2013 05-14 separating mythsfromtruthsthestoryofinvestingpowerpointpresentation

Copyright © 2013 Matson Money, Inc.

SEPARATING MYTHSFROM TRUTH

The Story of Investing

All investing involves risks and costs. Your advisor can provide you with more information about the risks and costs associated with specific programs. No investment strategy (including asset

allocation and diversification strategies) can ensure peace of mind, assure profit, or protect against loss.

This PowerPoint is based on the views of Matson Money. Other persons may analyze investments and the approach to investing from a different perspective than that reflected in this PowerPoint.

Nothing included herein is intended to infer that the approach to investing espoused in this PowerPoint will assure any particular results.

• Dispelling the Traditional

Investing Myths• Telling the True Story of Investing• Opportunity to Achieve True

Investing Peace of Mind

SEPARATING MYTHS FROM TRUTH


DISPELLING THE MYTHS

Myth: A story made up to explain a phenomenon beyond the science of the day.

TRADITIONAL INVESTING MYTHS

MYTH 1:Stock Selection

MYTH 2:Track-Record Investing

MYTH 3:Market Timing

MYTH 4:Costs of Investing

THE MYTH:Investment advisors can consistently

and predictably add value by exercising “superior skill” in individual stock selection.

Stock Selection: Choosing stocks based on a belief they

will do well in the future.

MYTH 1: STOCK SELECTION

Year Number Of Funds

Number Of New Funds

Number Of Dead Funds

1923 1 1 0

1924 4 3 0

1925 5 1 0

1926 6 1 0

1927 6 0 0

1928 10 4 0

1929 16 6 0

1930 17 1 0

1931 21 4 0

1932 37 16 0

1933 46 9 0

1934 48 2 0

1935 57 9 0

1936 59 2 0

1937 62 3 0

1938 71 9 0

1939 78 7 0

1940 86 8 0

1941 87 1 0

1942 87 0 0

1943 87 0 0

1944 93 6 0

1945 98 5 0

1946 103 5 0

1947 113 10 0

1948 117 4 0

1949 130 13 0

1950 137 7 0

1951 142 5 0

1952 152 10 0

1953 163 11 0

SURVIVORSHIP BIAS

For illustrative purposes only. Mutual fund data provided by CRSP Survivor Bias Free Mutual Fund Database. CRSP data provided by the Center for Research in Security Prices, University of Chicago. 12/31/2012PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.

* There were 265 funds opened and 47 funds closed in which the year was undisclosed.

