Dimensions of Expected Return and Portfolio Modeling The Investment Theory and Asset Allocation Modeling Techniques and the Rationale for Loring Ward s Global Portfolio Series
Investment Philosophy & Portfolio Strategy... 2 Portfolio Modeling Approach... 3 Portfolio Construction Process... 8 Portfolio Asset Allocations...13 Portfolio Performance...14 Appendix...17 Appendix A Portfolio Asset Allocations of 315 Models...18 Appendix B Reference Guide...25 Appendix C Benefits of Diversification An Example with 2 Asset Classes...26
Dimensions of Expected Return and Portfolio Modeling Loring Ward engineered an integrated process to design portfolios based on years of academic research that incorporates individual client needs, objectives, and attitudes about investing. The objective of this document is to outline the investment theory and asset allocation modeling techniques and the rationale for Loring Ward s Global Portfolio Series. The Global Portfolio Series was created by selecting a sub-set from a total of 315 portfolio models on the efficient range with varying levels of equity/fixed income, international, small cap, and value asset class weightings. The Series represents the portfolio models recommended by Loring Ward absent clientdriven investment preferences and guidelines with regards to international, value and small cap asset class allocations.
Investment Philosophy & Portfolio Strategy Our Asset Class Investing philosophy is based on almost nine decades of financial market data, Nobel Prize-winning economic research, and in-depth studies of investor psychology and behavior. Its central tenets are to: Accept market efficiency Invest in the dimensions of risk where risk is rewarded over time Effectively and thoroughly diversify asset classes Customize portfolios based on client return and risk objectives and constraints Exercise patience and discipline We believe that the capital markets are largely efficient, and the inefficiencies that do exist are difficult for any money manager to exploit consistently in order to provide excess returns relative to risk. Year in and year out, the data on mutual fund performance illustrates the inability of active managers to outperform their benchmarks. Of the handful of mutual fund managers that may have demonstrated sustained periods of outperformance, it is difficult to distinguish this performance as skill or luck with a reasonable level of statistical confidence. Therefore, we believe the bulk of a portfolio should be invested in broadly diversified asset classes to capture market or systematic returns that adequately compensate investors for the risk that is taken over time. The Loring Ward portfolio strategy utilizes dimensions that have historically provided investors with returns over time that adequately compensate investors for the additional risk inherent in the stock market as a whole, and value and small cap stocks in particular. The essence of risk management for our portfolio strategy is effective diversification. We make every effort to incorporate Dr. Harry Markowitz s 1 work on Modern Portfolio Theory utilizing the purest asset classes we can obtain and understanding the dissimilar price movement and correlations among asset classes to build portfolios that optimize the risk and return continuum. Each portfolio is structured in a way to manage risk for a desired level of return by combining asset classes to maximize the benefits of diversification. In addition, our portfolios generally contain about 8,000 to 10,000 individual securities. Each fund/asset class holds from 75 to 5000 individual securities. By constructing a broadly diversified global market portfolio and emphasizing value and small cap asset classes, the models attempt to minimize risk for a given level of return. Diversification neither assures a profit nor guarantees against loss in a declining market. The risks associated with investing in stocks and overweighting small company and value stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. 2 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Portfolio Modeling Approach Our portfolio modeling approach is based on principles of diversification, asset class investing, and behavioral finance. Exposure to specific dimensions of risk identified by academic research Exposure to market rates of return at a reasonable price Exposure to asset class securities, not indices that are susceptible to style drifts. Minimized transaction costs and turnover Portfolio risk based on investor behaviors and preferences to improve comfort with staying invested for the long-term. The process applies Fama-French research and multi-factor modeling to emphasize value and small cap asset classes in both U.S. and International markets. 2 These dimensions have historically delivered return premiums: the market premium (stocks outperform bonds), the value premium (value outperforms growth), and the size premium (small cap stocks outperform large cap stocks). As shown in Figure 1, the annualized compound return of the Fama/ French Total U.S. Index from January 1, 1927 to December 31, 2014 is 10%, outperforming Long-Term Government Bonds by 4.4% and One-Month U.S. Treasury Bills by 6.5%. Figure 2 shows that the annualized compound return of U.S. Small Cap over the same time period is 11.9%, outperforming U.S. Large Cap by 2.1%. The annualized compound return of U.S. Large Value is 10.6%, outperforming U.S. Large Growth by 1.2%. Figure 1 Growth of $1 Jan. 1, 1927 Dec. 31, 2014 in Total U.S. Index and Bond Index $10,000 $1,000 $100 $10 Compound Annual Return Fama/French Total U.S. Index 10% Long-Term Government Bonds 5.6% One-Month U.S. Treasury Bills 3.5% U.S. Consumer Price Index 3.0% $4,520 $125 $20 $13 $1 $0 1927 1948 1970 1992 2014 Risks associated with investing in stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. Indexes are unmanaged baskets of securities that investors cannot directly invest in. Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1927 and kept invested through December 31, 2014. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. Total returns in U.S. dollars. Long Term Government Bonds, and Consumer Price Index (inflation), 1 month T-Bills and Fama/French index data: Dimensional Returns version 2.3. 