1. CRITICAL FACTORS IN THE PURSUIT
OF A BETTER INVESTMENT EXPERIENCE
PREPARED FOR: John Doe
DATE: 10/10/11

2. KEY INVESTMENT PRINCIPLES
UNDERSTAND MARKETS KNOW YOURSELF
1. Let markets work for you. 7. Don’t confuse entertainment with advice.
2. Take risks worth taking. 8. Manage your emotions and biases.
3. Invest, don’t speculate.
HARNESS THEIR POWER WORK YOUR PLAN
4. Hold multiple asset classes. 9. Avoid common investment mistakes.
5. Practice smart diversification. 10. Plan for the long term—and stay the course!
6. Keep costs low.

3. 1 LET MARKETS WORK FOR YOU
MONTHLY GROWTH OF WEALTH ($1)
1926−2010
$100,000
$56,891
US Small Cap Value Stocks
US Small Cap Stocks $13,666
$10,000
US Large Cap Value Stocks $4,599
S&P 500 Index $3,013
$1,000 US Five-Year Treasury Bonds
US Treasury Bills
US Inflation (CPI)
$100 $81
$20
$12
$10
$1
$0
1926 1936 1946 1956 1966 1976 1986 1996 2006
In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not
a guarantee of future results. US small, small value, and large value index data (ex utilities) provided by Fama/French. The S&P data are provided by Standard & Poor’s Index Services
Group. CRSP data provided by the Center for Research in Security Prices, University of Chicago. US long-term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills,
and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).

4. Markets throughout the world have a history of rewarding investors for the capital they
supply. Their expected returns offer compensation for bearing systematic risk—or risk that
cannot be diversified away.
An efficient market or equilibrium view assumes that competition in the marketplace
quickly drives securities prices to fair value, ensuring that investors can only expect
greater average returns by taking greater systematic risk in their portfolios.
This graph documents compounded performance of fixed income and equity asset
classes from 1926 to 2009, based upon growth of a dollar. It shows that equities have
offered higher compounded returns than fixed income investments. Within the equity
asset classes, small cap stocks have outperformed large cap stocks, and value stocks
have outperformed growth stocks, resulting in higher returns and greater wealth
accumulation.
Capital markets reward investors based on the risk they assume. Rather than trying to
outguess the markets, investors should identify the risks they are willing to take, then
position their portfolios to capture these risks through broad diversification.

5. 2 TAKE RISKS WORTH TAKING
SIZE AND VALUE EFFECTS AROUND THE WORLD
18.17
15.79 15.72 15.07
13.82 13.68
12.48
11.69 11.38 11.46 11.43
10.45
9.85
8.97 9.03
9.05
8.23
Annualized
Compound Returns (%)
US US US CRS US Canad Emg. Emg. Emg. Emg.
Large S&P Large Small P Small Intl. Intl. MSCI Intl. Canada a Canada Markets Markets Markets Markets
Value 500 Growth Value 6-10 Growth Value Small EAFE Growth Value Market Growth Value Small ―Market‖ Growth
US Large
US Small Non-US Developed Canadian Emerging
Capitalization
Capitalization Markets Stocks Market Stocks1 Markets Stocks
Stocks
Stocks 1927–2010 1975–2010 1977–2010 1989–2010
1927–2010
Average Return (%) 14.03 11.88 11.35 19.17 15.98 13.95 18.48 19.17 13.67 11.29 14.53 12.86 10.40 25.01 21.98 19.46 17.05
Standard Deviation (%) 27.01 20.51 21.93 35.13 30.94 34.05 24.56 28.13 22.29 22.21 21.64 17.47 21.79 42.01 40.67 36.40 34.89
1. In CAD.
All returns in USD except Canadian Market Stocks. Indices are not available for direct investment. Their performance does not reflect the expenses associated
with the management of an actual portfolio. Past performance is not a guarantee of future results. US value and growth index data (ex utilities) provided by
Fama/French. The S&P data are provided by Standard & Poor’s Index Services Group. CRSP data provided by the Center for Research in Security
Prices, University of Chicago. International Value data provided by Fama/French from Bloomberg and MSCI securities data. International Small data compiled
by Dimensional from Bloomberg, StyleResearch, London Business School, and Nomura Securities data. MSCI EAFE Index is net of foreign withholding taxes
on dividends; copyright MSCI 2011, all rights reserved. Emerging Markets index data simulated by Fama/French from countries in the IFC Investable
Universe; simulations are free-float weighted both within each country and across all countries.