YearNumber Of

FundsNumber Of New

FundsNumber Of

Dead Funds

1954 183 20 0

1955 186 3 0

1956 205 19 0

1957 222 17 0

1958 241 19 0

1959 267 26 0

1960 281 14 0

1961 273 25 33

1962 285 12 0

1963 296 11 0

1964 312 16 0

1965 331 19 0

1966 360 29 0

1967 390 30 0

1968 463 74 1

1969 555 100 8

1970 603 71 23

1971 619 48 32

1972 616 32 35

1973 609 29 36

1974 596 34 47

1975 590 25 31

1976 613 48 25

1977 639 53 27

1978 652 39 26

1979 678 51 25

1980 732 74 20

1981 862 146 16

1982 1043 205 24

1983 1231 213 25

YearNumber Of

FundsNumber Of New Funds

Number Of Dead Funds

1984 1471 259 19

1985 1816 362 17

1986 2266 474 24

1987 2779 548 35

1988 3165 466 80

1989 3377 330 118

1990 3682 491 186

1991 4177 610 115

1992 5061 1056 172

1993 6756 1855 160

1994 8739 2216 233

1995 9890 1643 492

1996 11205 1822 507

1997 12903 2231 533

1998 14398 2165 670

1999 16069 2187 516

2000 17993 2863 939

2001 19448 2483 1028

2002 20603 2427 1272

2003 21264 1877 1216

2004 22264 1981 981

2005 23525 2397 1136

2006 25234 2786 1077

2007 26353 2720 1601

2008 27562 2787 1578

2009 26721 1767 2608

2010 27537 2380 1564

2011 28319 2453 1671

2012 29152 2339 1506

NotDefined 29370 265 47

Total 29370 51905 22535

Total Number of Funds Open 2012

29,370

Total Number Born

51,905

Total Number Killed

22,535

-79.3%AVERAGE TOTAL RETURN

THE WORST 200 DEAD MUTUAL FUNDS

For illustrative purposes only. Mutual fund data provided by 2012 CRSP Survivor Bias Free Mutual Fund Database. CRSP data provided by the Center for Research in Security Prices, University of Chicago. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND INVESTORS MAY EXPERIENCE A LOSS.

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$5,000,000

Average U.S. Equity Mutual Fund

Avg. US MutualFund S&P 500 CRSP Market

Average of all US Equity funds available in the CRSP Survivor- Bias Free US Mutual Fund Database, data ending Dec. 2012S&P 500 Index and CRSP Market Index data obtained from DFA Returns software 12/12. Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially different. Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation. Past performance is no guarantee of future results and investors may experience a loss. Not actual investor results.

$4,348,039

$4,153,801

$2,392,685

Average Potential Wealth Lost to Active

Stock Picking

$1,955,353

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

$-

$2,000,000.00

$4,000,000.00

$6,000,000.00

$8,000,000.00

$10,000,000.00

$12,000,000.00

$14,000,000.00

Average All Mutual Funds

Avg All Mutual Funds Aggressive Growth Moderate Conservative

Average of all Mutual funds available in the CRSP Survivor- Bias Free U.S. Mutual Fund Database, data ending Dec. 2012Hypothetical Portfolios based on data in endnote 1. Past performance is no guarantee of future results and investors may experience a loss. Not actual investor results.Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially different. Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.

$1,216,893

$3,074,899

$5,197,603

$7,929,713

$10,168,918

Track-Record Investing:The use of performance history to determine

the best investments for the future.

THE MYTH:Finding funds that did well in the past

is a reliable method of indicating which funds will do well in the future.

MYTH 2: TRACK-RECORDINVESTING

TRACK RECORD INVESTING

Top 30 Funds Average Return

All Funds Average Return

S&P 500 Index Average Return

CRSP 1-10 Index Average Return

Total # of Funds 1993–2002

Total # of Funds 2003–2012

1993–2002

25.64

16.00

11.18

10.64

725

2003–2012

0.18

2.83

8.84

9.78

3738

For illustrative purposes only. Mutual funds data provided by CRSP Survivor-Bias Free Mutual Fund Database, includes funds that are U.S. Equity mutual funds. 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. Indices are not available for direct investment, therefore their performance does not

reflect the expenses associated with the management of an actual portfolio.

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

TRACK RECORD INVESTING

Top 30 Funds Average Return

All Funds Average Return

S&P 500 Index

CRSP 1-10 Index

CRSP 9-10 Index

Number of Funds

2003–2007

23.07

1.89

13.15

14.21

21.72

5,237

2008–2012

5.06

2.73

4.53

5.36

11.16

6,207

For illustrative purposes only. Mutual funds data provided by CRSP Survivor-Bias Free Mutual Fund Database, includes funds that are U.S. Equity mutual funds. 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. Indices are not available for direct investment, therefore their performance does not

reflect the expenses associated with the management of an actual portfolio.

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.


A MANAGER’S ABILITY TO PICK STOCKS IN THE PAST HAS

ZERO CORRELATION WITH HIS/HER ABILITY TO DO

SO IN THE FUTURE.

Market Timing:Any attempt to alter or change the mix of assets

based on a prediction or forecast about the future.

THE MYTH: Money managers are able to utilize

market timing to effectively predict up & down markets.

MYTH 3: MARKET TIMING

DALBAR RESEARCH STUDY RESULTS

As the chart below clearly indicates,The Average Investor earns significantly less

than the market indices, barely beating inflation over the period measured.