3 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Figure 2 Growth of $1 Jan. 1, 1927 Dec. 31, 2014 in U.S. Indexes U.S. Large Cap/Small Cap Index U.S. Large Growth/Value Index $20,000 $18,374 $15,000 $10,000 $6,619 $5,000 $3,775 $4,510 $2,814 $4,510 $0 U.S. Large Cap CRSP Deciles 1-5 Index Total U.S. Fama/French Total U.S. Index Portfolio U.S. Small Cap CRSP Deciles 6-10 Index U.S. Large Growth Fama/French U.S. Large Growth Index (ex utilities) Total U.S. Fama/French Total U.S. Index Portfolio U.S. Large Value Fama/French U.S. Large Value Index (ex Utilities) Annualized Compound Return 9.8% 10.0% 11.8% 9.4% 10.0% 10.5% Annualized Standard Deviation 18.3% 18.5% 27.0% 18.6% 18.5% 26.0% Risks associated with investing in stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. Indexes are unmanaged baskets of securities that investors cannot directly invest in. Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1927 and kept invested through December 31, 2014. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. Total returns in U.S. dollars. CRSP Indexes and Fama/French Indexes: Dimensional Returns version 2.3. Figure 3 Growth of $1 Jan. 1, 1975 Dec. 31, 2014 in International Indexes $300 $264 $250 $218 $200 $150 $100 $50 $29 $48 $0 International Large Growth Fama/French International Growth Index International Large Cap. MSCI EAFE Index (Net Div.) International Small Cap Dimensional International Small Cap Index International Large Value Fama/French International Value Index Annualized Compound Return 8.8% 10.1% 15.0% 14.4% Annualized Standard Deviation 17.3% 17.3% 17.8% 18.6% Risks associated with investing in stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. Indexes are unmanaged baskets of securities that investors cannot directly invest in. Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1975 and kept invested through December 31, 2014 Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. Total returns in U.S. dollars. MSCI EAFE Index, Dimensional International Small Cap Index, and Fama/French Indexes: Dimensional Returns version 2.3. 4 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Figure 4 Growth of $1 Jan. 1, 1989 - Dec. 31, 2014 in Emerging s Indexes $40 $32 $30 $20 $16 $21 $10 $11 $0 Emerging s Fama/French Emerging s Growth Index Emerging s Fama/French Emerging s Index Emerging s Small Cap Fama/French Emerging s Small Cap Index Emerging s Value Fama/French Emerging s Value Index Annualized Compound Return 9.8% 11.3% 12.5% 14.3% Annualized Standard Deviation 22.7% 23.0% 23.9% 25.0% Risks associated with investing in stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. Indexes are unmanaged baskets of securities that investors cannot directly invest in. Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1989 and kept invested through December 31, 2014 Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. Total returns in U.S. dollars. Fama/French Indexes: Dimensional Returns version 2.3. International markets and emerging markets involve additional risks, including, but not limited to, currency fluctuation, political instability, foreign taxes, and different methods of accounting and financial reporting. As a result, they may not be suitable investment options for everyone. 5 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
The 60-month annualized market premium is the difference between the annualized compound Fama/French U.S. Index return and the annualized compound 1-month T-Bills return over the trailing 60-month period. The 60-month annualized small premium is the difference between the annualized compound CRSP Deciles 6-10 Index return and the annualized compound CRSP Deciles 1-5 Index return over the trailing 60-month period. The 60-month annualized value premium is the difference between the annualized compound Fama/French Large Value (ex-utilities) Index return and the annualized compound Fama/French Large Growth (ex-utilities) Index return over the trailing 60-month period. Figure 5 Rolling 60-Month Annualized Premium 40% 30% 20% 10% 0% -10% -20% Rolling 60-Month Annualized Excess Return of Fama/French Total U.S. Index over 1-Month T-Bills Rolling 60-Month Average Rolling 60-Month Annualized Excess Return: Max = 35.0% Min = -21.8% Average = 6.3% -30% Dec. 1931 Dec. 1941 Dec. 1951 Dec. 1961 Dec. 1971 Dec. 1981 Dec. 1991 Dec. 2001 Dec. 2011 Dec. 2014 Risks associated with investing in stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. Indexes are unmanaged baskets of securities that investors cannot directly invest in. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. Total returns in U.S. dollars. The Fama/French data and 1 month T-Bills are from Dimensional Returns version 2.3. Figure 6 Rolling 60-Month Annualized Small Cap Premium 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Rolling 60-Month Annualized Excess Return of CRSP Deciles 6-10 Index over CRSP Deciles 1-5 Index Rolling 60-Month Average Rolling 60-Month Annualized Excess Return: Max = 26.4% Min = -13.7% Average = 2.7% Dec. 1931 Dec. 1941 Dec. 1951 Dec. 1961 Dec. 1971 Dec. 1981 Dec. 1991 Dec. 2001 Dec. 2011 Dec. 2014 End Date of the 60-Month Period The risks associated with investing in stocks and overweighting small company and value stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. Indexes are unmanaged baskets of securities that investors cannot directly invest in. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. Total returns in U.S. dollars. The CRSP data is from Dimensional Returns version 2.3. 6 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Figure 7 Rolling 60-Month Annualized Value Premium Rolling 60-Month Annualized Excess Return of FF Large Value (ex Utilities) Index over FF Large Growth (ex Utilities) Index Rolling 60-Month Average 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Dec. 1931 Dec. 1941 Dec. 1951 Dec. 1961 Dec. 1971 Dec. 1981 Dec. 1991 End Date of the 60-Month Period Dec. 2001 Dec. 2011 Dec. 2014 Rolling 60-Month Annualized Excess Return: Max = 21.3% Min = -17.7% Average = 1.8% The risks associated with investing in stocks and overweighting small company and value stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. Indexes are unmanaged baskets of securities that investors cannot directly invest in. