Constructing Your Investment Portfolio Advanced

Constructing Your Investment Portfolio Advanced Strategies to Reduce Volatility and Enhance Returns 2014 FPANY s 12 th Annual Financial Fitness Workshop Presented by: Lewis J. Altfest, CFP, CFA, CPA, PFS Chief Investment Officer and Principal Advisor Andrew Altfest Executive Vice President September 27, 2014

Outline Steps to Construct an Investment Portfolio Risk Tolerance and Asset Allocation Behavioral Factors Economic Outlook Stock Market Outlook Sample Portfolio vs. Alternative Portfolio 2

Steps to Construct an Investment Portfolio Become familiar with investment alternatives Choose a passive or active approach If you choose passive, the other steps are easier Select mutual funds or individual stock and bonds It s ok to have a blend 3

Real estate Not correlated Private vs. public Consider Alternative Investments Commodities Inflation hedge Gas Hedge funds Hedge like Do mutual funds 4

Passive Investigate Individual Issues Vanguard, Fidelity, Schwab, ETF Active Look at Morningstar rankings Don t buy hot funds Make sure portfolio manager is still there Look for consistency of returns High energy component can make funds look good 5

Establish Your Risk Tolerance Umbrella Index Inverse of stock vs. bond 20%, 33%, 50%, 67%, 80%, no umbrella Know yourself Don t have a different risk tolerance for the current marketplace How risky are you? Conservative Moderate Aggressive 6

TPM TM Traditional View of Investments Stocks and Bonds Total Portfolio Management Assets Liabilities Financial Assets Real Assets Human Assets Human Related Financial Other Stocks, Bonds House Salary Social Security, Pension Mortgage, Credit Card Non-Discretionary Costs 7

Don t buy what you don t understand Handy Rules of Thumb Invest for long-term performance That s what Warren Buffett does Consider an advisor Fee-only Buy value alternative 1 Out of favor Lean toward contrarian Rebalance alternative 2 8

Why people underperform Be Aware of Behavioral Factors Overconfidence Use your mind, not your heart Women are better than men 9

Economic Outlook Economy Yellen Inflation - not necessarily a problem The Deficit Fundamentally nothing wrong with U.S. Building Sector Fracking 10

Source: BEA, FactSet, J.P. Morgan Asset Management. Data are as of 6/30/14. 11

Source: BEA, FRB, J.P. Morgan Asset Management. *2Q14 household debt service ratio and household net worth are J.P. Morgan Asset Management estimates. Values may not sum to 100% due to rounding. Data are as of 6/30/14. 12

Source: Census Bureau, FactSet, J.P. Morgan Asset Management. Data are as of 6/30/14. 13

Source: U.S. Treasury, BEA, CBO, St. Louis Fed, J.P. Morgan Asset Management. Note: Note: Years shown are fiscal years (Oct. 1 through Sep. 30). 2014 numbers are CBO estimates as of April 30, 2014. Data are as of 6/30/14. 14

Relationship Between Bond Prices and Yields When yields increase, bond prices decrease 16

What is Interesting Bonds Municipals Large and Small Cap International Risk Management Oil vs. Gas Real Estate Limited Partnership 17

Source: Barclays Capital, U.S. Treasury, FactSet, J.P. Morgan asset Management. *Excludes maturities of 13 months or less and private placements. 2014 issuance data is as of May 2014. Data are as of 6/30/14. 18

Crude Oil vs Natural GAS 19

Source: Census Bureau, J.P. Morgan Asset Management. Monthly mortgage payment assumes the prevailing 30-year fixed-rate mortgage rates and average new home prices excluding a 20% down payment. Data are as of 6/30/14. 20

Source: Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. Data are as of 6/30/14. 21

Sample Portfolio vs. Alternative Portfolio - Sample Portfolio - Alternative Portfolio 22

Sample Portfolio vs. Alternative Portfolio - Altfest Sample - Sample Portfolio Portfolio - Alternative Portfolio 25

LEWIS J. ALTFEST, PH.D, CFP, CFA, CPA/PFS Lewis J. Altfest, Ph.D., is CEO, Chief Investment Officer, and a Principal Advisor for Altfest Personal Wealth Management SM. Prior to founding the firm in 1983, he was a General Partner and Director of Research for Lord Abbett & Co. Lew began his investment career as a research analyst at Wertheim & Co. Lew was the sole recipient of the 2007 Charles R. Schwab IMPACT Award arguably the highest distinction in the profession for his sustained vision, outstanding leadership and client commitment. He was named one of the Best Financial Advisers in the country by Barron s, as well as by Money, Worth, Mutual Funds, Medical Economics, and Dental Practice Report magazines. In 2012, he was named to Financial Advisor magazine s 2012 Due Diligence/Research Manager All-Star Team. His academic textbook, Personal Financial Planning, was published by McGraw Hill and is currently used at leading universities around the country. Lew is an Associate Professor of Finance at the Lubin School of Business at Pace University, where he teaches financial planning and investments. Previously, he was co-director of the Investment Program at the New School. In addition to the books listed above, Lew is the author of many scholarly articles on financial planning and investments. A founding member of the National Association of Personal Financial Advisors (NAPFA), Lew has served on its Board of Directors. He was selected as one of NAPFA s 30 Most Influential in 2013. He also is a member of the Financial Planning Association (FPA), Academy of Financial Services, Financial Management Association, American Finance Association, American Institute of Certified Public Accountants (AICPA) and the New York Society of Security Analysts. 26

ANDREW ALTFEST Andrew Altfest is Executive Vice President for Altfest Personal Wealth Management SM. He is also an active member of the Portfolio Action Group, which sets investment strategy for portfolios, and a member of Altfest s Investment Committee. Andrew was named to Financial Advisor magazine s 2012 Due Diligence/Research Manager All-Star Team. Additionally, he leads the firm s efforts in the tax management of investment portfolios. Andrew joined the firm in 2003. He received his B.A. with honors in English from Cornell University and his M.B.A. from Columbia University s Graduate School of Business, where he served as head of The Honor Board. He has spoken at local universities, industry conferences and the American Association of Individual Investors, and has appeared in the press, including The Wall Street Journal, Bloomberg News, and Dow Jones Newswire. Andrew is a member of the National Association of Personal Financial Advisors (NAPFA). 27

Altfest Personal Wealth Management 425 Park Avenue, 24 th Floor New York, NY 10022 212 406 0850 www.altfest.com 28