CATEGORY1993-2012

Annualized Return

S&P 500 Index 8.21%

Average Equity Fund Investor 4.25%

Inflation 2.43%

Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respective indices. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

WHY MARKET TIMING DOESN’T WORK

$44,087

7.70%

$29,258

5.51%

$22,050

4.03%$17,257

2.77% $13,747

1.60% $11,123

0.53%$9,090

-0.48%

January 1, 1993 – December 31, 2012

5040 Trading Days

Source: ChartSource®, S&P Capital IQ Financial Communications. For the period from January 1, 1993, through December 31, 2012. Based on total returns of Standard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. It is not possible to invest directly in an index. Past performance is not a guarantee of future results. Copyright © 2013, S&P Capital IQ Financial Communications. All rights reserved. Not responsible for any errors or omissions.

$6,183

-2.38%

“Tactical Asset Allocation” is Market Timing in Disguise

BEWARE: MARKET TIMING

Tactical Asset Allocation (Def.) – An active management portfolio strategy that rebalances the percentage of assets held in various categories in order to take advantage of market pricing anomalies or strong market sectors.

Market Timing (Def.) – The practice of switching among mutual fund asset classes in an attempt to profit from the change in their market outlook.

Definitions provided by investodpedia.com

“The evidence on investment managers’ success with market timing is impressive – and overwhelmingly negative.”

Charles D. Ellis, Investment Policy, 1993

Charles D. Ellis is a managing partner of Greenwich Associates, a leading consulting firm specializing in financial services worldwide.

B.A. Yale, M.B.A (with distinction) Harvard and Ph.D. New York University

CHARLES D. ELLIS

Costs of Investing: Fees incurred by investors to buy, sell, and

own stocks or mutual funds.

THE MYTH: What you don’t see can’t hurt you.

MYTH 4: COSTS OF INVESTING

Bid/Ask Spread

Mutual Funds

THE COSTS OF INVESTING

BID/ASK SPREADMarket Maker

$.50 Spread BUY Price

$50.00

SELL Price

$49.50

US data as of November 8, 2012. Data provided by Instinet. © 2013, Instinet Incorporated and its subsidiaries. All rights reserved. International and emerging markets data as of November 15, 2012. Data provided by Bloomberg. The bid/ask spread is generally regarded as an indication of the cost of liquidity.

The Bid/Ask Spread as a percent of price is a conservative estimate of actual trading costs. This estimate is almost 30 times as great for the smallest market

segment as for the largest market segment (1.77 vs. 0.06).

The Bid/Ask Spread as a percent of price is a conservative estimate of actual trading costs. This estimate is almost 30 times as great for the smallest market

segment as for the largest market segment (1.77 vs. 0.06).

Market Cap Range ($Millions)

Market Cap (%)

Percent Spread

> 5,000 85.3 0.06

1,500 – 5,000 9.9 0.12

500 – 1,500 3.4 0.23

200 - 500 1.0 0.58

50 - 200 0.4 1.77

BID/ASK SPREADCosts That You May Not Be Told About

“The key question under the new rules of the game is this: How much better

must a[n]...[actively trading]... manager be to at least recover the cost of...[portfolio turnover]? The

answer is daunting.” - Charles D. Ellis

1. Mutual fund trading plus bid/ask spread cost taken from Investment Policy - How to Win the Loser’s Game, 2nd Edition by Charles D. Ellis (1993) p.8-9.

CONSUMER “NO LOAD” MUTUAL FUNDS

The Myths–Stock Selection–Track-Record Investing–Market Timing–Costs of Investing

Next…–The Truth

SO FAR…


THE STORY OF INVESTING:FREE MARKET PORTFOLIO

THEORY

Free Market Portfolio Theory is: • An investment approach firmly

grounded in the academic research of the last 50 years.

• A disciplined approach to capturing market returns while managing volatility.

WHAT IS FREE MARKET PORTFOLIO THEORY?