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. Total returns in U.S. dollars. The Fama/French data is from Dimensional Returns version 2.3. We believe in utilizing asset class managed portfolios to capture asset class rates of returns. Our research shows that active managers on average underperform due to the higher fees they generally charge for their services and increased transaction costs from high turnover within the funds. 3 We utilize low-cost, institutional mutual funds in our program. The funds are managed by Dimensional Fund Advisors. By limiting access to these funds to only institutions and investors that work with approved financial advisors, Dimensional is able to maintain low cash drag and minimize transaction costs within the funds. Another advantage of Dimensional s strategy is its asset class purity. Asset classes are tightly controlled such that any drift away from the stated asset class style and market capitalization is minimized. This allows the style tilts to be controlled more precisely while constructing the portfolios. In addition, the structure of Dimensional s funds provides the flexibility to buy and sell stocks at the most favorable prices rather than at specific times and in specific quantities. Most other funds, including index funds and traditional actively-managed funds, prioritize the timing of trades they have to trade these stocks on this day. This approach requires them to demand liquidity in the marketplace and trade at the prevailing prices. The Dimensional approach gives traders the flexibility to provide liquidity in the marketplace and often earn the difference between what buyers are bidding for stocks and what sellers are asking. The process applies Fama-French research and multi-factor modeling to emphasize value and small cap asset classes in both U.S. and International markets. 4 Real Estate Investment Trusts (REITs) and emerging markets asset classes have been included in our portfolio models to provide enhanced diversification and risk-adjusted returns. 5 By constructing a broadly diversified global market portfolio and emphasizing value and small cap asset classes, the models attempt to minimize risk for a given level of return. The purpose of any asset allocation modeling technique is to determine, with greatest accuracy, the mix of asset classes that will produce the most satisfactory result for the investor during some future investment period. Historically, many investors have relied on the classical Mean-Variance Optimization (MVO) technique to construct efficient portfolios based on Markowitz portfolio theory. MVO produces an efficient frontier of portfolios, or hypothetical assets mixes, that offer the maximum return for each given level of risk. Loring Ward recognizes that there are limitations to the MVO approach. A classical optimization framework does not capture behavioral factors that need to be addressed. MVO only considers one source of risk when constructing portfolios the volatility of expected returns, when in actuality clients consider many sources of risk. Therefore, Loring Ward asset allocation models integrate the best of MVO and behavioral finance theory, incorporating the latest academic research on markets and investment behavior. 7 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Loring Ward uses MVO as a first step to determine efficient asset mixes for each risk level based on historical returns, volatility and correlation measures. However, instead of using a mean-variance optimizer to arrive at the final mixes for the individual client, Loring Ward has designed an integrated process to select asset allocation mixes that lie near the efficient frontier based on individual client behavioral factors. Real estate securities funds are subject to changes in economic conditions, credit risk and interest rate fluctuations. Figure 8 Efficient Range Asset Class Portfolios Historical Risk and Returns Jan. 1972 - Dec. 2014 All investments involve risk, including the loss of principal, and cannot be guaranteed against loss by a bank, custodian, or any other financial institution. Diversification neither assures a profit nor guarantees against loss in a declining market. The ideal portfolio for each client exists within the efficient range and is constructed layer by layer with a focus on investor preferences, aversions and other behavioral considerations. Loring Ward has worked closely with academics of behavioral finance theory in developing this process, specifically with Meir Statman, a leader in the field of behavioral finance. 6 Mean-variance investors evaluate portfolios as a whole; they consider covariances between assets as they construct their portfolios. Mean-variance investors also have consistent attitudes toward risk; they are always averse to risk. Behavioral investors build portfolios as pyramids of assets, layer by layer. Meir Statman, Glenn Klimek Professor of Finance Santa Clara University, Behaviorial Finance: Past Battles and Future Engagements, Financial Analysts Journal (November/December 1999), Investment Committee Member, Loring Ward We can engineer the greatest portfolios in the world, but if investors can t tolerate them, they ll be sold and go to waste. Alex Potts, President & Chief Executive Officer, Loring Ward 8 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Portfolio Construction Process The portfolio design steps include establishing the equity to fixed income ratio, domestic to international equity allocation and determining the appropriate small cap and value tilts. Portfolio Risk Classification: Equity/Fixed Income One of the most important steps in the client investment process is to select a target risk level based on the appropriate equity-to-fixed income ratio. As this ratio affects what portion of the account is exposed to the volatile equity markets, it is one that must be determined with care and in context of the goals and necessities of the client. Risk tolerance is the dominant factor in determining the appropriate risk classification. Factors used to determine the most appropriate portfolio risk classification are based on the client s investment time horizon, portfolio income requirements and risk tolerance. The first step of the portfolio modeling process begins with the selection