -5.9 7.5 16.2 28.7 36.8
1930 1962 1977 1956 1972 2009 1945 1935
-26.5 -10.2 -4.3 8.3 16.8 28.8 38.1 44.3
2008 1974 1957 1981 1926 1988 1989 1975 1958
-36.7 -27.0 -10.1 -3.6 9.2 18.0 28.9 38.8 45.0
1931 1937 2002 1941 1994 1992 2010 1950 1928 1954 1933
-43.5 -34.7 -21.1 -10.0 -0.1 9.8 17.9 29.6 38.9 50.0 57.1
-50% to -40% -40% to -30% -30% to -20% -20% to -10% -10% to 0% 0% to -10% 10% to 20% 20% to -30% 30% to 40% 40% to 50% 50% to 60%
Annual Return Range

18. Long Term Dangers of Market Timing
18
Hypothetical value of $1 invested from 1926-2010
$3,000
$2,577
$2,500
$2,000
$1,500
$1,000
$ 500
$18.85 $20
Stocks
Total Market Treasuries
minus the BEST 34 months

19. Academics of Volatility
19
 In finance, volatility refers to the standard deviation of a continuum of
returns within a specific time period. It is used to quantify the amount of
variability associated with the financial instrument over this period.
10.7%
Average ROI
• Volatility is described in
-1 σ =-8.4% +1 σ =29.8% annualized terms and is
expressed as a fraction of
the average .
(mean eg. +/- 19.1%).
σ = 19.1%
-30% -20% -10% 0% 10% 20% 30% 40% 50%

20. How Volatility Impacts Return
20
Portfolio A Portfolio B
Year Return Year Return
1 10% 1 20%
2 10% 2 -5%
3 10%
Compare 3 -10%
4 10% 4 20%
5 10% 5 25%
Ave ROI 10.00% Ave ROI 10.00%
IRR 10.00% IRR 9.01%

21. Why Volatility Matters!
21
Portfolio A Portfolio B
Year Return Results Year Return Results
$ 100,000 $ 100,000
1 10% $ 110,000 1 20% $ 120,000
2 10% $ 121,000 2 -5% $ 114,000
3 10% $ 133,100 3 -10% $ 102,600
4 10% $ 146,410 4 20% $ 123,120
5 10% $ 161,051 5 25% $ 153,900
Ave ROI 10.00% Ave ROI 10.00%
IRR 10.00% IRR 9.01%

22. Measuring Risk - What is Volatility?
22
How far From the
Mean?
+10%
Average
-15% Average
2/3rds of all 2/3rds of all
Negative Positive
Returns Returns
How far From
the Mean?
-30% -20% -10% 0% 10% 20% 30% 40% 50%

23. So, Which Graph Depicts Less Risk?
23
Normal 11.4%
Average
ROI
+1 σ =23.8%
-1 σ =-1.1%
11.4%
Average
ROI
σ = 12.4% σ = 6.4% σ = 16.4%
-30% -20% -10% 0% 10% 20% 30% 40% 50%
σ = 5%
σ = 5.4%
-30% -20% -10% 0% 10% 20% 30% 40% 50%

24. What’s the REAL Rate of Return?
24
Bill’s Ted’s
1 25% 1 14%
2 25% 2 15%
3 25% 3 13%
4 25% 4 16%
5 -30% 5 4%
14.00% Average
Return 12.40%

25. What’s the INTERNAL Rate of Return?
25
Bill’s Ted’s
1 25% 1 14%
2 25% 2 15%
3 25% 3 13%
4 25% 4 16%
5 -30% 5 4%
11.31% IRR 12.34%

26. Sequence Risk
26
Portfolio A Portfolio B
Year Return Year Return
Which
1 -10% 1 20%
2 -5%
Return 2 25%
3 20% Was 3 20%
4 25% 4 -10%
5 20%
Higher? 5 -5%
Average 10% Average 10%

27. Sequence Risk
27
Portfolio A Portfolio B
Year Return Results Year Return Results
$ 10,000 $ 10,000
1 -10% $ 9,000 There is 1 20% $ 12,000
2 25% $ 15,000
2 -5% $ 8,550 no 3 20% $ 18,000
3 20% $ 10,260
4 25% $ 12,825 difference! 4 -10% $ 16,200
5 20% $ 15,390 5 -5% $ 15,390
Average 10% Average 10%

28. Capture The 50% Bounce
28
New High
Variance
Differential
Old High
Manage the Red Zone
Volatility Can Help You Build Wealth! Let Us Help You Capture The BOUNCE!

