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Structured Asset Approach

RISKS WORTH TAKING

Structured Investing Approach

Take 3 risks identified by academic research as worth taking

Invest in stocks

Emphasize small companies

Emphasize value companies

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. Investors with time horizons of less than five years, should consider minimizing or avoiding investing in common stocks. Although the Fama/French research findings identified the above three risks as worth taking, that does not necessarily mean these are the only risks worth taking.

1. Invest in Stocks

Chart
See Footnote 1

 

2. Emphasize small companies

Small company stocks have higher expected returns and risk than larger company stocks.

Chart
See Footnote 2

 

3. Emphasize value companies

“Value” stocks have higher expected returns and risk than “Growth” stocks

Chart
See Footnote 3

 

FOOTNOTE1 — 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, 2009. 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. Total returns in U.S. dollars. Long-Term Government Bonds, One-Month U.S. Treasury Bills, and U.S. Consumer Price Index (inflation), source: Morningstar’s 2008 Stocks, Bonds, Bills, And Inflation Yearbook (2008); Fama/French Total U.S. Market Index provided by Fama/French from Center for Research in Security Prices (CRSP) data. Includes all NYSE securities (plus Amex equivalents since July 1962 and NASDAQ equivalents since 1973), including utilities.

FOOTNOTE2 — 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, 2009. 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. Total returns in U.S. dollars. Fama/French Total U.S. Market Index provided by Fama/French from Center for Research in Security Prices (CRSP) data. Includes all NYSE securities (plus Amex equivalents since July 1962 and NASDAQ equivalents since 1973), including utilities. The Center for Research in Security Prices (CRSP) ranks all NYSE companies by market capitalization and divides them into 10 equally-populated portfolios. AMEX and NASDAQ National Market stocks are then placed into deciles according to their respective capitalizations, determined by the NYSE breakpoints. CRSP Portfolios 1-5 represent large caps. CRSP Portfolios 6-10 represent small caps. Standard deviation is a statistical measurement of how far the return of a security (or index) moves above or below its average value. The greater the standard deviation, the riskier an investment is considered to be.

FOOTNOTE3 — 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, 2009. 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. Total returns in U.S. dollars. CRSP is the Center for Research in Security Prices. CRSP ranks all NYSE companies by market capitalization and divides them into 10 equally-populated portfolios. AMEX and NASDAQ National Market stocks are then placed into deciles according to their respective capitalizations, determined by the NYSE breakpoints. Value is represented by companies with a book-to-market ratio in the top 30% of all companies. Growth is represented by companies with a book-to-market ratio in the bottom 30% of all companies. The CRSP Value and Growth divisions within the CRSP 1-5 Portfolios are employed to formulate the Fama/French U.S Large Value Index and Fama/French U.S Large Growth Index. Fama/French Total U.S. Market Index provided by Fama/French from Center for Research in Security Prices (CRSP) data. Includes all NYSE securities (plus Amex equivalents since July 1962 and NASDAQ equivalents since 1973), including utilities. Fama/French U.S. Large Growth Index provided by Fama/French from Center for Research in Security Prices (CRSP) data. Includes the upper-half range in market cap and the lower 30% in book-to-market of NYSE securities (plus Amex equivalents since July 1962 and NASDAQ equivalents since 1973), excluding utilities. Fama/French U.S. Large Value Index provided by Fama/French from CRSP data. Includes the upper-half range in market cap and the higher 30% in book-to-market of NYSE securities (plus Amex equivalents since July 1962 and NASDAQ equivalents since 1973), excluding utilities. Standard deviation is a statistical measurement of how far the return of a security (or index) moves above or below its average value. The greater the standard deviation, the riskier an investment is considered to be.

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