YOUR RETIREMENT: TBD
Designed to pursue your risk and return goals
The views expressed in this presentation are those of the presenter. These views should not be relied upon as
investment advice, as securities recommendations, or as an indication of trading intent on behalf of any other MFS
investment product.
MFS Fund Distributors, Inc. may have sponsored this seminar by paying for all or a portion of the associated costs.
MFS Fund Distributors, Inc., Boston, MA
18665.13
AGENDA
Traditional
Finance
Behavioral
Finance
Disciplined
Finance
2
AGENDA
Traditional
Finance
Behavioral
Finance
Disciplined
Finance
3
TRADITIONAL FINANCE
What have we learned (or been taught)?
• Buy low, sell high
• Pay yourself first
• Diversify, diversify, diversify
• Things revert to the mean
• Balance risk and reward
4
MODERN PORTFOLIO THEORY
Summary – portfolio diversification can help manage risk*
• Risk
– Systematic or “market” risk
– Unsystematic or “security” risk
• Standard deviation
• Efficient frontier
* Diversification does not guarantee a profit or protect against loss.
5
EFFICIENT FRONTIER
Hypothetical from 1/1/83 to 12/31/16
Annualized Return (%)
12.00%
100% Stocks
11.00%
10.00%
50/50
9.00%
8.00%
100% Bonds
7.00%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Standard Deviation (%)
Source: SPAR
Stocks are represented by the Standard & Poor’s 500 Stock Index which measures the broad US stock market; bonds by the Bloomberg Barclays US Aggregate Bond
Index which measures the US bond market. It is not possible to invest in an index.
Hypothetical examples are for illustrative purposes only and are not intended to represent the future performance of any MFS product.
6
AGENDA
Traditional
Finance
Behavioral
Finance
Disciplined
Finance
7
BEHAVIORAL FINANCE
Behaviors
• Anchoring
• Loss aversion
• Biased expectations or narrow framing
• Asset segregation
• Herding
8
BEHAVIORAL FINANCE
Anchoring
9
BEHAVIORAL FINANCE
Loss aversion
10
BEHAVIORAL FINANCE
Narrow framing
205 yards
11
BEHAVIORAL FINANCE
Asset segregation
12
BEHAVIORAL FINANCE
12-month new net industry flows in
$billions as of 04/17
Herding – Past performance tends to hold/attract assets
$200
$150
$100
$50
138
89
33
$0
-$50
-63
-16
2 Star
1 Star
-173
-$100
-$150
-$200
5 Star
4 Star
3 Star
Not rated
represents Morningstar® rankings distribution
Source: Strategic Insight Simfund/MF and Morningstar®
Past performance is no guarantee of future results
©2017 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or
distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from
any use of this information.
13
BEHAVIORAL FINANCE
Herding – Past performance
12/31/14 Star rating US
Equity Funds*
Average 2015 return (%)
Average 2016 return (%)
5 stars
-1.37
11.66
4 stars
-0.70
11.85
3 stars
-1.67
11.65
2 stars
-2.66
11.25
1 star
-4.76
12.19
Not rated
-1.66
12.78
* Source: Strategic Insight Simfund/MF.
Copyright © 1994-2017. All rights reserved. Strategic Insight (SI) an Asset International company and the following where applicable: Investment Company Institute (IC),
Lipper Inc. (LI), Morningstar Inc. (MS), Form N-SAR filed with the SEC (NS), Access Data Corp. (AD) a Broadridge Company, MSCI (MB), Russell Investments (RS),
and Standard & Poors (SP). The data, analyses, information, and opinions contained herein: (a) include confidential and proprietary information of the aforementioned
companies, (b) only limited, ad hoc, non-systematic redistribution is permitted, (c) are provided solely for informational purposes, and (d) are not warranted or
represented to be correct, accurate, or timely. Past performance is no guarantee of future results. The aforementioned companies are not affiliated with each other.
14
AGENDA
Traditional
Finance
Behavioral
Finance
Disciplined
Finance
15
DISCIPLINED FINANCE
Things to consider…
• Investment goals
• Risk tolerance
• Diversification
• Quarterly, Semi-Annual, Annual Portfolio Reviews
16
TAKE A DISCIPLINED APPROACH: ADR
1. Allocate
2. Diversify
3. Rebalance
assets across the
major asset classes
within each asset class
periodically to ensure that
your plan remains in sync
ADR
Keep in mind that no investment strategy, including asset allocation, diversification, or rebalancing, can guarantee a profit or protect against a loss.
Also, all investments, including mutual funds, carry a certain amount of risk including the possible loss of the principal amount invested.
17
THE IMPORTANCE OF ALLOCATING
93.6%
of the variability of performance
was driven by an asset
allocation policy.
Only 6.4%
91.5% asset
of the
variability of performance
allocation
policy
was driven by security selection
and timing of investment.
Source: Study by Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, “Determinants of Portfolio Performance,” Financial Analysts Journal, January/February 1995.
The study analyzed data from 91 large corporate pension plans with assets of at least $100 million over a 10-year period beginning in 1974 and concluded that asset
allocation policy explained, on average, 93.6% of the variation in total plan return.
18
REBALANCE WHEN NECESSARY
Source: MFS research. Time periods above, reflecting a strong stock market and a strong bond market, respectively, are based on performance of the following indices:
Stocks are represented by the Standard & Poor’s 500 Stock Index, which measures the broad U.S. stock market. Bonds are represented by the Bloomberg Barclays
U.S. Aggregate Bond Index. Index performance does not reflect the deduction of any investment-related fees and expenses. It is not possible to invest directly in an
index.
19
A TALE OF THREE INVESTORS
Each hypothetical investor followed a different strategy for investing $1,000
each year over a 20-year period ($20,000 total from 1/1/97 through 12/31/16).
INVESTOR #1 — Each year she invested in the
previous year’s best-performing market segment.
Chased Performance
$38,765
INVESTOR #2 — Each year she invested in the previous
year’s worst-performing market segment, hoping for a
rebound the next year.
Went for the rebound
INVESTOR #3 — She remained equally invested in eight
different asset classes each year. She also rebalanced her portfolio’s
assets each quarter so that they stayed equally distributed among
the asset classes.
Practiced ADR*
$34,869
$40,804
*Results do not reflect 1990 comparison to Bloomberg Commodity Index, as this index was unavailable before 1991.
Hypothetical examples are for illustrative purposes only and are not intended to represent the future performance of any MFS product.
For purposes of this comparison, we have divided the overall market into the following eight indices — the Bloomberg Barclays U.S. Aggregate Bond Index, the MSCI EAFE
Index, the Russell 1000® Growth Index, the Russell 1000® Value Index, the Russell 2500TM Index, the FTSE NAREIT All REITs Total Return Index, the JPMorgan Global
Government Bond Index (unhedged), and the Bloomberg Commodity Index. Index performance does not reflect the deduction of any investment-related fees and expenses.
It is not possible to invest directly in an index.
The use of a systematic investing program does not guarantee a profit or protect against a loss in declining markets.
You should consider your financial ability to continue to invest through periods of low prices.
20
COMMON MISSTEPS
21
PARTING THOUGHTS
• Work with your advisor to:
– Establish your goals
– Determine your risk tolerance
– Allocate your investments
• Review your portfolio
• If markets get volatile…Turn off the TV
22
SUMMARY
Traditional
Finance
Behavioral
Finance
Disciplined
Finance
The principles
of investing
Think rationally
before acting
ADR-try it,
you may like it
23
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