THE COMPONENTS OFFREE MARKET PORTFOLIO THEORY

COMPONENT 1:Free Markets Work

COMPONENT 3:The Three-Factor Model

COMPONENT 2:Modern Portfolio Theory

LEADING ACADEMICS WHO CONTRIBUTE TO FREE MARKET PORTFOLIO THEORY

• Harry Markowitz: Nobel Prize Laureate, 1990, University of Chicago

• Merton H. Miller: Nobel Prize Laureate, 1990 - Robert R. McCormick Distinguished Service, University of Chicago

• Rex Sinquefield: Co-author Stocks, Bonds, Bills and Inflation, MBA, University of Chicago, BA, St. Louis University

• Roger G. Ibbotson: Co-author Stocks, Bonds, Bills and Inflation, Professor of Finance, School of Organization and Management, Yale University

• Eugene F. Fama: Robert R. McCormick Distinguished Service, Graduate School of Business, University of Chicago

• Kenneth French: Professor of Finance at the Tuck School of Business, Dartmouth College

Free Markets Work“In [a free] market at any point in time the actual price of a security will be a good estimate of its intrinsic value.”

- Eugene F. Fama, “Random Walks in Stock Market Prices,” Financial Analysts Journal, September/October 1965.

COMPONENT 1:

• The market fails to price goods and services appropriately.

• It is possible for some individuals to identify in advance which prices are inaccurate.

• Underpriced or overvalued markets can be forecasted or predicted.

• By taking advantage of these mispricings, either in stocks or market sectors, it is possible to both increase returns and avoid losses in investments.

• People with this view would utilize traditional investment myths and speculate with their assets.

BELIEFS THAT FREE MARKETS FAIL

• Based on supply and demand the free market is the best determinant of market prices.

• All available information is factored into the current price.

• Only new and unknowable information and events change pricing.

• The randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns unrelated to risk.

• People with this view would utilize free market investment strategies.

BELIEFS THAT FREE MARKETS WORK

BELIEFS DICTATE ACTION

FREE MARKETS WORK

• Focus on capturing market returns• Utilize asset-class or

structured funds• Diversify prudently• Identify your risk tolerance• Eliminate traditional

investment strategies• Work with a financial coach who shares your market belief

FREE MARKETS FAIL

• Pursue traditional investment strategies

• Stay connected to all sources of financial information

• Read every investment article you can find

• Work with a financial professional who shares your market belief

Modern Portfolio TheoryDiversification Works

Nobel Prize Winners, 1990Harry Markowitz

William Sharpe

Merton Miller

COMPONENT 2:

As a graduate student in economics at the University of Chicago in the 1950's, Dr. Markowitz won acclaim for his studies on portfolio design and risk reduction. These concepts were later crucial for the development of Modern Portfolio Theory.

Nobel Prize Winner 1990

DR. HARRY MARKOWITZ

6 8 10 12 14 16 18 20

6

8

10

12

14

16

One Year Standard Deviation (Volatility)

An

nu

aliz

ed C

om

po

un

d R

etu

rn

Growth

Aggressive

S&P 500

Conservative

Moderate

MARKOWITZ EFFICIENT FRONTIERMaximizing Expected Returns for Any Level of Volatility

For Illustrative purposes only.PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

DETERMINANTS OFPORTFOLIO PERFORMANCE

1.8

2.1

4.6

91.5

1.8

2.1

4.6

91.5

Time

Val

ue

Investment A

Investment B

Portfolio

50/50 Combined Portfolio

ASSET CLASS CORRELATIONExample Portfolio

Source: DFA Returns Software 12/12.

Annualized Return(%)

Simplified Example Of Low Correlation BenefitsJanuary 1970–December 2012 (Quarterly Data in $US)

INCREASE RETURNSAND REDUCE VOLATILITY

Large U.S.