29. How Much Risk Are You Buying?
29
Every Portfolio has risk!
 How much risk have you purchased?
How can you tell?
 First, Calibrate the asset class distribution
 Use Benchmarks to determine Historical Expected
Return
 Compare to volatility Index to your current portfolio
Volatility Can Build Wealth For You

30. Critical Factor #2: Portfolio Construction
30
Risk
Portfolio Construction Is Like Building A Home …
Do Your Homework, Plan Well & You’ll
Live Happily Ever After!
Learn How To Build A Successful Portfolio

31. The 1986 Brinson Study
31
Only 6.4% is attributable to being in the
right specific investment at the right time.
Gary Brinson
93.6% is attributable to Asset
Allocation … being in the right type of
investment at the right time.

32. Is Allocation MORE Importantthan Stock Picking?
32
 Warren E. Buffett –
 “Most investors, both institutional and individual, will find
the best way to own common stocks is through an index fund
that charges minimal fees.”
 Peter Lynch –
 “All the time and effort people devote to picking the right
fund, the hot hand, the great manager, have in most cases led
to no advantage.”

33. The Academics of Passive Investing
33
Merton Miller Harry Markowitz William Sharpe
Nobel Prize 1990
EconomicSciences

34. The Three Factor Model
34
Structure Determine Performance
-Over 96% of the variation in returns
is due to risk factor exposure
-This leaves less than 4% of the variation
to explain
-After fees, traditional management typically
reduces returns
The Model tells the Difference Between Investing and Speculating
Average Average Sensitivity Sensitivity Sensitivity Random
Expected = Excess + to Markets + to Size + to BtM + Error
Return Return
Priced Risk Unpriced Risk
Positive Expected Return Zero Expected Return
Systematic Noise
Economic Random
Long Term Short Term
Investing Speculating

35. How to Construct a Portfolio?
35
Four Typical Asset Classes:
Cash Stocks or Equities
Bonds or Debt Real Estate
Specialty Asset Classes:
Commodities Precious Metals
Currencies Fine Art
Collectables Utilities

36. Efficient Frontier
36
0% 5% 10% 15% 20% 25%

37. Total Market Return--1926-2011
37
$10,000
$2,749
$1,000
$100
$10
$1 7/1/1926 11/1/1934 3/1/1943 7/1/1951 11/1/1959 3/1/1968 7/1/1976 11/1/1984 3/1/1993 7/1/2001 11/1/2009
$0

38. S&P 500 Return--1926-2011
38
$10,000
S&P 500:
$3,249
$1,000
Total
Market:
$2,749
$100
$10
$1 7/1/1926 11/1/1934 3/1/1943 7/1/1951 11/1/1959 3/1/1968 7/1/1976 11/1/1984 3/1/1993 7/1/2001 11/1/2009
$0

39. The Three Factor Model
39
Structure Determine Performance
-Over 96% of the variation in returns
is due to risk factor exposure
-This leaves less than 4% of the variation
to explain
-After fees, traditional management typically
reduces returns
The Model tells the Difference Between Investing and Speculating
Average Average Sensitivity Sensitivity
Sensitivity Sensitivity Random
Expected = Excess + to Markets + to Size
Size + to BtM + Error
Return Return
Priced Risk Unpriced Risk
Positive Expected Return Zero Expected Return
Systematic Noise
Economic Random
Long Term Short Term
Investing Speculating