of one of seven equity/fixed income portfolios representing various risk classifications with equity allocations ranging from 25 to 98 percent. Table 1 Loring Ward Portfolios Equity/ Fixed Income Allocations Risk Classification Equity / Fixed Income % Defensive 25/75 Conservative 40/60 Balanced 50/50 Moderate 65/35 Moderate Growth 75/25 Capital Appreciation 85/15 Equity 98/2 Note: The cash allocation ranges from 4 percent for the more conservative models to a target 2 percent for the more aggressive models (subject to rounding). We use short-term, high quality fixed income because taking additional credit risk or maturity risk in fixed income results in equity-like volatility without the additional premium that equities provide. We view the role of fixed income in the portfolio as a risk reducer. We believe that if an investor is willing to accept additional risk, they should accept risk in the equity markets where the returns are generally more commensurate with the additional risk taken. The equity strategy focuses on investing in the three dimensions of expected return: market (stocks outperform bonds), value (value outperforms growth), and size (small cap stocks outperform large cap stocks). These dimensions provide investors with returns over time that adequately compensate investors for the additional risk inherent in the stock market as a whole, and value and small cap stocks in particular. An equity portfolio with multiple dimensions of return is combined with a short-term (1- to 5-year average maturity), high quality fixed income portfolio in varying degrees to meet target risk and return objectives for each risk classification. 9 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
U.S./International Equity Portfolio Sets The next step of our portfolio modeling process is the allocation of equity between U.S. and International investments by selecting one of five portfolio sets representing various international equity allocations ranging from 20 to 60 percent, depending on the investor s attitude toward international investing. Table 2 U.S./International Equity Portfolio Sets Portfolio Set U.S. Equity/International Equity % 80 80/20 70 70/30 60 60/40 50 50/50 40 40/60 Note: These are target allocations, actual allocations may differ due to rounding. Loring Ward recommends an allocation of 40% to international equity. Several factors support our recommended allocation of 40% international investments for the Global Portfolio Series. Our MVO results favor approximately 35% to 50% to international equity across the risk spectrum based on the risk characteristics and correlation. The U.S. accounts for less than half of the world s market capitalization, and this percentage continues to shrink. Approximately 95% of the world population lives outside of the U.S., and 72% of the world s gross domestic product (GDP) is generated outside of the U.S. There are 49 developed countries around the world with more than 37,000 publicly-traded securities in which to find investment opportunities. Some major industrial sectors have come to be dominated by non-u.s. companies. For example, 91% of the world s capitalization for construction materials is outside the U.S. Data sources: World Federation of Exchanges (January 2008); Impact of an Aging Population on the Global Economy Jeremy J. Siegel CFA Institute Conference Proceedings Quarterly (09/07); World Federation of Exchanges (January 2008); U.S. Census Bureau (January 2006) Equity Model Series: Value and Small Cap Value and small tilts relative to the market are incorporated to different degrees reflecting academic theory and the firm s philosophy of a long-term premium for value and small cap investing. In accordance with the Fama-French Three-Factor Model, expected returns may be increased with higher allocations to value and small cap asset classes, albeit with greater risk associated with these dimensions. Figure 9 Expected Return and Value/Small Tilts Small Growth (LowBtM) Value (High BtM) Total Stock Large For illustrative purposes only and not indicative of any investment. 10 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
The next step of our portfolio modeling process is the degree of value and small tilts by selecting one of nine value/ small allocation parameters representing various U.S. and International value and small allocations. Allocations vary from 20% to 40% in U.S. Value, 15% to 25% in U.S. Small, and 20% to 30% in International Small. Table 3 Value/Small Tilt Parameters Parameter U.S. Equity Relative Exposure U.S. Large Value U.S. Small Cap REITs International Equity Relative Exposure Int l Large Value Int l Small Cap EM Value 1 55% 20% 15% 10% 65% 20% 15% 2 45% 30% 15% 10% 65% 20% 15% 3 35% 40% 15% 10% 65% 20% 15% 4 50% 20% 20% 10% 60% 25% 15% 5 40% 30% 20% 10% 60% 25% 15% 6 30% 40% 20% 10% 60% 25% 15% 7 45% 20% 25% 10% 55% 30% 15% 8 35% 30% 25% 10% 55% 30% 15% 9 25% 40% 25% 10% 55% 30% 15% Note: These are target allocations, actual allocations may differ due to rounding. Parameters 1, 2, and 3 have the same small tilt, but varying degree of value tilt with 3 being the highest. Parameters 1, 4, and 7 have the same value tilt, but varying degree of small tilt with 7 being the highest. Figure 10 shows the relative degree of small/value tilt of the nine parameters. Figure 10 Value/Small 9-Grid Style Box Constructing portfolios with value and small tilts is a function of measuring the appropriate return and risk trade-off for clients. Small Investor behavioral factors are also important considerations because some clients may not have the tolerance to withstand 5-year market 7 8 9 cycles or longer when value or small cap may be out-of-favor. The 4 5 6 Global Portfolio Series is weighted with 30% U.S. value and 20% U.S. small which represents a moderate tilt to value and small, 1 2 3 Growth Value which we consider to be most appropriate for the average investor (LowBtM) (High BtM) based on the return and risk trade-off and investment behaviors and Total Stock preferences. It is also the series most often selected by clients based on comfort with the trade-off between return and risk. We monitor the client selection of these models within our full Investment Planning Large Center and historical experience and statistics