100% S&P 500 Index

9.94

17.05Annualized Standard Deviation

70% S&P 500 30% EAFE

Large U.S. EAFE

16.74

10.11

70% S&P 500 20% EAFE

10% Int'l Small

Large U.S. EAFE Int’l Small

16.65

10.61

Past performance is no guarantee of future results and investors may experience a loss. See Endnote 1. These hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. actual investment results may be more or less than shown. This does not represent any specific product or service. Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially different. Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.

The Three-Factor Model

Source: Fama, Eugene F., and Kenneth R. French, 1992 “The cross-section of Expected Stock Returns”, Journal of Finance 47 (June), 427-465

COMPONENT 3:

Eugene Fama &

Kenneth French

Factor 1: The Market Factor Factor 2: The Size FactorFactor 3: The “Value” Factor

0

1

2

3

4

5

6

7

8

9

10

AnnualizedReturn

S&P 500

T-Bills

• Equities are riskier than fixed income.

• Equities historically provide a higher rate of return.

1926–2012 S&P 500 T-Bills

Annualized Return 9.84 3.53

Standard Deviation 20.18 3.10

Source: DFA Returns Software, 12/12.

FACTOR 1: THE MARKET FACTOR

Past performance is no guarantee of future results and investors may experience a loss. See Endnote 1. Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Actual results of accounts under Matson Money’s management may have been materially different. Performance results and comparative indices assume reinvestment of dividends and income plus capital appreciation.

Annualized R...9.5

10

10.5

11

11.5

12

12.5

13

S&P 500

U.S. Small Co.

• Small companies are riskier than large companies.

• Small companies historically provide a higher return than large companies.

1926–2012 S&P 500 U.S. Small Co. (CRSP 6-10)



FACTOR 2: THE SIZE FACTOR



9

9.5

10

10.5

11

11.5

12

AnnualizedReturn

S&P 500

U.S. Lg.Value

• High book-to-market (value) stocks are riskier than low book-to-market (growth) stocks.

• High book-to-market stocks historically provide higher return than low book-to-market stocks.

July 1926–2012 S&P 500 U.S. Lg. Value



FACTOR 3: THE VALUE FACTOR



Free Markets Work

+ Modern Portfolio Theory

+ The Three-Factor Model

= Free Market Portfolio Theory

THE TRUTH


BUILDING A BETTER PORTFOLIO

AVERAGE INVESTOR EQUITY PERFORMANCE

Portfolio 1 100%

Average Equity Mutual Funds

1993–2012

Portfolio 1* 4.25 19.70

AnnualizedReturn

(%)

AnnualizedStandard

Deviation (%)

60%

40%

Average 100% Equity Mutual Fund Investor

Results

Dalbar Investor Results

Research for period1993-2012

CREATING A DIVERSIFIED PORTFOLIO

*Portfolio Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respective indices. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.

1. Average Holding Period—3.31 Years*

2. Track-Record Investing—Chasing

the Market

3. Hyperactive Stock Picking

4. Market Timing

WHY ARE THE RETURNS SO LOW?

*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respective indices. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss.

S&P 500 Index

1970–2012Annualized

Return(%)

AnnualizedStandard

Deviation (%)

Portfolio 1 100%Portfolio 2 100%

Avg. Equity Mutual Funds

100%

S&P 500

CREATING A DIVERSIFIED PORTFOLIOBasic Passively Invested Portfolio

Portfolio 1* 3.49 19.58Portfolio 2 9.94 17.55

*Portfolio 1- Dalbar’s Quantitative Analysis of Investor Behavior] uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1993, to December 31,2012, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for the various periods. These results are then compared to returns of respective indices. Index data from DFA Returns Software 12/2012. Past performance is no guarantee of future results. Asset Allocation and diversification strategies cannot insure a profit or protect against a loss. See endnote 2 for indices used. Additional risks are associated with international investing such as currency fluctuations, political/economic stability and differences in accounting standards.

