Free Wealth Management Guide 8 Threats To Portfolio Performance | Page 5

Capital International Group Inc. www.mscibarra.com (January 2012).
Indexes are unmanaged baskets of securities in which investors cannot
directly invest. Actual investment results may vary. All investments involve
risk,including loss of principal. Past performance is not indicative of future
results. Foreign securities involve additional risks, including foreign currency
changes, political risks, foreign taxes, and different methods of accounting
and financial reporting.

$1.78 may not seem particularly impressive...until you compare it to the S&P 500, which returned only $1.33 over the
same period. This 25% difference in returns is a powerful
illustration of the value of broad diversification, especially during one of the worst decades for equities in modern history.
The risks associated with stocks potentially include increased volatility (up
and down move- ment in the value of your assets) and loss of principal.
Small company stocks may be subject to a higher degree of market risk
than the securities of more established companies because they tend to
be more volatile and less liquid. Investing in foreign securities may involve
certain additional risks, including exchange rate fluctuations, less liquidity,
greater volatility, different financia l and accounting standards and political
instability. Real estate securities funds are sub- ject to changes in economic
conditions, credit risk and interest rate fluctuations. Bonds and fixed income
funds will decrease in value as interest rates rise.

Threat 8: No Plan
As the saying goes: “Failing to plan is planning to fail.” If you
don’t know where you are going, how are you going to get
there?
While retirement is a major concern for many investors, 45%
of adult Americans have no plan in place whatsoever. 11

But planning, especially done with professional help, can make
a real difference.
Outlining your goals, identifying your risk tolerance, and setting expectations can help you stay focused on your investment
strategy through bull and bear markets and strong and weak
economic environments.
These are no small matters. You don’t get many chances to plan
and execute your long-term financial goals.
Many prudent investors believe that the point of investing isn’t
to aim for the highest possible returns, but rather to generate
returns necessary to meet their long-term goals at an acceptable risk level. Attempting to enhance your returns by seeking
out the needles in the haystack introduces an additional layer of
active risk and the potential for increased volatility.
So what should you do? Each investor’s situation is unique, but
given the challenges and expenses of active management, putting together a sound plan that entails holding a well-diversified
portfolio and not trying to beat the market may be the prudent
approach in attempting to achieve your long-term financial
goals.
We hope you will act on the information shared in this Wealth
Guide to help accomplish your goals.

S&P 500 Index data are provided by Standard & Poor’s Index Services Group. Indexes are unmanaged baskets of securities in which investors
cannot directly invest. Actual investment results may vary. All investments involve risk, including loss of principal. Past performance is not indicative of future results.
2
Kenneth R. French, “The Cost of Active Investing,” March 2008.
3
Barras, Laurent, Scaillet ,Wermers, and Russ, “False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas” (May 2008).
Robert H. Smith School Research Paper No. RHS 06-043 Available at SSRN: http://ssrn.com/abstract=869748
4
Mark Hulbert, “The Prescient Are Few,” The New York Times (July 13, 2008)
5
Standard and Poor’s Investment Service, May 2009
6
Ibid.
7
New York Times, May 5, 2009
8
Performance data for January 1970-August 2009 provided by CRSP; performance data for September 2009-December 2011 provided by Bloomberg. 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 bonds and bills data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated
work by Roger G. Ibbotson and Rex A. Sinquefield). Indexes are not available for direct investment. The data assumes reinvestment of income and
does not account for taxes or transaction costs. Past performance is not a guarantee of future results. There is always the risk that an investor
may lose money.
9
Cross Section of Expected Stock Returns, Eugene F. Fama and Kenneth R. French, Journal of Finance 47 (1992)
10
Dimensional Fund Advisors study (2002) of 44 institutional equity pension plans with $452 billion total assets. Factor analysis run over various
time periods, averaging nine years. Total assets based on total plan dollar amounts as of year end 2001.
11
Northwestern Mutual Market Research, April 2012
1

Whitepaper created by LWI Financial Inc. (“Loring Ward”). Securities offered through Loring Ward Securities Inc. Member FINRA/SIPC B 12-021
(05/12).

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