6. To pursue higher expected returns, investors must take higher risks. But only certain risks offer
an expected reward—and science has helped identify these risks.
The two major equity risks are size and price (as measured by book-to-market ratio—or BtM).
These appear in the Canadian, US, and international markets—strong evidence that the risk
factors are systematic across the globe.
This graph demonstrates the higher expected returns offered by small cap stocks and value
(high-BtM) stocks in the US, non-US developed, Canadian, and emerging markets. Note that
the international, Canadian, and emerging markets data are for shorter time frames.
Small cap stocks are considered riskier than large cap stocks, and value stocks are deemed
riskier than growth stocks. These higher returns reflect compensation for bearing higher risk.
A multifactor approach incorporates both size and value measures—and exposure to markets
around the world—in an effort to increase expected returns and reduce portfolio volatility. An
effective way to capture these effects is through portfolio structure.

7. 3 INVEST, DON’T SPECULATE
PERCENT OF WINNING ACTIVE MANAGERS
July 2005–June 2010
7%
9% 12%
Canadian Equity
US Equity International Equity
Over time, only a very small fraction of money managers outperform the market after
fees, and it is difficult to identify them in advance.
Source: Standard & Poor’s Indices Versus Active (SPIVA) Funds Scorecard Canada, Second Quarter 2010.

8. In an efficient market, stock prices reflect all publicly available information—and only new
information causes prices to change as market participants adjust their views of the future.
Since new information is unknowable in advance, most fund managers who try to beat the
market through stock selection and market timing fail to deliver long-term value.
As shown above, few active fund managers can outperform their respective market indices.
For the five-year period through 2009, only 9% of US Equity managers outperformed their
respective benchmarks, compared with 10% for International Equity managers and 7% for
Canadian Equity managers.
Worse yet, many active funds failed to survive the entire five-year period. Active fund survival
was only 39% for US Equity, 53% for International Equity, and 47% for Canadian Equity. Non-
survivors either ceased doing business or were merged into other funds.

