Proactive investing with a global focus
The
FOUR
CORNERSTONES
of Prudent
Investing
1-866-JENTNER • www.jentner.com
3677 Embassy Parkway, Akron, Ohio 44333
Executive Summary
Prudent investing, making wise investment decisions with
the long term in mind, is built on four cornerstones:
{
• There are no safe havens.
• Market timing is hazardous.
• Concentrated portfolios are risky.
• Emotions are more powerful than logic.
}
These cornerstones were developed by observing the
performance of a variety of investments and the market
over the long term.
While U.S. Treasurys, cash, CDs, blue-chip stocks, and gold
may be viewed as a safe haven for one’s money, history
indicates there are no real safe havens. Historically, fixedincome investments are often outperformed by equities. As
well, the purchasing power of cash is eroded by inflation,
and gold is extremely volatile. Investing heavily in perceived
safe havens can give investors more risk than safety. Instead,
invest prudently and systematically in broad, globally
diversified asset classes.
A concentrated portfolio, one that invests in a few
individual investments, asset classes or economic regions,
can be a risky investing strategy. Individual stocks have
been shown to underperform the market by more than
15% two out of five times. An asset class can be the top
performer one year and the worst performer the following
year. Investing broadly across the global market can lower
the risk of one’s portfolio being brutally damaged by one
company, asset class, or country’s failure.
One’s emotions can be more powerful than logic and are
often involved in investment decisions. In these instances,
studies show that investors underperformed the overall
market by 7.5% on average. By adhering to a passively
engineered investment philosophy, logic can prevail, which
has historically resulted in the long-term growth of
investments.
To invest prudently, one should choose to implement a
strategy that takes into account these cornerstones. The
resulting investment strategy should be globally diversified
and passively managed to focus on long-term growth and
reduce risk overall.
Picking and choosing stocks and continually buying and
selling in an attempt to outperform the market can be
hazardous. The majority of active managers often fail to
outperform the benchmark they are striving to beat.
While some do beat the market, it is unpredictable as to
who will, and history suggests active managers will likely
underperform in the future. Employing a passive investment
strategy can lower a portfolio’s risk and increase the
likelihood of a successful investment experience over
the long term.
1
What Is Prudent Investing?
When investing hard-earned money, the goal is always for
it to grow while avoiding a permanent loss of value. But
there is no magic formula for growth. There are endless
investment options and opinions on how to maximize
returns. All would agree that the best way to grow one’s
money is to invest prudently. But what is prudent investing?
Prudent investing is showing care and thought for the
future, exercising skill and good judgment in the use of
resources, and governing oneself through the use of logic.
It is choosing to be a good steward of one’s financial
resources. By making prudent investment decisions with
the long term in mind, one strives to preserve and build his
or her financial legacy.
Prudent investment decisions are based on four principles
or cornerstones:
{
• There are no safe havens.
• Market timing is hazardous.
• Concentrated portfolios are risky.
• Emotions are more powerful than logic.
}
By understanding these cornerstones and implementing
them in one’s decisions, an investor can make investment
choices that are prudent and sound to help achieve longterm financial goals.
There Are No Safe Havens.
Long gone are the days when investors trust what happens
to their money, where most offers and opportunities seem
like good ones. Investors want their money to grow, but
the higher priority is that their money remains safe in the
process. Renowned author Mark Twain once said, “I am
more concerned with the return of my money than the
return on my money.” In light of recent crises, investors are
at a heightened level of concern for not only the growth of
their money but also for protecting their initial investment.
People often seek a safe haven for their investment, a place
of security where they can escape from possible danger.
Today, investors receive mixed messages from the media,
investment advisors, banks, and even water-cooler buddies
who present options that look safe and prosperous. But
these so-called safe havens are deceptive. It is important
to understand the potential dangers in concentrating a
portfolio in these perceived safe havens. Some of the most
common perceived safe havens are U.S. Treasurys, cash,
CDs, blue-chip stocks, and gold.
U.S. Treasurys, Cash, and CDs
Fixed-income investments typically pay a fixed-interest
rate. For instance, U.S. Treasurys are fixed-interest U.S.
government debt securities, which include bonds, notes, and
bills. A certificate of deposit, or CD, is a promissory note
issued by a bank that pays a specified fixed-interest rate.