support this average client preference. International allocations in the Global Portfolio Series consist of 25% International Small, 15% Emerging s, and the balance of international equities is allocated to International Value due to our belief that the international value securities provide better diversification benefits to U.S. investors than the broader developed international markets. We find market-like allocations to international equities may not provide enough diversification benefits to U.S. investors to justify investing internationally because the broad international market may be highly correlated with the broad U.S. market and has similar expected returns as the U.S. equity market. On the other hand, tilting an international portfolio toward small and value stocks is likely to produce the higher average returns and diversification benefits. The correlations between asset classes are shown in Table 6 and the asset class performance is in Table 7. 11 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
The remaining U.S. equities are allocated to the broad U.S. equity market, and a 10% allocation to Real Estate Investment Trusts. Real Estate Investment Trusts are included as a separate asset in the Global Portfolio Series because REIT securities are excluded from all other equity asset classes in the portfolio (i.e. U.S. Small Cap Fund excludes REIT securities although the Russell 2000 Index includes REIT securities at approximately 7% of the Index). REITs and Emerging s Asset Classes The target allocation to emerging markets was determined to be 13% to 21% of total international equity, and is funded with the international large cap allocation. The emerging markets allocation is limited to 11% of the total portfolio given the high volatility and risk characteristics associated with the asset classes. The minimum allocation is 2%. If the allocation does not meet the 2% minimum, it is reallocated back to international large value. The allocation to REITs is subject to a minimum of 2% of the total portfolio. The emerging markets asset class is subject to a minimum of 2% of the total portfolio in risk classifications Balanced through Equity. The Defensive and Conservative portfolios are not subject to a minimum emerging markets allocation. Factors such as trading costs and total portfolio impact were considered when determining minimum allocations. For example, a 1% portfolio allocation would have very little impact on total portfolio performance, while the transaction costs per trade would be relatively high, particularly for smaller accounts. Portfolio Construction Rules The following rules apply in the construction of the models: A minimum 2% allocation to REITs is applied to all the model portfolios. A minimum 2% allocation to emerging markets is applied to all model portfolios in the Balanced classification and higher. The REITs allocation is taken from the U.S. asset class. Small cap allocations for the domestic and international equity portfolio are taken from U.S. and International Large Value asset classes. The emerging markets allocation is taken from the International Large Value asset class. With exception to the rules above, a portfolio allocation of less than 2% of total portfolio will be zeroed out and added back to the asset class from which it came. Portfolio allocations are rounded up or down to the nearest whole percentage. Portfolio Rebalance Dissimilar asset class returns in a portfolio can cause the asset allocation to drift away from its target over time. It is important to manage risk by maintaining the proper allocation of the portfolio through rebalancing. Our research shows that rebalancing can improve the returns and reduce the risk of a portfolio. For the five-year period from December 2007 through November 2012, a portfolio with 50% in stocks and 50% in bonds that was rebalanced annually to its target allocation would have earned an almost 1.5% greater annualized return than the same portfolio that was not rebalanced at all during the five-year period. 7 The buying and selling of securities for the purpose of rebalancing may have adverse tax consequences. 12 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Portfolio Asset Allocations With seven levels of risk classifications (Table 1), five levels of U.S./International equity mix (Table 2), and nine levels of value/small tilts (Table 3), a total of 315 portfolio models are available for investors. The portfolio asset class allocations for each of the 315 models are shown in Appendix A. The model portfolio follows the naming convention: <Risk Characteristics> <Percentage of Total Equity in U.S. Equity>-<Value/Small Tilt Parameter> The Global Portfolio Series is a sub-set of seven portfolios with a 60%/40% allocation in U.S./International equity and a moderate value/small tilt (Parameter 5 in Table 3.) Their allocations are shown in Table 4. Table 4 Global Portfolio Series Allocations Asset Class Defensive 60-5 Conservative 60-5 Balanced 60-5 Moderate 60-5 Moderate Growth 60-5 Capital Appreciation 60-5 Equity 60-5 Money 4% 3% 3% 2% 2% 2% 2% Fixed Income 71% 57% 47% 33% 23% 13% 0% Total Fixed Income 75% 60% 50% 35% 25% 15% 2% 5% 10% 12% 15% 18% 21% 23% Value 5% 7% 9% 12% 14% 15% 18% Small 3% 5% 6% 8% 9% 10% 12% REIT 3% 3% 3% 4% 5% 5% 6% Domestic Equity 16% 25% 30% 39% 46% 51% 59% Int l Large 7% 9% 11% 14% 15% 18% 21% Int l Small 2% 4% 5% 7% 8% 9% 10% Emerging s International Equity 0% 2% 4% 5% 6% 7% 8% 9% 15% 20% 26% 29% 34% 39% Total Equity 25% 40% 50% 65% 75% 85% 98% Total 100% 100% 100% 100% 100% 100% 100% 13 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Portfolio Performance Asset Class portfolio and benchmark performance is calculated using the following indexes as proxies for each asset class. Table 5 Asset Class Index used in Performance Calculation Asset Class Performance Index Benchmark Index Money One-Month Treasury Bills 1972 1982: 5 Yr T-Notes 1983 Present: BofAML TRSY/ AGCS 1-3 Yr Fixed Income 1972 1984: 5 Yr T-Notes 1985 1986: 50% 5 Yr T-Notes and 50% Citigroup WGBI 1-5 Years (hdg) 1987 Present: 50% BofA ML 1-3 yr Corp/Govt Index and 50% Citigroup WGBI 1-5 Years (hdg) 1972 1982: 5 Yr T-Notes 1983 Present: BofAML TRSY/ AGCS 1-3 Yr CRSP Deciles 1-10 Index (market) S&P 500 TR Value