40. Portfolio Construction - Capitalization
40
Capitalization measures
the relative size of the enterprise.
Stock X
Outstanding
Price Shares
Company Price Shares Capitalization
Microsoft $27.90 8.56bil $238.72 bil
Intel $21.46 5.58 bil $119.7 bil
Gn’l Motors $34.00 1.5 bil $51 bil

41. Portfolio Construction
41
Capitalization
1
2
3 Force Rank the value
4
5 of all 7,800 Publically
.
.
.
Traded Stocks
.
.
.
.
.
.
7,800

42. Portfolio Construction
42
Capitalization
1
2
3 LARGE
4
5
.
The Median divides the
Median
.
.
Largest from the
.
.
Smallest
.
. SMALL
.
.
7,800

43. The Three Factor Model
43
Structure Determine Performance
-Over 96% of the variation in returns
is due to risk factor exposure
-This leaves less than 4% of the variation
to explain
-After fees, traditional management typically
reduces returns
The Model tells the Difference Between Investing and Speculating
Average Average Sensitivity Sensitivity Sensitivity
Sensitivity Random
Expected = Excess + to Markets + to Size + to BtM
To BtM + Error
Return Return
Priced Risk Unpriced Risk
Positive Expected Return Zero Expected Return
Systematic Noise
Economic Random
Long Term Short Term
Investing Speculating

44. What is the Book to Market Ratio?
44
Book Value or Liquidation Value
Capitalization Value
If Book Value is low – then it is a GROWTH Stock
If Book Value is HIGH – the it is a VALUE Stock

45. Rerank Stocks Based on BtM
45
Ranked by BtM
1 Growth
2
3
4
5
. LARGE
. CAP
.
.
.
Value
.
Median

46. Book to
Capitalization Market Portfolio Construction
46
1
1
2 2 GROWTH
3
3 Median
LARGE 4 4
5 5
CAP . .
. . VALUE
.
Median . 3,900
.
.
1
.
2
GROWTH
.
. 3 Median
SMALL . 4
CAP . 5
. .
. . VALUE
7,800 3,900

47. Portfolio Construction
47
A B
C D

48. Growth of $1 from 1926 to 2011
48
LARGE GROWTH LARGE VALUE
σ=18.8% σ=26.2%
$2,749
Total Market Return
σ =18.75%
SMALL GROWTH SMALL VALUE
σ=28.3% σ=30.1%

49. Growth of $1 from 1926 to 2011
49
LARGE GROWTH LARGE VALUE
$1,801 σ=18.8%
$2,749
Total Market Return
σ =18.75%
SMALL GROWTH SMALL VALUE

50. Growth of $1 from 1926 to 2011
50
LARGE GROWTH LARGE VALUE
$1,801
$2,749
Total Market Return
σ =18.75%
SMALL GROWTH SMALL VALUE
$1,523 σ=28.3%

51. Growth of $1 from 1926 to 2010
51
LARGE GROWTH LARGE VALUE
$1,801 $4,800 σ=26.2%
$2,749
Total Market Return
σ =18.75%
SMALL GROWTH SMALL VALUE
$1,523

52. Growth of $1 from 1926 to 2011
52
LARGE GROWTH LARGE VALUE
$1,801 $4,800
$2,749
Total Market Return
σ =18.75%
SMALL GROWTH SMALL VALUE
$1,523

53. Growth of $1 from 1926 to 2011
53
LARGE GROWTH LARGE VALUE
$1,801 $4,800
$2,749
Total Market Return
σ =18.75%
SMALL GROWTH SMALL VALUE
$1,523 $59,341 σ=30.1%

54. Portfolio Re-Construction
54
A B
A + B + C + D = 100%
C D
Let Us Help You Design, Build And Manage A Risk Efficient Portfolio