Because these, as well as cash held in a savings account,
gain at a fixed-interest rate and claim to promise a return
of principal, they are often considered a safe investment.
However, there is no such thing as a safe haven. To
understand why fixed-income investments are not safe when
comprising the majority of one’s investment portfolio, let’s
look at how cash stands up against inflation.
Inflation causes the purchasing power of cash investments
to decline. This means that to maintain the same standard
of living in the future, more money is required to afford the
then higher-priced goods. Take a gallon of milk, for instance. In
1970, a gallon of milk cost $1.15. If you had put $1.15 under
your mattress in 1970, today you would still have $1.15
and would not be able to afford even a half gallon of milk.
But if that $1.15 had been invested in large-cap stocks as
represented by the S&P 500, you would have approximately
$102.68, as of July 2015, which could buy more than 31
gallons of milk today. In the first scenario where money is
hidden under the mattress, not only were there no gains, the
initial investment was worth nearly nothing.
2
To help combat the effects of inflation and the loss of
purchasing power, investments, such as U.S. Treasurys, CDs,
and bonds, offer interest. Currently, interest rates are near
an all-time low, having declined steadily following their
peak in 1981, as seen in Figure 1. When interest rates are
declining, as seen during this 30-year period, corporate
bonds typically perform well. From 1982 through 2014,
corporate bonds earned average annual total returns of
9.6%. After adjusting for inflation, corporate bonds still
earned a respectable 6.6% average annual real return.
Figure 1: Nominal and Real One-Year Treasury Yields, from 1958 to July 2015
Data provided by J.P. Morgan Asset Management
However, the perceived wisdom of relying on fixed-income
securities quickly changes when looking at periods of rising
interest rates, which many economists believe is inevitable
given today’s near-zero interest rates. During the period
from 1958 to 1981 when interest rates rose steadily, the
real return of corporate bonds was -2.0% after adjusting
for inflation. By holding onto cash or even purchasing fixedincome investments, it is likely that one’s money would be
worth less in the future because of changes in purchasing
power due to inflation.
As well, during those times of rising interest rates, data
show that stock investments outperformed inflation and
significantly outperformed fixed-income investments, such
as bonds, U.S. Treasurys, and CDs. As seen in Figure 1,
during the same time period of rising interest rates from
1958 to 1981, stocks, as measured by the S&P 500, earned
real returns of 3.5% after adjusting for inflation. In times
of rising interest rates, which many expect to occur in the
near future, investing a portion of your portfolio in the
stock market appears to be a prudent investment decision.
Inversely, investing solely in fixed-income investments may
not be a prudent choice.
3
Blue-Chip Stocks
Another so-called safe haven is a blue-chip stock, a stock
of an established company that has regularly shown
consistent earnings, paid generous dividends, or increased
revenue. Blue-chip stocks can be a risky investment choice
because stable earnings in the past do not necessarily
mean that earnings will continue to be stable in the future.
For example, Washington Mutual was the largest savings
and loan association and the sixth-largest bank in the U.S.
at one time. A notable blue-chip stock, Forbes Magazine
recommended it for investing in 2006. Today, Washington
Mutual is recognized as the largest bank failure in U.S.
history. Once trading for $46.55, it is now worth nothing.
In the same way, Nortel was a well-known global
telecommunications equipment manufacturer, which
accounted for more than one-third of the total value of
the companies listed on the Toronto Stock Exchange at
its height. At that time, it was recommended as a bluechip stock by numerous professionals in newspapers,
magazines, and investment talk shows. But on January 14,
2009, Nortel filed for bankruptcy protection in the U.S.,
U.K., and Canada, taking its stock from its high of $124.50
to worthless. In the end, these perceived safe havens have
proven to be anything but safe, time and again.
Gold
Investors typically invest in gold to hedge against the
risk of investment losses, in hopes of remaining stable
amidst economic, political, or social currency crises, such
as market declines, escalating national debt, currency
failure, inflation, war, and social unrest.Yet, gold is far from
guaranteed. In reality, gold prices are more volatile than
many individual investors expect. Over the last ten years,
gold has seen an average rise or fall of nearly 19% during
each calendar year. And in the last decade, gold prices
have gone up so quickly that experts are calling it a bubble
waiting to burst, just like the housing market. Beware; gold
may not be a safe harbor for your money.