Fama/French Large Value Index (ex utilities) S&P 500 TR Small CRSP Deciles 6-10 Index S&P 500 TR REIT FTSE NAREIT Equity REITS TR S&P 500 TR International Value 1972 1974: MSCI EAFE NR 1975 Present: Fama/French International Value Index MSCI EAFE NR International Small Dimensional International Small Cap Index MSCI EAFE NR Emerging s 1972 1987: MSCI Pacific ex-japan 1988 1998: MSCI Emerging s Index (gross div.) MSCI EAFE NR 1999 Present: MSCI Emerging s Index (net div.) International MSCI EAFE NR MSCI EAFE NR Table 6 Asset Class Correlations January 1972 - December 2014 Fixed Income Fixed Income 1.00 Value Small Int l Value Int l Small REIT EM Int l 0.14 1.00 Value 0.11 0.87 1.00 Small 0.07 0.88 0.80 1.00 Int'l Value 0.08 0.60 0.62 0.55 1.00 Int'l Small 0.06 0.52 0.51 0.52 0.88 1.00 REIT 0.07 0.59 0.64 0.65 0.50 0.43 1.00 EM -0.02 0.62 0.56 0.61 0.66 0.61 0.44 1.00 Int'l 0.11 0.63 0.59 0.56 0.94 0.88 0.46 0.66 1.00 14 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Figure 11 Scatter Plot of Correlation Matrix Table 7 Asset Class Performance January 1972 - December 2014 Fixed Income Value Small Int l Value Int l Small REIT EM Int l Annualized Return 6.57% 10.62% 11.13% 12.47% 13.03% 13.88% 12.22% 11.03% 9.11% Standard Deviation 4.21% 15.69% 19.32% 21.18% 18.56% 17.97% 17.15% 25.08% 17.25% Indexes are unmanaged baskets of securities in which investors cannot directly invest; they do not reflect the payment of advisory fees or other expenses associated with specific investments or the management of an actual portfolio. Past performance does not guarantee future results and the principal value of an investment will fluctuate so that an investor s shares, when redeemed, may be worth more or less than their original cost. Figure 12 Asset Class Portfolio Historical Risk and Return Characteristics January 1972 - December 2014 Annualized Return 13% Equity Capital Appreciation 12% Moderate Growth Moderate 11% Balanced 10% Conservative 9% Defensive 8% Asset Class Portfolio Benchmark 7% 3% 5% 7% 9% 11% 13% 15% 17% 19% 21% Standard Deviation The return assumptions in this chart are not reflective of any specific product, and do not include any fees or expenses that may be incurred by investing in specific products. The actual returns of a specific product may be more or less than the returns used in this report. They should not be considered a guarantee of future performance or a guarantee of achieving overall financial objectives. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment The asset class portfolios hold asset class percentages constant by rebalancing the portfolios at the beginning of each calendar year. The buying and selling of securities for the purpose of rebalancing may have adverse tax consequences. 15 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Table 8 Global Portfolio Series Benchmark Definitions Asset Class Defensive Benchmark Conservative Benchmark Balanced Benchmark Moderate Benchmark Moderate Growth Benchmark Capital Appreciation Benchmark Equity Benchmark BofAML Trsy/Agcs 75% 60% 50% 35% 25% 15% 2% 1-3Yr S&P 500 16% 25% 30% 39% 46% 51% 59% MSCI EAFE 9% 15% 20% 26% 29% 34% 39% Total 100% 100% 100% 100% 100% 100% 100% Figure 12 illustrates the trade-off between risks and returns. Portfolios with higher allocation to stocks are generally more volatile and potentially have higher expected returns. Figure 12 shows the cumulative growth from 1972 to 2014 for the Defensive and Equity asset class portfolios. The Equity portfolio has 98% allocation to stocks while the Defensive portfolio has 25% allocation to stocks. As shown in Figure 13, the return series for the Equity portfolio is relatively more volatile, but the cumulative return is much higher than the Defensive portfolio. Figure 13 Historical Asset Class Portfolio Volatility Growth of a $1 January 1972 December 2014 Annual Returns $200 $150 $100 $50 Defensive (25% Stocks/75% Bonds) Equity (98% Stocks/2% Bonds) $0 1972 1982 1992 2002 2014 Hypothetical value of $1 invested at the beginning of 1972 and kept invested through December 31, 2014. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. The return assumptions in these charts are not reflective of any specific product, and do not include any fees or expenses that may be incurred by investing in specific products. The actual returns of a specific product may be more or less than the returns used in this report. They should not be considered a guarantee of future performance or a guarantee of achieving overall financial objectives. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment. 1 Dr. Harry Markowitz, winner of the Nobel Prize in Economics Sciences in 1990, is an active member of the Loring Ward Investment Committee. 2 Long term historical data indicates that value and small cap stocks have provided higher returns, but with higher risk or volatility. Source: Center for Research in Security Prices (CRSP). December 2013 3 Sharpe, William F., The Arithmetic of Active Management, The Financial Analysts Journal, Vol. 47, No. 1, January/February 1991. pp. 7-9. 4 Long term historical data indicates that value and small cap stocks have provided higher returns, but with higher risk or volatility. Source: Center for Research in Security Prices (CRSP). December 2013. 5 Historical data indicates that adding REIT and emerging market asset classes can lower volatility while increasing returns. Returns are based on index data in which one cannot directly invest. Past performance is no assurance of future results. Source: (CRSP). January 2010. 6 Statman, Meir, and Clark, Joni L., End the Charade: Replacing the Efficient Frontier with the Efficient Range," 2013, Journal of Financial Planning 27(7): 42-47. 7 Clark, Joni L, Get A free Snack from Portfolio Rebalancing, 2013, Loring Ward Portfolio Perspectives, January 2013. 