Important Considerations For The Do-It-Yourself (DIY) Investor

1. Important Considerations For The Do-It-Yourself (DIY) Investor Presentation to AAII Baltimore 1/09/2010 By Robert Wasilewski, President RW Investment Strategies

2. DIY: Agenda • Background • Emotional Roller Coaster • DIY Investor Advantages • Save investment management costs • Understand philosophy and process • What the DIYer Needs to Do and to Know • Suggested Approach • Conclusions

3. Do-It-Yourself • Background Pension fund Insurance Company Investment Manager Bank Trust Departments Private Money Managers Active Management Indexed

4. DIY: Emotional Roller Coaster

5. DIY: Emotional Roller Coaster • Emotions continued to play havoc with investor returns in 2008. DALBAR’s update of its Quantitative Analysis of Investor Behavior (QAIB) study found that, while the S&P 500 has returned 8.35% over a 20-year period ending in 2008, the average equity investor earned just 1.87%, which was less than the inflation rate of 2.89%. Bond investors fared no better. They earned returns of just 0.77% compared to 7.43% for the index.

6. DIY: Emotional Roller Coaster Roller coaster:

7. DIY: Emotional Roller Coaster The time to buy is when there is blood in the streets.

8. DIY: Emotional Roller Coaster The market can stay irrational longer than you can stay solvent.

9. DIY: Emotional Roller Coaster Stock prices have reached what looks like a permanently high plateau. 10/21/1929

10. DIY: Emotional Roller Coaster "In 30 years in this business, I do not know anybody who has done it successfully and consistently, nor anybody who knows anybody who has done it successfully and consistently. Indeed, my impression is that trying to do market timing is likely, not only not to add value to your investment program, but to be counterproductive."

11. DIY: Advantages • Save investment management fees • Cost of professional investment management • $1.0 million • 55 years old • 1%/year = $10,000 • Rule of 72 @ 7.2%/year money doubles in 10 years • $80,000 in 30 years

12. DIY: Advantages Understand Philosophy and Process • Individual stocks/mutual funds/etfs • Fundamental/technical analysis • Asset allocation • Benchmark • Measure performance

13. DIY: Need To Stay Well Diversified

14. DIY: Need to Manage Risk • Individual security risk and industry risk • Market risk • Portfolio allocation

15. DIY: Need to Consolidate Accounts • OBJECTIVE: SIMPLIFY • By Broker • By Account Type (Rollover 401 (k)s to IRAs) ***NUA

16. DIY: Things To Know • Avoid “reverse $ cost averaging” when drawing down your “nest egg” • Try not to draw down more than 5% (adjusted for inflation) of your “nest egg” • Put interest-bearing investments in qualified accounts and earn qualified dividends and long- term cap gains in taxable accounts • Draw down taxable accounts first • Be careful reaching for yield • Establish fund for withdrawals to weather downturns

17. DIY: ETFs • Suggested Approach/10-Minute Approach • Seek market returns • 70% STOCKS/30% BONDS • 1/1/2008 • 70% SPY • 30% AGG • Portfolio return -24% • S&P 500 return -37% • 1/1/2009 • Portfolio return +19% • S&P 500 return +26%

18. DIY: ETFs • Suggested Approach • Use ETFs • Invest in total market indices • Focus on Portfolio Allocation • Start w/ rule of thumb • Bonds = age

19. DIY: ETFs • Suggested Approach/More Involved • Seek market returns/look at expense ratios/avg. volume/look at bid-ask spread • Vanguard • VTI Total Stk. Mkt. • BND Total Bond • VEU FTSE All-World ex. U.S. • I Shares • IVV S&P 500 • AGG Total Bond • EFA Global Excludes U.S. & Canada

20. DIY: Conclusions • Think about the emotional roller coaster • Exploit advantages • Think about indexing at least a portion of assets • Hold sufficient reserves to make it through market downturn

21. RW Investment Strategies • Hourly consulting • “Do-it-yourself” investor • Second opinions • Company presentations • Investment Management • Low fee indexed approach rwasilewski@howardcc.edu 443-896-4123 (c)