While experts agree that there are no safe havens, this
does not discount the value of U.S. Treasurys, cash, CDs,
blue-chip stocks, and gold in a portfolio. All of these are
essential elements of a portfolio but are hazardous when
they are relied upon solely or too heavily because they
can easily leave investors hurting. Once investors learn
that there are no risk-free safe havens for investing the
money they have worked hard to save, they can be easily
tempted to trust no one. They may attempt to manage
wealth on their own, taking on the “If he can do it, so can
I” mindset, or they may try to find an advisor with a superb
track record, but that is just as dangerous. Numerous
studies show that one’s track record is not an indication
of future performance, and the top active managers from
one year are often at the bottom the following year. Figure
2 shows the performance of the top 25% of domestic
equity funds over five consecutive twelve-month periods.
As of March 2011, out of the 703 domestic equity funds
that were in the top quartile for performance, only 4.69%
managed to stay in that top quartile after two years. And
after four years, only 0.28% were still in the top quartile.
It is important to note that none of the large-, mid-,
or small-cap funds managed to stay in the top quartile
after four years. While managers may boast of their past
performance, it does not predict their future performance.
History shows their futures will not likely be nearly as
bright.
As legendary investor Bernard Baruch said, “Only liars
manage to always be out during bad times and in during
good times.” Whether an investor becomes a do-ityourselfer or turns to a professional active manager, he or
she will likely be tempted to try to outsmart the system,
better known as timing the market.
Figure 2: Performance Persistence of Domestic Equity Funds Over Five Consecutive
Twelve-Month Periods
Mutual Fund Category
Fund Count
at Start
(March 2011)
March 2012
March 2013
March 2014
March 2015
All Domestic Funds
703
30.87
4.69
1
0.28
Large-Cap Funds
269
30.86
3.72
0
0
Mid-Cap Funds
101
28.71
0
0
0
Small-Cap Funds
148
30.41
6.08
1.35
0
Multi-Cap Funds
185
32.43
7.57
2.7
1.08
Percentage Remaining in Top Quartile
Data provided by S&P Dow Jones Indices, LLC
4
Market Timing Is Hazardous.
Most people do not make their important decisions with
a fortune teller’s flip of a card, roll of a magic ball, or palm
reading. However, there are thousands of investors today
who find themselves agonizing over market predictions and
are keeping their fingers crossed each time they buy and
sell. In this case, there is not much difference between the
fortune teller’s patron and the investor. This is called timing
the market, and it is important to understand exactly what
market timing is and why it can be so hazardous.
Market timing is the strategy of deciding to buy or sell
financial assets, often stocks, according to predictions
about future market price movements. Market timing is
often referred to as active investment management or
tactical management because investors are actively buying
and selling, attempting to beat the market. While there
are a handful of short-term winners, most lose. As Rex
Sinquefield, co-founder of Dimensional Fund Advisors,
said, “Do you think it is credible that there is one person
who systematically has more information than a dispersed
market of six billion people?” With active management
and market timing, it is unlikely that an active investor will
consistently beat the market over long periods of time,
{
“If I have noticed anything over
these 60 years on Wall Street, it
is that people do not succeed in
forecasting what’s going to happen
to the stock market.”
}
- Benjamin Graham, American economist,
author of Security Analysis, and legendary investor
except by chance.Yet active managers test their theories
every day by trying to pick stocks and time markets. Do
you want to be their test subject?
 Active Management Underperforms
Figures 3 and 4 show the failure of actively managed equity
and fixed-income funds over the last five years, as of June
30, 2015. During this time, the vast majority of funds failed
to outperform their respective market benchmark. In most
equity asset classes, more than 70% of active managers
failed, as seen in Figure 3.