16 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Dimensions of Expected Return and Portfolio Modeling Appendix Appendix A Portfolio Asset Allocations of 315 Models Appendix B Reference Guide Appendix C Benefits of Diversification An Example of Two Asset Classes 17 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Appendix A Portfolio Asset Allocations of 315 Models Model Money Fixed Income Value Small Int'l Large Int'l Small REIT EM Total Defensive 80-1 4% 71% 11% 4% 2% 5% 0% 3% 0% 100% Defensive 80-2 4% 71% 9% 6% 2% 5% 0% 3% 0% 100% Defensive 80-3 4% 71% 7% 8% 2% 5% 0% 3% 0% 100% Defensive 80-4 4% 71% 10% 4% 3% 5% 0% 3% 0% 100% Defensive 80-5 4% 71% 8% 6% 3% 5% 0% 3% 0% 100% Defensive 80-6 4% 71% 6% 8% 3% 5% 0% 3% 0% 100% Defensive 80-7 4% 71% 9% 4% 4% 5% 0% 3% 0% 100% Defensive 80-8 4% 71% 7% 6% 4% 5% 0% 3% 0% 100% Defensive 80-9 4% 71% 5% 8% 4% 5% 0% 3% 0% 100% Defensive 70-1 4% 71% 9% 4% 2% 7% 0% 3% 0% 100% Defensive 70-2 4% 71% 8% 5% 2% 7% 0% 3% 0% 100% Defensive 70-3 4% 71% 6% 7% 2% 7% 0% 3% 0% 100% Defensive 70-4 4% 71% 8% 4% 3% 7% 0% 3% 0% 100% Defensive 70-5 4% 71% 7% 5% 3% 7% 0% 3% 0% 100% Defensive 70-6 4% 71% 5% 7% 3% 7% 0% 3% 0% 100% Defensive 70-7 4% 71% 7% 4% 4% 7% 0% 3% 0% 100% Defensive 70-8 4% 71% 6% 5% 4% 7% 0% 3% 0% 100% Defensive 70-9 4% 71% 4% 7% 4% 7% 0% 3% 0% 100% Defensive 60-1 4% 71% 8% 3% 2% 7% 2% 3% 0% 100% Defensive 60-2 4% 71% 6% 5% 2% 7% 2% 3% 0% 100% Defensive 60-3 4% 71% 5% 6% 2% 7% 2% 3% 0% 100% Defensive 60-4 4% 71% 7% 3% 3% 7% 2% 3% 0% 100% Defensive 60-5 4% 71% 5% 5% 3% 7% 2% 3% 0% 100% Defensive 60-6 4% 71% 4% 6% 3% 7% 2% 3% 0% 100% Defensive 60-7 4% 71% 6% 3% 4% 7% 2% 3% 0% 100% Defensive 60-8 4% 71% 4% 5% 4% 7% 2% 3% 0% 100% Defensive 60-9 4% 71% 3% 6% 4% 7% 2% 3% 0% 100% Defensive 50-1 4% 71% 5% 3% 2% 10% 2% 3% 0% 100% Defensive 50-2 4% 71% 4% 4% 2% 10% 2% 3% 0% 100% Defensive 50-3 4% 71% 3% 5% 2% 10% 2% 3% 0% 100% Defensive 50-4 4% 71% 4% 3% 3% 9% 3% 3% 0% 100% Defensive 50-5 4% 71% 3% 4% 3% 9% 3% 3% 0% 100% Defensive 50-6 4% 71% 2% 5% 3% 9% 3% 3% 0% 100% Defensive 50-7 4% 71% 4% 3% 3% 8% 4% 3% 0% 100% Defensive 50-8 4% 71% 3% 4% 3% 8% 4% 3% 0% 100% Defensive 50-9 4% 71% 2% 5% 3% 8% 4% 3% 0% 100% Defensive 40-1 4% 71% 5% 2% 2% 11% 3% 2% 0% 100% Defensive 40-2 4% 71% 4% 3% 2% 11% 3% 2% 0% 100% Defensive 40-3 4% 71% 3% 4% 2% 11% 3% 2% 0% 100% Defensive 40-4 4% 71% 5% 2% 2% 10% 4% 2% 0% 100% Defensive 40-5 4% 71% 4% 3% 2% 10% 4% 2% 0% 100% Defensive 40-6 4% 71% 3% 4% 2% 10% 4% 2% 0% 100% Defensive 40-7 4% 71% 4% 2% 3% 10% 4% 2% 0% 100% Defensive 40-8 4% 71% 3% 3% 3% 10% 4% 2% 0% 100% Defensive 40-9 4% 71% 2% 4% 3% 10% 4% 2% 0% 100% 18 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Model Money Fixed Income Value Small Int'l Large Int'l Small REIT EM Total Conservative 80-1 3% 57% 17% 6% 5% 7% 0% 5% 0% 100% Conservative 80-2 3% 57% 13% 10% 5% 7% 0% 5% 0% 100% Conservative 80-3 3% 57% 10% 13% 5% 7% 0% 5% 0% 100% Conservative 80-4 3% 57% 16% 6% 6% 7% 0% 5% 0% 100% Conservative 80-5 3% 57% 12% 10% 6% 7% 0% 5% 0% 100% Conservative 80-6 3% 57% 9% 13% 6% 7% 0% 5% 0% 100% Conservative 80-7 3% 57% 14% 6% 8% 7% 0% 5% 0% 100% Conservative 80-8 3% 57% 10% 10% 8% 7% 0% 5% 0% 100% Conservative 80-9 3% 57% 7% 13% 8% 7% 0% 5% 0% 100% Conservative 70-1 3% 57% 13% 6% 5% 9% 2% 5% 0% 100% Conservative 70-2 3% 57% 11% 8% 5% 9% 2% 5% 0% 100% Conservative 70-3 3% 57% 8% 11% 5% 9% 2% 5% 0% 100% Conservative 70-4 3% 57% 12% 6% 6% 8% 3% 5% 0% 100% Conservative 70-5 3% 57% 10% 8% 6% 8% 3% 5% 0% 100% Conservative 70-6 3% 57% 7% 11% 6% 8% 3% 5% 0% 100% Conservative 70-7 3% 57% 11% 6% 7% 8% 3% 5% 0% 100% Conservative 70-8 3% 57% 9% 8% 7% 8% 3% 5% 0% 100% Conservative 70-9 3% 57% 6% 11% 7% 8% 3% 5% 0% 100% Conservative 60-1 3% 57% 13% 5% 4% 10% 3% 3% 2% 100% Conservative 60-2 3% 57% 11% 7% 4% 10% 3% 3% 2% 100% Conservative 60-3 3% 57% 9% 9% 4% 10% 3% 3% 2% 100% Conservative 60-4 3% 57% 12% 5% 5% 9% 4% 3% 2% 100% Conservative 60-5 3% 57% 10% 7% 5% 9% 4% 3% 2% 100% Conservative 60-6 3% 57% 8% 9% 5% 9% 4% 3% 2% 100% Conservative 60-7 3% 57% 10% 5% 6% 9% 5% 3% 2% 100% Conservative 60-8 3% 57% 8% 7% 6% 9% 5% 3% 2% 100% Conservative 60-9 3% 57% 6% 9% 6% 9% 5% 3% 2% 100% Conservative 50-1 3% 57% 10% 4% 3% 13% 4% 3% 3% 100% Conservative 50-2 3% 57% 8% 6% 3% 13% 4% 3% 3% 100% Conservative 50-3 3% 57% 6% 8% 3% 13% 4% 3% 3% 100% Conservative 50-4 3% 57% 9% 4% 4% 12% 5% 3% 3% 100% Conservative 50-5 3% 57% 7% 6% 4% 12% 5% 3% 3% 100% Conservative 50-6 3% 57% 5% 8% 4% 12% 5% 3% 3% 100% Conservative 50-7 3% 57% 8% 4% 5% 11% 6% 3% 3% 100% Conservative 50-8 3% 57% 6% 6% 5% 11% 6% 3% 3% 100% Conservative 50-9 3% 57% 4% 8% 5% 11% 6% 3% 3% 100% Conservative 40-1 3% 57% 9% 3% 2% 15% 5% 3% 3% 100% Conservative 40-2 3% 57% 7% 5% 2% 15% 5% 3% 3% 100% Conservative 40-3 3% 57% 6% 6% 2% 15% 5% 3% 3% 100% Conservative 40-4 3% 57% 8% 3% 3% 14% 6% 3% 3% 100% Conservative 40-5 3% 57% 6% 5% 3% 14% 6% 3% 3% 100% Conservative 40-6 3% 57% 5% 6% 3% 14% 6% 3% 3% 100% Conservative 40-7 3% 57% 7% 3% 4% 13% 7% 3% 3% 100% Conservative 40-8 3% 57% 5% 5% 4% 13% 7% 3% 3% 100% Conservative 40-9 3% 57% 4% 6% 4% 13% 7% 3% 3% 100% Balanced 80-1 3% 47% 22% 8% 6% 6% 2% 4% 2% 100% Balanced 80-2 3% 47% 18% 12% 6% 6% 2% 4% 2% 100% 19 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Model Money Fixed Income Value Small Int'l Large Int'l Small REIT EM Total Balanced 80-3 3% 47% 14% 16% 6% 6% 2% 4% 2% 100% Balanced 80-4 3% 47% 20% 8% 8% 5% 3% 4% 2% 100% Balanced 80-5 3% 47% 16% 12% 8% 5% 3% 4% 2% 100% Balanced 80-6 3% 47% 12% 16% 8% 5% 3% 4% 2% 100% Balanced 80-7 3% 47% 18% 8% 10% 5% 3% 4% 2% 100% Balanced 80-8 3% 47% 14% 12% 10% 5% 3% 4% 2% 100% Balanced 80-9 3% 47% 10% 16% 10% 5% 3% 4% 2% 100% Balanced 70-1 3% 47% 19% 7% 5% 9% 3% 4% 3% 100% Balanced 70-2 3% 47% 15% 11% 5% 9% 3% 4% 3% 100% Balanced 70-3 3% 47% 12% 14% 5% 9% 3% 4% 3% 100% Balanced 70-4 3% 47% 17% 7% 7% 8% 4% 4% 3% 100% Balanced 70-5 3% 47% 13% 11% 7% 8% 4% 4% 3% 100% Balanced 70-6 3% 47% 10% 14% 7% 8% 4% 4% 3% 100% Balanced 70-7 3% 47% 15% 7% 9% 8% 4% 4% 3% 100% Balanced 70-8 3% 47% 11% 11% 9% 8% 4% 4% 3% 100% Balanced 70-9 3% 47% 8% 14% 9% 8% 4% 4% 3% 100% Balanced 60-1 3% 47% 16% 6% 5% 12% 4% 3% 4% 100% Balanced 60-2 3% 47% 13% 9% 5% 12% 4% 3% 4% 100% Balanced 60-3 3% 47% 10% 12% 5% 12% 4% 3% 4% 100% Balanced 60-4 3% 47% 15% 6% 6% 11% 5% 3% 4% 100% Balanced 60-5 3% 47% 12% 9% 6% 11% 5% 3% 4% 100% Balanced 60-6 3% 47% 9% 12% 6% 11% 5% 3% 4% 100% Balanced 60-7 3% 47% 13% 6% 8% 10% 6% 3% 4% 100% Balanced 60-8 3% 47% 10% 9% 8% 10% 6% 3% 4% 100% Balanced 60-9 3% 47% 7% 12% 8% 10% 6% 3% 4% 100% Balanced 50-1 3% 47% 13% 5% 4% 15% 5% 3% 5% 100% Balanced 50-2 3% 47% 10% 8% 4% 15% 5% 3% 5% 100% Balanced 50-3 3% 47% 8% 10% 4% 15% 5% 3% 5% 100% Balanced 50-4 3% 47% 12% 5% 5% 14% 6% 3% 5% 100% Balanced 50-5 3% 