9. 4 HOLD MULTIPLE ASSET CLASSES
RANDOMNESS OF ANNUAL RETURNS
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Highest Return 37.72 40.72 37.81 31.70 36.18 25.07 2.58 34.77 23.47 24.11 35.72 9.82 2.56 63.86 35.35
34.71 39.18 28.62 24.88 28.45 20.37 2.39 31.32 22.49 22.47 30.13 4.27 -21.94 42.73 23.33
28.35 32.22 26.15 24.17 12.24 19.35 -3.79 30.15 17.49 19.56 26.10 1.96 -22.85 35.05 21.50
23.56 24.87 21.65 22.53 7.41 4.36 -5.03 28.96 15.28 10.97 26.08 1.41 -24.88 27.47 17.61
22.18 17.17 18.16 19.52 5.17 4.12 -12.45 26.74 14.47 10.95 22.11 -5.25 -25.55 25.12 14.59
21.30 14.99 4.78 16.86 0.78 1.63 -16.02 19.07 11.49 10.69 21.66 -7.92 -30.67 15.97 13.29
18.98 11.92 4.60 13.94 0.65 -6.40 -16.72 13.57 10.97 9.79 17.25 -9.70 -31.53 13.85 10.26
9.39 6.22 -0.03 4.59 -5.54 -11.56 -16.75 11.60 8.42 4.16 16.58 -10.09 -33.00 10.98 9.16
6.56 5.89 -1.59 2.35 -7.68 -12.57 -17.33 7.46 7.80 3.05 15.76 -15.63 -33.27 9.26 2.22
4.61 2.85 -5.66 0.39 -8.82 -13.45 -20.43 5.46 2.80 2.57 15.58 -17.11 -35.17 3.45 0.43
Lowest Return 3.30 -10.82 -11.05 -8.30 -10.80 -16.55 -22.85 2.86 2.25 2.29 3.93 -29.73 -47.33 0.36 -2.05
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Canadian Fixed Income 4.61 2.85 4.60 4.59 5.17 4.36 2.39 2.86 2.25 2.57 3.93 4.27 2.56 0.36 0.43
Canadian Large Cap 28.35 14.99 -1.59 31.70 7.41 -12.57 -12.45 26.74 14.47 24.11 17.25 9.82 -33.00 35.05 17.61
Canadian Value 34.71 11.92 -5.66 2.35 28.45 4.12 -17.33 28.96 17.49 22.47 15.76 1.96 -33.27 42.73 13.29
Canadian Small Cap 21.30 17.17 -0.03 24.17 0.78 20.37 -5.03 34.77 7.80 9.79 21.66 1.41 -47.33 63.86 35.35
US Large Cap 23.56 39.18 37.81 13.94 -5.54 -6.40 -22.85 5.46 2.80 2.29 15.58 -10.09 -22.85 9.26 9.16
US Value 22.18 40.72 21.65 0.39 12.24 1.63 -16.02 7.46 8.42 4.16 22.11 -15.63 -21.94 3.45 10.26
US Small Cap 18.98 32.22 4.78 24.88 -7.68 25.07 -20.43 30.15 10.97 3.05 16.58 -17.11 -24.88 27.47 23.33
US Real Estate 37.72 24.87 -11.05 -8.30 36.18 19.35 2.58 11.60 23.47 10.97 35.72 -29.73 -25.55 10.98 21.50
International Large Cap 6.56 6.22 28.62 19.52 -10.80 -16.55 -16.75 13.57 11.49 10.69 26.10 -5.25 -30.67 13.85 2.22
International Value 9.39 5.89 26.15 16.86 0.65 -13.45 -16.72 19.07 15.28 10.95 30.13 -9.70 -31.53 15.97 -2.05
International Small Cap 3.30 -10.82 18.16 22.53 -8.82 -11.56 -3.79 31.32 22.49 19.56 26.08 -7.92 -35.17 25.12 14.59
In Canadian dollars. Charts are for illustrative purposes only.
Canadian Fixed Income is Canadian One-Month Treasury Bills. Canadian Large Cap is the S&P/TSX Composite Index. Canadian Value is the MSCI Canada Value Index (net dividends), and
Canadian Small Cap is the MSCI Canada Small Cap Index (price-only). US Large Cap is the S&P 500 Index. US Value is Russell 3000 Value Index. US Small Cap is CRSP 6-10 Index. US Real
Estate is the Dow Jones US Select REIT Index. International Large Cap is the MSCI EAFE Index (net dividends), and International Value is the MSCI EAFE Value Index (net dividends).
International Small Cap is compiled by Dimensional from StyleResearch securities data; includes securities of MSCI EAFE countries in the 10%-1% of ME range; market-capitalization weighted;
each country capped at 50%; value defined as the top 30% of book-to-market; rebalanced semiannually. Canadian T-bills provided by PC-Bond a business unit of TSX Inc.; copyright © TSX Inc.,
all rights reserved. MSCI data copyright MSCI 2011, all rights reserved. The S&P data provided by Standard & Poor’s Index Services Group. Indices are not available for direct investment. Index
performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

10. There is little predictability in asset class performance from one year to the next.
The above slide features annual performance of major asset classes in the Canadian, US, and
international markets between 1994 and 2009.
The top chart ranks the annual returns (from highest to lowest) using the colours that
correspond to the asset classes. The bottom chart displays annual performance by asset
class.
The data reveal no obvious pattern in annual returns that can be exploited for excess profits.
The charts offer additional evidence of market efficiency and make a strong case for investors
to hold multiple asset classes in their portfolios.