AnnualizedReturn

(%)

1970–2012

60%

20%

20%

AnnualizedStandard

Deviation (%)

S&P 500

Index

Portfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%


5-Year Government

Portfolio

One-Year Fixed

Income

CREATING A DIVERSIFIED PORTFOLIOIncluding Fixed Income Assets in the Portfolio

Portfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97


1970–2012Annualized

Return(%)

30%

20%

20%

30%AnnualizedStandard

Deviation (%)

S&P 500Index

Portfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%

5-Year Government

Portfolio

One-Year Fixed

Income

EAFE Index

CREATING A DIVERSIFIED PORTFOLIOIncluding Non-U.S. Assets in the Portfolio

Portfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97Portfolio 4 9.19 11.16



1970–2012 Annualized

Return(%)

20%

15%

20%

15%15%

15%

AnnualizedStandard

Deviation (%)

S&P 500Index

Portfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%Portfolio 5 15% 20% 20% 15% 15% 15%

5-Year Government

Portfolio

One-Year Fixed

IncomeEAFE Index

U.S. 9-10 Small Co.

Int’l Small Cap Stocks

CREATING A DIVERSIFIED PORTFOLIOAdding Small Cap Stocks

Portfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97Portfolio 4 9.19 11.16Portfolio 5 10.25 12.17



AnnualizedReturn

(%)

20%

20%

7.5%15%

7.5%

7.5%

15%

7.5%

AnnualizedStandard

Deviation (%)

S&P 500Index

Portfolio 1 100%Portfolio 2 100%Portfolio 3 60% 20% 20%Portfolio 4 30% 20% 20% 30%Portfolio 5 15% 20% 20% 15% 15% 15%Portfolio 6 7.5% 20% 20% 15% 7.5% 15% 7.5% 7.5%

5-Year Government

Portfolio

One-Year Fixed

IncomeEAFE Index

U.S. 9-10 Small Co.

Int’l Small Cap Stocks

U.S. Small Cap Value

U.S. Large Cap Value

CREATING A DIVERSIFIED PORTFOLIOAdding High Book-to-Market Stocks

1970–2012

Portfolio 1* 3.49 19.58Portfolio 2 9.94 17.55Portfolio 3 9.11 10.97Portfolio 4 9.19 11.16Portfolio 5 10.25 12.17Portfolio 6 10.76 11.84




Directions:Answer each question “Yes” or “No.”

Your Answer must be 100% “Yes” to qualify as “Yes.”

THE 20 MUST-ANSWER QUESTIONS FOR YOUR JOURNEY TOWARD INVESTING PEACE

OF MIND

QUESTION 1

Have you discovered your True Purpose for Money,

that which is more important than money itself?

Are you invested in the Market?

QUESTION 2

Do you know how markets work?

QUESTION 3

Have you defined your Investment Philosophy?

QUESTION 4

Have you identified your personal risk tolerance?

QUESTION 5

Do you know how to measure diversification

in your portfolio?

QUESTION 6

Do you consistently and predictably achieve

market returns?

QUESTION 7

Have you measured the total amount of commissions and costs in your portfolio?

QUESTION 8

Do you know where you fall on the

Markowitz Efficient Frontier?

QUESTION 9

When it comes to building your investment portfolio, do you know exactly what you are

doing and why?

QUESTION 10

Are you working with a financial coach versus

a financial planner?

QUESTION 11

Do you have a customized lifelong game plan to guide

all of your investing and spending decisions?

QUESTION 12

Do you have an Investment Policy Statement?

QUESTION 13

Have you devised a clear-cut method for

measuring the success or failure of your portfolio?

QUESTION 14

Do you fully understand the implications and applications

of diversification inyour portfolio?

QUESTION 15

Do you have a system to measureportfolio volatility?

QUESTION 16

Are you aware of the incentives brokerage

firms and the financial community have when selling commission-based products?

QUESTION 17

Do you know the three warning signs that you

are gambling and speculating with your money versus prudently investing it?

QUESTION 18

Can you identify the cultural messages and

personal mind-sets about money that destroy your

peace of mind?

QUESTION 19

Are you ready to shift your personal experience of money and investing from a scarcity mode to

an abundance mode?