55. If You Were Going To Ride
To The TOP of This Building?
55

56. Which Elevator Feels Safer?
56

57. Why Diversification Matters
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
37.05 36.94 28.58 66.41 31.04 40.59 7.62 74.48 35.14 34.54 35.97 39.78 8.83 79.02 34.59
22.96 33.75 23.11 33.01 8.96 18.04 5.11 69.18 33.16 24.13 32.99 8.16 6.60 70.19 29.53
22.36 33.36 11.95 30.16 8.28 12.35 3.82 66.79 32.11 22.63 32.59 8.04 4.75 51.48 28.07
19.97 25.79 10.24 28.41 7.33 8.44 3.58 60.25 30.58 15.10 27.54 6.35 -37.00 47.81 20.79
17.43 19.66 9.69 21.51 4.01 7.28 3.39 57.81 27.33 13.82 26.32 6.31 -38.64 47.02 20.17
10.23 7.27 8.41 21.04 -2.01 6.44 -2.85 56.28 25.95 9.70 21.87 6.24 -39.20 44.83 19.30
7.67 7.12 7.75 6.99 -3.08 -2.37 -6.00 36.43 19.15 5.61 21.70 5.95 -42.54 37.51 19.20
6.03 5.93 5.91 4.37 -6.40 -2.71 -11.72 36.18 17.74 4.91 17.08 5.49 -44.49 28.46 15.06
5.49 0.39 -2.33 4.04 -9.10 -6.48 -13.84 28.69 10.88 4.45 15.80 -2.61 -45.12 26.46 13.32
4.54 -11.59 -10.04 3.55 -12.26 -11.89 -19.87 2.04 2.65 3.08 4.32 -12.24 -47.11 2.29 3.73
3.49 -14.55 -17.01 1.90 -12.26 -15.41 -22.10 1.95 1.35 2.36 4.09 -17.55 -53.14 0.80 1.99
2.80 -15.12 -25.34 -2.58 -30.61 -16.75 -30.28 1.47 0.83 1.34 3.75 -18.38 -53.18 0.19 0.83
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Large Cap 22.96 33.36 28.58 21.04 -9.10 -11.89 -22.10 28.69 10.88 4.91 15.80 5.49 -37.00 26.46 15.06
US Large Cap Value 19.97 33.75 11.95 6.99 -6.40 -2.71 -30.28 36.43 17.74 9.70 21.87 -12.24 -53.14 37.51 20.17
US Small Cap 17.43 25.79 -2.33 28.41 -12.26 18.04 -19.87 57.81 19.15 5.61 17.08 -2.61 -38.64 47.02 29.53
US Small Cap Value 22.36 36.94 -10.04 4.37 -3.08 40.59 -11.72 74.48 27.33 4.45 21.70 -18.38 -44.49 70.19 34.59
US Real Estate 37.05 19.66 -17.01 -2.58 31.04 12.35 3.58 36.18 33.16 13.82 35.97 -17.55 -39.20 28.46 28.07
International Large Cap Value 10.23 0.39 23.11 33.01 4.01 -15.41 -13.84 69.18 30.58 15.10 32.99 6.35 -45.12 51.48 13.32
International Small Cap 2.80 -14.55 10.24 30.16 -12.26 -16.75 -2.85 60.25 32.11 22.63 26.32 8.04 -47.11 44.83 20.79
International Small Cap Value 3.49 -15.12 9.69 21.51 -2.01 -6.48 3.82 66.79 35.14 24.13 27.54 6.24 -42.54 47.81 19.30
Emerging Markets 6.03 -11.59 -25.34 66.41 -30.61 -2.37 -6.00 56.28 25.95 34.54 32.59 39.78 -53.18 79.02 19.20
One-Year US Fixed 5.49 5.93 5.91 4.04 7.33 7.28 3.39 1.47 0.83 2.36 4.32 5.95 4.75 0.80 0.83
Five-Year US Government Fixed 4.54 7.12 7.75 1.90 8.96 8.44 7.62 2.04 1.35 1.34 3.75 8.16 8.83 0.19 3.73
Five-Year Global Fixed 7.67 7.27 8.41 3.55 8.28 6.44 5.11 1.95 2.65 3.08 4.09 6.31 6.60 2.29 1.99
Let Us Help You Design, Build And Manage An Academically Sound Portfolio