Figure 3: Percentage of Equity Funds That Failed to Beat the Index During Prior Five Years, as
of June 30, 2015
81%
78%
79%
85%
75%
73%
61%
55%
Data provided by S&P Dow Jones Indices, LLC
5
Figure 4: Percentage of Fixed-Income Funds That Failed to Beat the Index During Prior Five
Years, as of June 30, 2015
98%
97%
92%
84%
70%
70%
59%
41%
30%
Data provided by S&P Dow Jones Indices, LLC
Figure 4 presents the number of fixed-income funds that
failed during the same five years. Seven out of ten fixedincome funds failed to beat their benchmark over the last
five years in the majority of fixed-income asset classes.
The investment giants agree that market timing is not a
good practice and that true long-term success is nearly
unachievable when attempting it. John C. Bogle, Sr., the
former chairman and founder of the Vanguard Group said it
best, “After nearly 50 years in this business, I do not know
of anybody who has done it [market timing] successfully
and consistently. I don’t even know anybody who knows
anybody who has done it successfully and consistently.”
Rex Sinquefield sums up the recommendation, “Thus,
active management is a waste of time. Convert to passive
management and your problems will be over.”
Great minds agree that timing the market is a losing game.
In the everyday world of investing, beyond casinos and con
artists, wealth is accrued over time, usually quite a long
time. The evidence against market timing teaches investors
that they should view this time as a gift, a gift that cannot
be outsmarted but that can surely be squandered.
There is still more to be understood before investors can
make solid, healthy decisions about how their money will
work best for them. At the table where decisions are made,
the grand question ultimately surrounds the investment
portfolio. What do the best portfolios look like? More
importantly, are those portfolios concentrated or not?
6
Concentrated Portfolios Are Risky.
When it comes to developing an investment portfolio,
there are never-ending combinations of options from
which to choose. Diversification is the overall makeup
of a portfolio, in other words, how many different assets
comprise the portfolio. Some managers encourage
concentration instead of diversification, but history shows
that concentrated portfolios will likely underperform and
take on unnecessary risk.
While the definition of a concentrated portfolio is
subjective, it is generally a portfolio that holds a small
number of different securities. Most agree that a
concentrated portfolio is one that holds a limited number
of stocks, one where an individual stock comprises a
meaningful percentage of the total portfolio, one that
invests heavily in only a few economic regions, or one that
has most of its holdings in one or a few asset classes.
 Concentrating With Individual Investments
Visualize a concentrated portfolio as a giant redwood tree
towering high above a forest of saplings. When a storm
rolls in, which is most likely to be struck by lightning?
Storms are inevitable. Do you want to be the tallest tree?
As portfolios become more and more concentrated in a
small number of investments or asset classes, they increase
their risk of devastation if they are struck.
But not only are storms inevitable, they are frequent. Many
investors are shocked by the frequency at which lightning
strikes occur. A study was conducted in 2011 regarding
the percentage of individual companies in the S&P 1500
that underperformed the market. Over the thirteen years
in the study, 39% of the 1500 companies underperformed
the index by more than 15%, as shown in Figure 5. That is
nearly a two-in-five chance that an individual investment
gets struck. When the strike occurs on an investment that
makes up a significant portion of your portfolio, the results
can be catastrophic. Not only can a strike occur on an
individual investment, it can also occur on an asset class or
on an economic region. And while strikes will still occur
with a broad globally diversified portfolio, when they do,
you are likely to lose only a few small saplings, not the giant
redwood.
Figure 5: Percentage of S&P 1500
Companies Underperforming by
15% or More
Time Period
Percentage
2010
18%
2009
31%
2008
30%
2007
58%
2006
34%
2005
42%
2004
33%
2003
34%
2002
31%
2001
32%
2000
45%
1999
45%
1998
71%
Average
39%
Data provided by Dimensional Fund Advisors
7
Concentrated portfolios create negative risk and increase
the potential for large losses, which can damage the longterm objectives of the investment plan. This evidence
shows why concentrated positions are not permitted by
the Uniform Prudent Investor Act, which has been adopted
by more than 40 states and the District of Columbia and
approved by the American Bar Association and the American Bankers Association. Concentrated portfolios are also
generally viewed as a breach of fiduciary standards.
Take Polaroid as an example. In the mid-1960s, Polaroid’s
sales boomed as its cameras and film became omnipresent.
