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Investment Truths
 Since 1940, there have been only 2 years
without inflation
 Portfolios cannot grow over time without
accepting short term risk
 The only prices that count are the price you buy and
the price you sell, everything else is a distraction
 Investing has at least a 5 year horizon, anything
less is either saving or gambling
FIRSTMERIT
The Guiding Tenets
Four Principles:
• Asset Allocation
- 91.5% of overall performance is due to the broad asset class
decision
• Portfolio Structure
- Nearly 90% of asset class performance is due to
manager style
• Specialist Money Managers
- Less than 50% of generalist money managers maintain better
than average performance
• Continuous Portfolio Management
- The only constant is change
FIRSTMERIT,
Your Most Important Decision. .
Asset Allocation
Asset allocation is the primary factor in
performance variability overtime
Contribution to
Variability in Return
 Asset Class Allocation 91.5%
 Market Timing 1.8%
 Security Selection 4.6%
 Other 2.1%
What is Asset Allocation?
The distribution of an asset pool among asset classes (stocks, bonds, and
cash).
FIRSTMERIT.
Source: Financial Analysts Journal, B.G.P. Brinson, B.D. Singer & G.L. Beebower, June, 199
On-Going Management
Reallocation
Reallocation occurs when there is a change in the portfolio's asset class
weightings due to expected market conditions
Money Market
6%
Fixed Income
39%
Equity
55%
Money Market
3%
Fixed Income
37%
Equity
60%
Equities expected to outperform Fixed Income
and Cash for the upcoming quarter
FIRSTMERIT,
On-Going Management Rebalancing
Rebalancing occurs when the market value of an asset class or sector exceeds the
portfolio’s stated guidelines
Portfolio Objective
Actual Portfolio Makeup
Cash
6%
Fixed Income
39%
Equity
55%
Cash
6%
Cash
6%
Fixed Income
39%
Fixed Income
34%
Equity
55%
Equity
62%
Equity Market
Outperforms
Fixed Income and Cash
FirstMerit.
Rebalancing
Rebalancing
Managers with Style Drift Create
Uncontrolled Risk in a Multiple
Manager Portfolio
Large Cap Value
Large Cap Growth
Small Cap Value
Small Cap Growth
The risk exposure of this portfolio does not support the asset
allocation objective
FIRSTMERIT
Simple Strategies for Smart Investing
Set Goals
*Short term
*Long term
FIRSTMERIT.
Simple Strategies for Smart Investing
AGE
CHARACTERISTICS
STOCKS
BONDS CASH
Scenario 1 23 –45
Can take risk
Assets limited
Long time horizon
70%
Scenario 2 45 - 60
High income
Tax deferral
Long time horizon
60%
30%
10%
40%
40%
20%
Scenario 3 60 & over
Safety
Limited income
Medium time horizon
These are generalizations only and do not constitute investment advice.
FIRSTMERIT,
20%
10%
Are Bonds Safer Than Stocks?
Yield
Bonds
Stocks
51/2%
2%
Principal,
Fluctuates
Volatile
Let's investigate further…
FIRSTMERIT,
Original Investment: $10,000
1947- 1996 (50 Years)
Current Value
December 31 1996
$110,000
Treasury Bills
Pretty impressive, but look at stocks!
FIRSTMERIT
Original Investment: $10,000
1947 - 1996 (50 Years)
Current Value
December 31,1996
Treasury Bills
Stocks (S&P 500)
FIRSTMERIT.
$110,000
$3,500,000
Inflation vs. Stocks & Bonds Percentage of Time
Returns Exceed CPI Rates
1900-1990
100%
80%
60%
40%
20%
O%
FIVE
Fifteen
Ten
FirstMerit
Simple Strategies
Twenty
Years
Source: Frank Russell Investment Company
for Smart Investing
Diversify
*Stock Portfolio
*Total Portfolio
FIRSTMERIT
Equity Investing
Five Year Time Horizon
1926 to 1995
.61 five year periods
.54 of the 61 were net gains
.7 out of 61 were net losses
.4 of the 7 encompassed the
Great Crash of 1929
FIRSTMERIT.