58. Why Diversification Matters
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
37.05 36.94 28.58 66.41 31.04 40.59 7.62 74.48 35.14 34.54 35.97 39.78 8.83 79.02 34.59
22.96 33.75 23.11 33.01 8.96 18.04 5.11 69.18 33.16 24.13 32.99 8.16 6.60 70.19 29.53
22.36 33.36 11.95 30.16 8.28 12.35 3.82 66.79 32.11 22.63 32.59 8.04 4.75 51.48 28.07
19.97 25.79 10.24 28.41 7.33 8.44 3.58 60.25 30.58 15.10 27.54 6.35 -37.00 47.81 20.79
17.43 19.66 9.69 21.51 4.01 7.28 3.39 57.81 27.33 13.82 26.32 6.31 -38.64 47.02 20.17
10.23 7.27 8.41 21.04 -2.01 6.44 -2.85 56.28 25.95 9.70 21.87 6.24 -39.20 44.83 19.30
7.67 7.12 7.75 6.99 -3.08 -2.37 -6.00 36.43 19.15 5.61 21.70 5.95 -42.54 37.51 19.20
6.03 5.93 5.91 4.37 -6.40 -2.71 -11.72 36.18 17.74 4.91 17.08 5.49 -44.49 28.46 15.06
5.49 0.39 -2.33 4.04 -9.10 -6.48 -13.84 28.69 10.88 4.45 15.80 -2.61 -45.12 26.46 13.32
4.54 -11.59 -10.04 3.55 -12.26 -11.89 -19.87 2.04 2.65 3.08 4.32 -12.24 -47.11 2.29 3.73
3.49 -14.55 -17.01 1.90 -12.26 -15.41 -22.10 1.95 1.35 2.36 4.09 -17.55 -53.14 0.80 1.99
2.80 -15.12 -25.34 -2.58 -30.61 -16.75 -30.28 1.47 0.83 1.34 3.75 -18.38 -53.18 0.19 0.83
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Large Cap 22.96 33.36 28.58 21.04 -9.10 -11.89 -22.10 28.69 10.88 4.91 15.80 5.49 -37.00 26.46 15.06
US Large Cap Value 19.97 33.75 11.95 6.99 -6.40 -2.71 -30.28 36.43 17.74 9.70 21.87 -12.24 -53.14 37.51 20.17
US Small Cap 17.43 25.79 -2.33 28.41 -12.26 18.04 -19.87 57.81 19.15 5.61 17.08 -2.61 -38.64 47.02 29.53
US Small Cap Value 22.36 36.94 -10.04 4.37 -3.08 40.59 -11.72 74.48 27.33 4.45 21.70 -18.38 -44.49 70.19 34.59
US Real Estate 37.05 19.66 -17.01 -2.58 31.04 12.35 3.58 36.18 33.16 13.82 35.97 -17.55 -39.20 28.46 28.07
International Large Cap Value 10.23 0.39 23.11 33.01 4.01 -15.41 -13.84 69.18 30.58 15.10 32.99 6.35 -45.12 51.48 13.32
International Small Cap 2.80 -14.55 10.24 30.16 -12.26 -16.75 -2.85 60.25 32.11 22.63 26.32 8.04 -47.11 44.83 20.79
International Small Cap Value 3.49 -15.12 9.69 21.51 -2.01 -6.48 3.82 66.79 35.14 24.13 27.54 6.24 -42.54 47.81 19.30
Emerging Markets 6.03 -11.59 -25.34 66.41 -30.61 -2.37 -6.00 56.28 25.95 34.54 32.59 39.78 -53.18 79.02 19.20
One-Year US Fixed 5.49 5.93 5.91 4.04 7.33 7.28 3.39 1.47 0.83 2.36 4.32 5.95 4.75 0.80 0.83
Five-Year US Government Fixed 4.54 7.12 7.75 1.90 8.96 8.44 7.62 2.04 1.35 1.34 3.75 8.16 8.83 0.19 3.73
Five-Year Global Fixed 7.67 7.27 8.41 3.55 8.28 6.44 5.11 1.95 2.65 3.08 4.09 6.31 6.60 2.29 1.99
Let Us Help You Design, Build And Manage An Academically Sound Portfolio