QUESTION 20


THE OPPORTUNITYLearn more about what this means for you.

ENDNOTES1. 42 Year Performance figures taken from Dimensional Fund Advisor, Inc. (DFA) Returns software 12/12. Some data provided to DFA by the Center for Research & Security Pricing(CRSP), University

of Chicago. No commissions or fees have been deducted from the market performance figures because the intent is to show the benefits of diversification of asset classes and not to indicate the results Matson Money, Inc. would have achieved if it managed a client’s funds. If an investor invested in mutual funds designed to reflect asset class performance, the investor would, in effect, be paying an advisory fee to the mutual fund manager and brokerage commissions because these fees and commissions would be reflected in the mutual fund’s expenses that are deducted from the value of each share of the mutual fund. If, in addition, an investor engaged an investment advisor to manage the assets, the investor would pay an investment advisory fee to this manager. If an investor also utilized the services of a separate custodian, the investor would pay additional fees to the custodian. The returns of the hypothetical asset class mixes frequently exceeded the results of Matson Money, Inc. clients’ portfolios with similar investment objectives for the period Matson Money, Inc. has managed clients’ funds from 1991 to present. This difference is due to differing allocations over the time periods shown. These allocations differed because of different asset classes used, new research applied, and because of deduction of commission. Also, it is not possible to invest in an index. Past performance of markets is no guarantee of future performance and clients may experience a loss. Asset Classes are defined below.

U.S. Large Value = U.S. Large Cap Value Portfolio: July 1926-March 1993: Fama-French Large Cap Value Strategy. Simulates Dimensional’s hold range and estimated trading costs. Courtesy of Fama-French and CRSP: deciles 1-5 size, (.7) BtM. April 1993-Present: U.S. Large Cap Value Portfolio net of all fees.

DFA International Small Company Strategy/DFA International Large Company Strategy : January 1970-June 1998: 50% DFA Japanese Portfolio, 50% DFA UK Portfolio net of all fees.July 1998-September 1989: 50% DFA Japanese Portfolio, 20% DFA UK Portfolio, 30% DFA Continental Portfolio net of all fees.October 1989-March 1990: 40% DFA Japanese Portfolio, 30% DFA Continental Portfolio, 20% DFA UK Portfolio, 10% DFA Asia/Australia Portfolio net of all

fees.April 1990-December 1992: 40% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 10% DFA Asia/Australia Portfolio net of all

fees.January1993-March 1997: 35% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 15% DFA Asia/Australia Portfolio net of all

fees.April 1997-March 1998: 30% DFA Japanese Portfolio, 35% DFA Continental Portfolio, 15% DFA UK Portfolio, 20% DFA Asia/Australia Portfolio net of all

fees.April 1998-Present: 25% DFA Japanese Portfolio, 40% DFA Continental Portfolio, 20% DFA UK Portfolio, 15% DFA Asia/Australia Portfolio net of all fees.

DFA International Small Company Portfolio: January 1970-September 1996: DFA International Small Company Strategy.October 1996-Present: DFA International Small Company Portfolio net of all fees.EAFE Index: Courtesy of Morgan Stanley Capital International. Europe, Australia, and Far East Index net dividends ($). January 1969-Present: EAFE Index Including gross dividends ($).U.S. Small Co = CRSP 9-10 Index: Courtesy of Center for Research in Security Prices, University of Chicago. Small Company Universe Returns (Deciles 9 &10)

all Exchanges.January 1926-June 1962: NYSE, rebalanced semi-annually.July 1962-December 1972: CRSP Database, NYSE & AMEX, rebalanced quarterly.January 1973-September 1988: CRSP Database, NYSE, AMEX & OTC, rebalanced quarterly.October 1988-Present: CRSP Index (NYSE & AMEX & OTC).U.S. Large Company Stocks - S&P 500: Courtesy of Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: The Past and the Future, Dow

Jones, 1989. Ibbotson Associates, Chicago, annually updates work by Roger Ibbotson and Rex A. Sinquefield. Used with Permission. All rights reserved. The S&P 500 is an unmanaged market value-weighted index which measures the change in aggregate market value of 500 stocks relative to the base period 1941-1943. This index does not incur fees and charges typically associated with investing and values would be lower if such fees and charges were taken into consideration. Individuals may not invest directly in an index.