Polaroid’s stock prices also boomed, and Polaroid became a glamour stock, increasing tenfold in only five years.
Photography became one of the world’s fastest growing
industries, and Polaroid was its leader. As technologies and
product offerings progressed, Polaroid’s stock reached an
all-time high of $149.50 in 1972. Throughout the next 30
years, Polaroid lagged behind innovation, as the industry
moved from film to digital cameras. In 2001, Polaroid filed
bankruptcy, leaving its investors with nothing. Polaroid’s
downfall is evidence that the future of today’s most notable and innovative companies is not promised. As Weston
Wellington, vice president of Dimensional Fund Advisors,
said, “The forces of competition are relentless, and today’s
astonishing innovation may be tomorrow’s commodity —
or garage sale castoff.”
 Concentrating With Asset Classes
While individual stocks may underperform the market,
individual asset classes may also fail to outperform the
market. As a result, concentrating in one or a few asset
classes can be equally as risky. The complete randomness of
returns is evident upon review of the annual performance
of major asset classes in the U.S., international, and
emerging markets over a 15-year period. Figure 6 shows
that there is little predictability in asset-class performance
from one year to the next as the data reveal no clear
pattern in returns in both U.S. and non-U.S. markets. While
one asset class may perform well one year, it may fail the
following year. For instance, emerging markets had the
highest return of any asset class in 2007, with an annual
return of 39.8%. The following year it performed the worst,
losing 53.2%. With too much invested in one asset class, an
investor takes on too much risk and is more susceptible to
damaging lighting strikes. Broad diversification across many
asset classes helps to reduce this risk.
Figure 6: The Randomness of Returns of Asset Classes
Highest Return
Lowest Return
Data provided by Dimensional Fund Advisors8
{
“Ignore market timers, Wall Street strategists, technical
analysts, and bozo journalists who make market predictions
... Admit to your therapist that you can’t beat the market.
Investors would also benefit by remembering this simple
phrase: trading is hazardous to your wealth.”
- Jonathan Clements,Wall Street Journal
}
 Diversification Outperforms Concentration
Analyzing the market’s performance after major historical
crises provides additional evidence for the benefits of
diversification. Figure 7 reviews the performance of a
balanced investment portfolio comprised of 60% equities
and 40% fixed income after a few historical crises. After
each crisis, market performance dropped significantly, as one
would expect. But looking at the subsequent one-, three-,
and five-year cumulative returns following each crisis reveals
that the financial markets recovered over time, as indicated
by the positive three- and five-year cumulative returns. While
negative events such as these may entice investors to flee from
the financial markets, diversification and a long-term outlook
can help investors overcome temporary setbacks.
Figure 7: Performance of a Normal Balanced Strategy in Response to Crisis
After 1 Year
After 3 Years
After 5 Years
Data provided by Dimensional Fund Advisors
9
Figure 8: Performance and Risk of Cash,
Diversified Portfolios, and Equities
The Crisis: November 2007 - February 2009
All Cash
Diversified
Portfolio 1
Diversified
Portfolio 2
All Stocks
Annualized
Return
Total Return
Annualized
Standard
Deviation
7.12%
9.61%
0.40%
-26.52%
-33.69%
12.80%
-29.15%
-36.84%
13.14%
-39.01%
-48.42%
18.72%
The Rebound: March 2009 - June 2009
All Cash
Diversified
Portfolio 1
Diversified
Portfolio 2
All Stocks
Annualized
Return
Total Return
Annualized
Standard
Deviation
---
1.05%
0.02%
---
14.57%
6.57%
---
17.27%
7.48%
---
21.67%
8.88%
The Long Term: January 1985 - June 2009
All Cash
Diversified
Portfolio 1
Diversified
Portfolio 2
All Stocks
Annualized
Return
Total Return
Annualized
Standard
Deviation
8.57%
649.48%
1.25%
11.28%
1272.42%
12.20%
11.04%
1199.72%
12.00%
11.44%
1320.14%
17%
As further proof to the benefits of diversification, a study
conducted by Dimensional Fund Advisors in Australia
reviewed the performance of two highly diversified
portfolios versus a portfolio comprised of all stocks and
another of all cash after the economic crisis of 2008, the
results of which can be seen in Figure 8. Even during the
worst of the crisis, the diversified portfolios provided a
better result than the all-stock portfolio. As expected,
cash had the best returns during the crisis but lagged
significantly during the recovery period and over the long
term. Beyond showing that a diversified portfolio is likely
to outperform cash, this study shows that during the
25-year span, the returns from the diversified portfolios
were very similar to the all-stock portfolio but with much
lower volatility or risk, which is represented in the table
as standard deviation. To pursue increased returns, lower
risk, and withstand volatile times, broad diversification is a
necessity both across and within asset classes.