59. Critical Factors 3 & 4:
Fees, Expenses and Taxes
Risk
Hidden Expenses, Excessive Fees,
Unnecessary Taxes
Can Quickly Eat Up Your Profits.
See How Our Methodology Can Retain Wealth

60. Average Asset Management Fees
60
Domestic Mutual Fund Expense Ratios International Mutual Fund Expense Ratios
5x
1.64%
3x
1.08%
1.01%
0.33%
Average of Weighted Average, Average of Weighted Average, Average of Weighted Average, Average of Weighted Average,
All Funds Based on Fund Assets All Funds Based on Fund Assets All Funds Based on Fund Assets All Funds Based on Fund Assets
Active Passive Active Passive
Mutual fund expense ratios as of April 9, 2010. Asset weighting based on net assets as of
December 31, 2008. Data provided by Morningstar, Inc.
Passive funds are those coded by Morningstar as Index Funds.

61. Erosion Of Wealth
61
Disclosed Fees
Asset Management Fees 1.25%
Administration Fees .20%
Loads and Surrender Charges 3-10 Years
Wrap Fees and Commissions 2-3%
Advisor Fees 1.25%
Undisclosed Fees
Trading Costs 1.44%
Bid/Ask Spread 1-2%
Turnover 80%
Tax Impact over 20 years 50% of Growth

62. To Recover the Costs of Active Management . . .
62
How Much Better Must You Do ?
 Assumptions:
 If Turnover is: 80%
 Trading Costs = 1.14% Hidden
 Bid/Ask Premium = 1.60% Hidden
 Active Management Fee = 1.00% Disclosed
 Advisor Compensation = 1.00% Disclosed
4.74%

63. What is the IMPACT of Taxes on $1.00?
63
Tax Free After Tax Retained
10%
Growth Growth Growth
20 Years $6.73 $3.52 52%
30 Years $17.45 $6.61 38%
50 Years $117.39 $23.31 20%
Lack of Tax Protection is HAZARDOUS to your WEALTH

64. Critical Factors You Can Control
Wealth
Active Teams
Asset Management
Fee (Wt. average) 1.06% .31%
Bid/Ask Spread
1.44% .14%
Taxes
83% 10%
Advisor Fee
1.00% .50%
TOTAL
4.33% 1.05%

65. How Active Management
Compares to Wealth Teams
BENCHMARK ACTIVE WEALTH
TEAMS
Volatility Risk usually
Align Risk and Align Risk And
higher than
Return Return
expected return
Portfolio
Proper Market
Construction Large Growth Size and Value
Allocation
Fees and Low Turnover High Turnover Low Turnover
Expenses Low Asset Mgt 5x higher Asset Low Asset Mgt
Fees Mgt Fee Fee
Taxes Buy and Hold
Ordinary Income LTCG
LTCG

66. The Wealth Teams Process
66
1. Complete Risk Tolerance Questionnaire
2. Examine Current Investment Policy
Statement
3. Define the COST of the RISK you are buying
4. Identify Risk Reduction Opportunities
5. Determine Proper Portfolio Construction
6. Review Cost of Professional Management
7. Decide on Best Course of Action

67. Who is Dimensional Fund Advisors?
67

68. There is a cost to inaction …
Let WEALTH TEAMS Help You Build and Retain Wealth
By Reducing Your Expenses, Fees and Taxes
68
GUY E. BAKER, MBA
CERTIFIED FINANCIAL PLANNER (CFP) ● MASTERS IN FINANCIAL SERVICES (MSFS)
email: guy@Wealth-Teams.com
http://www.Wealth-Teams.com
15520 Rockfield Blvd., Suite G
Irvine, California 92618
Phone:949 900-0099
Toll free 888 282-3344
FAX 949 900-0096