Source: Ibbotson Associates, Chicago
Sample Portfolio Equity Diversification
Economic Sector
Consumer Growth
Consumer Staples
Consumer Cyclical
Technology
Company Name
Bristol Myers Squibb
Johnson & Johnson
Disney
Medtronic Inc.
Pepsico
Waigreen
CPC International
Proctor & Gamble
Sara Lee
Wal Mart
Kohis
Hewlett Packard
Lucent Technologies
Boeing
Intel Corp.
Economic Sector
Financial
Company Name
Nations Bank
American Express
American Int'l. Group
Capitol Goods
Dover Corp
General Electric
Caterpillar
Exxon
Royal Dutch
Schiumberger
Monsanto
Georgia Pacific
William Co.
Florida Progress
Cincinnati Bell
WorldCom
Energy
Basic Industry
Utilities
For illustrative purposes only - Does not constitute investment advice.
FIRSTMERIT,
Types of Mutual Funds
+Money Market
*Bonds
* Stocks
Options
• Futures
FIRSTMERIT,
Mutual Funds Fees
Sales Charges
Time of Charge
Front Load
Back Load
Redemption Fee
No Load
Purchase
Sale
Sale
None
Average Fee
1 to 8%
6-5-4-3-2-1%
1 to 2%
FIRSTMERIT,
Always order a prospectus and read it carefully before investing.
Mutual Fund Fees
Operating Expense
Average
Equity Fund
Bond Fund
Money Market
Management Fee
0.6%
12(b) 1 Fees
Exchange Fees
1.3%
1.0%
0.5%
.25-1.25%
Fixed charge to
switch funds
FIRSTMERIT.
Always order a prospectus and read it carefully before investing.
$5
Simple Strategies for Smart Investing
*Inflation is your adversary
*Time is your ally
FIRSTMERIT
It's easy to make
money
You buy stocks that go go up, don't
in the stock market. up. And if they don't buy'em
FIRSTMERIT,
-Will Rogers
Estate Planning
*An orderly plan for the acquisition,
enjoyment and disposition of property
FIRSTMERIT,
What Should Estate Planning
Accomplish?
• Distribution of property according to decendents wishes
• Equitable treatment of heirs - not necessarily equal treatment
• Prevention of ill feelings and bitterness among heirs
• Minimization of taxes and administrative costs
• Avoidance of income loss and asset depreciation during
settlement period
• Prevention of economic hardship while awaiting
distribution
FIRSTMERIT,
What is Probate?
*The system designed- to facilitate the
passing of your money and property at
your death. . . by Will or the laws of
intestacy of you die without a Will
FIRSTMERIT,
What is a Will?
•A legal document that
transfers assets, which you
own, at your death if no other
provisions have been made
FIRSTMERIT.
Trust
.A property interest held by one
person for the benefit of
another
FIRSTMERIT.
Revocable Living Trust Funding
Features






FIRSTMERIT,
Investment management
Recordkeeping
Incapacity protection
Probate avoidance at death
Controlled distribution
Potential estate tax saving
Rollover IRA
• Recipient of a lump sum distribution may
"Rollover" all or
part of the taxable portion into an individual
retirement
account
• Amount rolled over must be transferred to an
IRA within
sixty days of receipt of the lump sum
distribution
• Income tax deferred until distributions, which
need not begin until April 1, following the year an
individual attains age 70 1/2
• Income generated is also tax sheltered until
distributions commence
• Proceeds may be invested by FirstMerit Trust
FIRSTMERIT,
The Corporate Trustee
or Executor
• Permanence
• Impartiality
• Expertise
• Accountability
• Responsible
FIRSTMERIT.,