Evidence shows that diversification works. It is the
investor’s primary defense against potential disaster in
one’s portfolio. In a well-diversified portfolio, the failure
of any single company or asset class is a non-event. The
globally diversified portfolio reduces risk to its lowest
possible limit, and it does so while delivering a significant
measure of return. Diversification can both reduce risk
and foster greater long-term growth.
For an investor, a solid foundation can be built by avoiding
so-called safe havens, ignoring the fortune tellers of
today’s market timing sector, and, of course, creating
an investment portfolio focused on diversification
instead of concentration. But while even the most
soundly constructed portfolio can result in lower risk
and increased financial success, there is still one more
factor that will affect the portfolio’s overall outcome.
This present and powerful factor is an investor’s own
emotions.
Data provided by Dimensional Fund Advisors
10
{
“Let other people overreact to the market ... if you can
stay cool while those around you are panicking, you can
surely prevail.”
- James Pardoe, How Buffett Does It
}
Emotions Are More Powerful Than Logic.
When it counts, many people believe they will make the
right decisions. Most people would also agree that in today’s world, it is easier than ever to make decisions based
on feelings and emotions. In some cases, people even let
their emotions get the best of them. Active investment
managers are no different. Even the most logical people
cannot ignore their emotions 100% of the time. The best
laid plans for investment dollars are not immune to the
impact that one’s emotions have on behavior.
 Active Managers Buy and Sell on Emotions
Warren Buffet, one of the world’s wealthiest men and most
successful investors, once said, “Investing is not a game
where the guy with the 160 IQ beats the guy with the 130
IQ. Once you have ordinary intelligence, what you need
is the temperament to control the urges that get other
people into trouble in investing.” It is no secret that active
managers use emotions to make investment decisions, at
times making decisions that contradict the best investment
practice and affect returns.
According to the Quantitative Analysis of Investor Behavior by Dalbar, Inc., here are the most commonly cited reasons
why investors make buy and sell decisions that go against logic:
{
• Herding: Copying the behavior of others, even in the face of unfavorable outcomes
• Regret: Treating errors of commission more seriously than errors of omission
• Media response: Reacting to news without reasonable examination
• Optimism: Believing that good things happen to me and bad things happen to others
• Narrow framing: Making decisions without considering all implications
• Anchoring: Relating to familiar experiences, even when inappropriate
• Mental accounting: Taking undue risk in one area and avoiding rational risk in others
• Loss aversion: Expecting high returns with low risk
}
11
Figure 9: Annualized Long-Term Returns of
Equities and Active Managers, Since 1984
 Passive Managers Outperform
Active Managers
The Quantitative Analysis of Investor Behavior also
compiles yearly data comparing the performance of
the S&P 500 to that of the average equity fund investor.
Over the last 13 years, these active investors have
underperformed the benchmark by an average of more
than 7.5%. Managers who implement an active investment
management strategy and who use emotions to make buy
and sell decisions are represented by the average equity
fund investor in Figure 9. On the other hand, the S&P 500
represents a passively managed buy-and-hold strategy.
While active managers are often making investment
decisions based on their emotions and gut feelings, they
do this under the guise of sound judgment and analytical
reasoning. But in the end, they are being outperformed
year after year by those who control their emotions, the
passive managers, as seen in Figure 10.
Understanding that emotions have no place in prudent
financial decisions will likely result in improved performance of an investor’s behavior and, as a result, better
performance of investments. Controlling emotions and
making adjustments to behavior when necessary could be
the biggest hurdle an active investment manager or a do-ityourself investor faces.