DFA One-Year Fixed Income Portfolio: August 1983-Present: DFA One-Year Fixed Income PortfolioNovember 1971-July 1983: Stimulation Using CD Returns

DFA Five-Year Government Portfolio: June 1987-Present: DFA Five-Year Government Fixed Income PortfolioJuly 1952-May 1987: Stimulation Using U.S. Government InstrumentsLehman Brothers Government/Credit Bond Index 1-30+ Years: January 1973-Present: Lehman Brothers Government/Credit Bond Index Range 1-30+ Years

1. Cont’d CONSERVATIVE, MODERATE, GROWTH, & AGGRESSIVE These results are based on the performance of the Indices defined above, using the

below mixes.

The objective of allocation for each asset class shown in the charts is to reduce the likelihood that different assets move together in tandem. The asset class mixes shown in these charts were rebalanced annually in order to continually preserve the original investment allocations. No reinvestment of dividends or other earnings were included in the calculations. No commissions or fees have been deducted from the market performance figures shown in the charts because the intent is to show the benefits of diversification of asset classes and not to indicate the results Matson Money, Inc. would have achieved if Matson Money, Inc. had managed a client’s funds. If an investor invested in mutual funds designed to reflect asset class performance, the investor would, in effect, be paying an advisory fee to the mutual fund manager and brokerage commissions. These fees and commissions would be reflected in the mutual fund’s expenses that are deducted from the value of each share of the mutual fund. If, in addition, an investor engaged an investment advisor to manage the assets, the investor would also pay an investment advisory fee to this manager. If an investor also utilized the services of a separate custodian, the investor would pay additional fees to the custodian. Index performance returns do not reflect any management fees, transaction costs or expenses. In addition, the index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE.

All investing involves risk and costs. Your advisor can provide you with more information about the risks and costsassociated with specific programs. No investment strategy (including asset allocation and diversification strategies) canensure peace of mind, assure profit, or protect against loss.

ENDNOTES

ENDNOTES2. Some data provided to DFA by the Center for Research & Security Pricing (CRSP), University of Chicago. Asset Classes defined as:

U.S. Large Company Stocks - S&P 500 Index

U.S. Small Company Stocks - CRSP (Center for Research & Security Pricing) 9-10 Index

International Large Company Stocks - Morgan Stanley (MSCI) Europe, Australia, Far East (EAFE) Index (Gross Div)

International Small Company Stock - index created by DFA using CRSP data, Dimensional’s Small International Index [1970 - June 1988 - 50% Japan, 50% United Kingdom. July 1988 - September 1989 - 50% Japan, 30% Continental, 20% United Kingdom, October 1989 - March 1990 - 40% Japan, 40% Continental, 20% United Kingdom, 10% Asia-Australia. April 1990 - December 1992 - 40% Japan, 35% Continental, 15% United Kingdom, 10% Asia-Australia. January 1993 to present - 35% Japan, 35% Continental, 15% United Kingdom, 15% Australia.]

U.S. Small Company Value Stocks - Fama/French US Small Value Research index

U.S. Large Company Value Stocks - Fama/French US Large Value Research index

5 Year Government Portfolio - Dimensional’s Five-Year Government Portfolio [Average maturity: Under Five Years, 1953-May 1987 - Simulation using U.S. Government Instruments (maximum maturity fie years) June 1987- DFA Five Year Government Portfolio net of all fees]

One Year Fixed Income - Dimensional’s One-Year Fixed Strategy [1972 - July 1983 - Simulated CD Fixed Income Strategy (maximum maturity 1 year) Aug. 1983 - DFA Fixed Income Portfolio returns net of all fees (weighted average maturity under 1 year)]

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