47% 9% 8% 5% 14% 6% 3% 5% 100% Balanced 50-6 3% 47% 7% 10% 5% 14% 6% 3% 5% 100% Balanced 50-7 3% 47% 11% 5% 6% 13% 7% 3% 5% 100% Balanced 50-8 3% 47% 8% 8% 6% 13% 7% 3% 5% 100% Balanced 50-9 3% 47% 6% 10% 6% 13% 7% 3% 5% 100% Balanced 40-1 3% 47% 11% 4% 3% 18% 6% 2% 6% 100% Balanced 40-2 3% 47% 9% 6% 3% 18% 6% 2% 6% 100% Balanced 40-3 3% 47% 7% 8% 3% 18% 6% 2% 6% 100% Balanced 40-4 3% 47% 10% 4% 4% 16% 8% 2% 6% 100% Balanced 40-5 3% 47% 8% 6% 4% 16% 8% 2% 6% 100% Balanced 40-6 3% 47% 6% 8% 4% 16% 8% 2% 6% 100% Balanced 40-7 3% 47% 9% 4% 5% 15% 9% 2% 6% 100% Balanced 40-8 3% 47% 7% 6% 5% 15% 9% 2% 6% 100% Balanced 40-9 3% 47% 5% 8% 5% 15% 9% 2% 6% 100% Moderate 80-1 2% 33% 29% 10% 8% 8% 3% 5% 2% 100% Moderate 80-2 2% 33% 23% 16% 8% 8% 3% 5% 2% 100% Moderate 80-3 2% 33% 18% 21% 8% 8% 3% 5% 2% 100% Moderate 80-4 2% 33% 27% 10% 10% 8% 3% 5% 2% 100% 20 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Model Money Fixed Income Value Small Int'l Large Int'l Small REIT EM Total Moderate 80-5 2% 33% 21% 16% 10% 8% 3% 5% 2% 100% Moderate 80-6 2% 33% 16% 21% 10% 8% 3% 5% 2% 100% Moderate 80-7 2% 33% 24% 10% 13% 7% 4% 5% 2% 100% Moderate 80-8 2% 33% 18% 16% 13% 7% 4% 5% 2% 100% Moderate 80-9 2% 33% 13% 21% 13% 7% 4% 5% 2% 100% Moderate 70-1 2% 33% 25% 9% 7% 12% 4% 5% 3% 100% Moderate 70-2 2% 33% 20% 14% 7% 12% 4% 5% 3% 100% Moderate 70-3 2% 33% 16% 18% 7% 12% 4% 5% 3% 100% Moderate 70-4 2% 33% 23% 9% 9% 11% 5% 5% 3% 100% Moderate 70-5 2% 33% 18% 14% 9% 11% 5% 5% 3% 100% Moderate 70-6 2% 33% 14% 18% 9% 11% 5% 5% 3% 100% Moderate 70-7 2% 33% 21% 9% 11% 11% 5% 5% 3% 100% Moderate 70-8 2% 33% 16% 14% 11% 11% 5% 5% 3% 100% Moderate 70-9 2% 33% 12% 18% 11% 11% 5% 5% 3% 100% Moderate 60-1 2% 33% 21% 8% 6% 16% 5% 4% 5% 100% Moderate 60-2 2% 33% 17% 12% 6% 16% 5% 4% 5% 100% Moderate 60-3 2% 33% 13% 16% 6% 16% 5% 4% 5% 100% Moderate 60-4 2% 33% 19% 8% 8% 14% 7% 4% 5% 100% Moderate 60-5 2% 33% 15% 12% 8% 14% 7% 4% 5% 100% Moderate 60-6 2% 33% 11% 16% 8% 14% 7% 4% 5% 100% Moderate 60-7 2% 33% 17% 8% 10% 13% 8% 4% 5% 100% Moderate 60-8 2% 33% 13% 12% 10% 13% 8% 4% 5% 100% Moderate 60-9 2% 33% 9% 16% 10% 13% 8% 4% 5% 100% Moderate 50-1 2% 33% 18% 7% 5% 19% 7% 3% 6% 100% Moderate 50-2 2% 33% 15% 10% 5% 19% 7% 3% 6% 100% Moderate 50-3 2% 33% 12% 13% 5% 19% 7% 3% 6% 100% Moderate 50-4 2% 33% 16% 7% 7% 18% 8% 3% 6% 100% Moderate 50-5 2% 33% 13% 10% 7% 18% 8% 3% 6% 100% Moderate 50-6 2% 33% 10% 13% 7% 18% 8% 3% 6% 100% Moderate 50-7 2% 33% 14% 7% 8% 17% 10% 3% 6% 100% Moderate 50-8 2% 33% 11% 10% 8% 17% 10% 3% 6% 100% Moderate 50-9 2% 33% 8% 13% 8% 17% 10% 3% 6% 100% Moderate 40-1 2% 33% 14% 5% 4% 24% 8% 3% 7% 100% Moderate 40-2 2% 33% 11% 8% 4% 24% 8% 3% 7% 100% Moderate 40-3 2% 33% 9% 10% 4% 24% 8% 3% 7% 100% Moderate 40-4 2% 33% 13% 5% 5% 22% 10% 3% 7% 100% Moderate 40-5 2% 33% 10% 8% 5% 22% 10% 3% 7% 100% Moderate 40-6 2% 33% 8% 10% 5% 22% 10% 3% 7% 100% Moderate 40-7 2% 33% 12% 5% 6% 20% 12% 3% 7% 100% Moderate 40-8 2% 33% 9% 8% 6% 20% 12% 3% 7% 100% Moderate 40-9 2% 33% 7% 10% 6% 20% 12% 3% 7% 100% Moderate Growth 80-1 2% 23% 33% 12% 9% 9% 3% 6% 3% 100% Moderate Growth 80-2 2% 23% 27% 18% 9% 9% 3% 6% 3% 100% Moderate Growth 80-3 2% 23% 21% 24% 9% 9% 3% 6% 3% 100% Moderate Growth 80-4 2% 23% 30% 12% 12% 8% 4% 6% 3% 100% Moderate Growth 80-5 2% 23% 24% 18% 12% 8% 4% 6% 3% 100% Moderate Growth 80-6 2% 23% 18% 24% 12% 8% 4% 6% 3% 100% 21 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only
Model Money Fixed Income Value Small Int'l Large Int'l Small REIT EM Total Moderate Growth 80-7 2% 23% 27% 12% 15% 7% 5% 6% 3% 100% Moderate Growth 80-8 2% 23% 21% 18% 15% 7% 5% 6% 3% 100% Moderate Growth 80-9 2% 23% 15% 24% 15% 7% 5% 6% 3% 100% Moderate Growth 70-1 2% 23% 29% 11% 8% 13% 5% 5% 4% 100% Moderate Growth 70-2 2% 23% 24% 16% 8% 13% 5% 5% 4% 100% Moderate Growth 70-3 2% 23% 19% 21% 8% 13% 5% 5% 4% 100% Moderate Growth 70-4 2% 23% 26% 11% 11% 12% 6% 5% 4% 100% Moderate Growth 70-5 2% 23% 21% 16% 11% 12% 6% 5% 4% 100% Moderate Growth 70-6 2% 23% 16% 21% 11% 12% 6% 5% 4% 100% Moderate Growth 70-7 2% 23% 24% 11% 13% 11% 7% 5% 4% 100% Moderate Growth 70-8 2% 23% 19% 16% 13% 11% 7% 5% 4% 100% Moderate Growth 70-9 2% 23% 14% 21% 13% 11% 7% 5% 4% 100% Moderate Growth 60-1 2% 23% 25% 9% 7% 17% 6% 5% 6% 100% Moderate Growth 60-2 2% 23% 20% 14% 7% 17% 6% 5% 6% 100% Moderate Growth 60-3 2% 23% 16% 18% 7% 17% 6% 5% 6% 100% Moderate Growth 60-4 2% 23% 23% 9% 9% 15% 8% 5% 6% 100% Moderate Growth 60-5 2% 23% 18% 14% 9% 15% 8% 5% 6% 100% Moderate Growth 60-6 2% 23% 14% 18% 9% 15% 8% 5% 6% 100% Moderate Growth 60-7 2% 23% 21% 9% 11% 14% 9% 5% 6% 100% Moderate Growth 60-8 2% 23% 16% 14% 11% 14% 9% 5% 6% 100% Moderate Growth 60-9 2% 23% 12% 18% 11% 14% 9% 5% 6% 100% Moderate Growth 50-1 2% 23% 20% 8% 6% 22% 8% 4% 7% 100% Moderate Growth 50-2 2% 23% 17% 11% 6% 22% 8% 4% 7% 100% Moderate Growth 50-3 2% 23% 13% 15% 6% 22% 8% 4% 7% 100% Moderate Growth 50-4 2% 23% 18% 8% 8% 21% 9% 4% 7% 100% Moderate Growth 50-5 2% 23% 15% 11% 8% 21% 9% 4% 7% 100% Moderate Growth 50-6 2% 23% 11% 15% 8% 21% 9% 4% 7% 100% Moderate Growth 50-7 2% 23% 17% 8% 9% 19% 11% 4% 7% 100% Moderate Growth 50-8 2% 23% 14% 11% 9% 19% 11% 4% 7% 100% Moderate Growth 50-9 2% 23% 10% 15% 9% 19% 11% 4% 7% 100% Moderate Growth 40-1 2% 23% 16% 6% 5% 28% 9% 3% 8% 100% Moderate Growth 40-2 2% 23% 13% 9% 5% 28% 9% 3% 8% 100% Moderate Growth 40-3 2% 23% 10% 12% 5% 28% 9% 3% 8% 100% Moderate Growth 40-4 2% 23% 15% 6% 6% 26% 11% 3% 8% 100% Moderate Growth 40-5 2% 23% 12% 9% 6% 26% 11% 3% 8% 100% Moderate Growth 40-6 2% 23% 9% 12% 6% 26% 11% 3% 8% 100% Moderate Growth 40-7 2% 23% 13% 6% 8% 23% 14% 3% 8% 100% Moderate Growth 40-8 2% 23% 10% 9% 8% 23% 14% 3% 8% 100% Moderate Growth 40-9 2% 23% 7% 12% 8% 23% 14% 3% 8% 100% Capital Appreciation 80-1 2% 13% 37% 14% 10% 11% 3% 7% 3% 100% Capital Appreciation 80-2 2% 13% 31% 20% 10% 11% 3% 7% 3% 100% Capital Appreciation 80-3 2% 13% 24% 27% 10% 11% 3% 7% 3% 100% Capital Appreciation 80-4 2% 13% 34% 14% 13% 10% 4% 7% 3% 100% Capital Appreciation 80-5 2% 13% 28% 20% 13% 10% 4% 7% 3% 100% Capital Appreciation 80-6 2% 13% 21% 27% 13% 10% 4% 7% 3% 100% Capital Appreciation 80-7 2% 13% 30% 14% 17% 9% 5% 7% 3% 100% Capital Appreciation 80-8 2% 13% 24% 20% 17% 9% 5% 7% 3% 100% 22 Dimensions of Expected Return and Portfolio Modeling For Advisor Use Only