Year
S&P 500
Average
Equity Fund
Investor
Difference
1998
17.90%
7.25%
-10.65%
1999
18.01%
7.23%
-10.78%
2000
16.29%
5.32%
-10.97%
2001
14.51%
4.17%
-10.34%
2002
12.22%
2.57%
-9.65%
2003
12.98%
3.51%
-9.47%
2004
13.20%
3.75%
-9.50%
2005
11.90%
3.90%
-8%
2006
11.80%
4.30%
-7.50%
2007
11.81%
4.48%
-7.33%
2008
8.35%
1.87%
-6.48%
2009
8.20%
3.17%
-5.03%
2010
9.14%
3.83%
-5.31%
2011
7.81%
3.49%
-4.32%
2012
8.21%
4.25%
-3.96%
2013
4.22%
5.02%
-4.20%
2014
9.85%
5.19%
4.66%
Data provided by Dalbar, Inc.
Figure 10: S&P 500 Versus Average Equity Fund Investor Returns
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1998
1999
2000 2001 2002 2003 2004 2005 2006 2007 2008
S&P 500
2009 2010 2011 2012 2013 2014
Average Equity Fund Investor
Data provided by Dalbar, Inc.
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Prudent Investing Is Hinged On Diversified, Passive Management.
How much risk are you willing to take with your fortune?
The four cornerstones of prudent investing are a necessity
when choosing how to invest your hard-earned money.
History shows that fixed-income investments are often
outperformed by equities. Likewise, the purchasing power
of cash cannot stand up to inflation, and gold is extremely
volatile. There is no safe haven for your money. Instead, invest
it wisely and systematically in a wide variety of asset classes.
Experts agree that market timing is hazardous. Many years,
a vast number of active managers are outperformed by
the very benchmark index they are striving to beat. Those
active managers who succeed are likely doing so by chance.
Do you want them rolling the dice with your money? Their
superior results will likely only be short term, and history
shows they will likely underperform in the future. Choosing a
broadly diversified, passive investment strategy increases the
likelihood of gaining over the long term and should lower the
risk and volatility of your portfolio.
Concentrated portfolios can be hazardous because they
focus too heavily in a few individual investments, which have
been shown to underperform the market by more than 15%
two out of five times. Concentrating too much in a few asset
classes or economic regions is also imprudent as one asset
class can swing from top performer to the bottom from one
year to the next. Diversifying your portfolio broadly across
the global market lowers the risk of your portfolio being
severely damaged by one company, asset class, or country’s
failure.
Studies show that investment decisions based on emotion
can result in investors underperforming the market by an
average of 7.5%. Emotions can be more powerful than logic. A
passively engineered investment philosophy is not controlled
by emotions and instead proactively implements logic when
creating and maintaining your portfolio. Historically, this
resulted in long-term growth of investments. Would you
prefer to increase your chances of being outperformed or to
instead experience long-term gains?
Jentner Wealth Management is a
nationally recognized wealth-management
firm based in Akron, Ohio. By providing
fee-only comprehensive financial
planning, globally diversified investing,
and fiduciary advice, Jentner seeks to
preserve the financial legacy of clients in
Northeast Ohio and across the United
States. Founded in 1984, Jentner Wealth
Management provides both financial
planning and investment management to
individuals, families and trusts. Jentner
Global Management is a specialized
division that provides institutions with
investment portfolio management
services, including portfolios customized
specifically for endowments and
foundations. Jentner’s proven, low-cost
passively-engineered investment strategy
invests broadly in more than 14,000
companies on six continents, seeking
to provide steadiness in good times and
challenging times to earn meaningful
returns over the long term. For more
information, please visit www.jentner.com
or call 1-866-JENTNER.
The cornerstones of prudent investing and their
corresponding investment philosophy were developed by
observing the performance of a variety of investments
and the market and analyzing the empirical evidence. By
understanding and implementing the cornerstones, the
resulting prudent investment strategy should focus on
long-term growth while reducing risk. A properly structured
portfolio can create financial independence, allow for a
desired and sustainable lifestyle, and leave a financial legacy.
© 2015 Jentner Wealth Management
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