11. 5 PRACTICE SMART DIVERSIFICATION
S&P/TSX INDEX vs. A GLOBAL PORTFOLIO
Canadian
Model
Equity Index 100%
1991−2010
1
Portfolio S&P/TSX Canadian Large Cap Index
Composite
It’s not enough to Annualized Return (%) 9.80
Annualized
diversify by security. Standard Deviation (%) 16.91
Deeper diversification
involves geographic
and asset class 10% Each
Global Model
diversity. Holding Diversified
Canadian Large Cap Index
Canadian Large Cap Value Index
a global portfolio Equity Index
1991−2010
1
Portfolio Globally Canadian Small Cap Index
helps reduce risk International Small Cap Index
and increase Annualized Return (%) 9.74 Diversified US Large Cap Index
US Value Index
expected returns. Annualized
Standard Deviation (%) 13.87
Portfolio US Small Cap Index
US Real Estate Index
International Value Index
International Large Cap Index
For illustrative purposes only. In Canadian dollars.
Canadian Large Cap is the S&P/TSX Composite Index. Canadian Value is the MSCI Canada IMI Value Index (gross dividends) for June 1998-present, and Barra Canada Value Index for January 1982-
May 1998. Canadian Small Cap is the MSCI Canada Small Index (gross dividends) for January 1999-present, and Barra Canadian Small Cap Index for July 1990-December 1998. US Large Cap is the
S&P 500 Index. International Value is the MSCI EAFE Value Index (net dividends), and International Large Cap is the MSCI EAFE Index (net dividends). International Small is: 1970-June 1981, 50%
UK small cap stocks provided by the London Business School and 50% Japan small cap stocks provided by Nomura Securities; July 1981-present, compiled by Dimensional from StyleResearch
securities data; includes securities of MSCI EAFE Index countries, market-capitalization weighted, each country capped at 50%. US Value is the Russell 3000 Value Index. US Small Cap is the CRSP
6-10 Index. US Real Estate is the Dow Jones US Select REIT Index. S&P/TSX data provided by S&P/TSX. Barra data provided by MSCI Barra. S&P data provided by Standard & Poor’s Index Services
Group. MSCI data copyright MSCI 2011, all rights reserved. Russell data copyright © Russell Investment Group 1995-2011, all rights reserved. CRSP data provided by the Center for Research in
Security Prices, University of Chicago. Dow Jones US Select data provided by Dow Jones Indexes. Standard deviation is a statistical measure of risk. Generally speaking, the higher the standard
deviation, the greater the risk.
1. Date range selected is the longest common time series of whole years of data available. Rebalanced quarterly.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of
future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent
actual investment performance.

12. Many Canadians concentrate in their home stock market. They choose Canadian stocks and
mutual funds—or use several brokers who focus on Canadian equity investing. Many of these
investors may not consider their portfolios to be undiversified. Yet, from a global perspective,
limiting one’s investment universe to a single stock market is a concentrated strategy with
possible risk and return implications.
This slide compares a concentrated Canadian stock portfolio, as represented by the S&P/TSX
Composite Index, to a globally diversified portfolio holding ten equally weighted asset classes.
The January 1991−December 2009 time frame offers the longest data set in which returns for
all featured asset classes are available.
Over this period, the globally diversified portfolio had a slightly higher annualized return and a
substantially lower annualized standard deviation. The reduction in volatility can also be seen
by the decrease in the distribution range of quarterly returns.
Diversification should not be defined by how many stocks or funds an investor owns—or how
many brokers one uses. A diversified portfolio should include asset classes that are exposed
to different macro risk factors, with different dimensions of risk and return across the globe.
Many Canadians use fixed income to reduce the risk of their equity portfolio that is highly
concentrated in the Canadian equities market. Yet, they forgo the benefit of global
diversification. While adding fixed income to a portfolio will reduce risk, it will also reduce
expected returns. Global diversification is a more efficient means of risk reduction. Once the
equity portfolio is globally diversified, an investor may consider adding fixed income to further
reduce the portfolio risk, given one’s risk preference and financial profile.

13. 6 KEEP COSTS LOW
NET GROWTH OF $1 MILLION
Assumes 6.5% Annualized Return over 30 Years
1% Fee
$4,983,951
$5,000,000
Over long time periods, high
costs can drag down wealth
accumulation in a portfolio. $4,000,000
2% Fee
$3,745,318
Costs to consider include:
• Management fees 3% Fee
$3,000,000 $2,806,794
• Fund expenses
• Taxes
$2,000,000
$1,000,000
1 3 5 10 20 30
TIME (years)
In US dollars. For illustrative purposes only.

14. Active managers seek to beat the market through stock selection and market timing. They
generally charge higher fees than passive managers as compensation for their perceived
―skill.‖ Their active strategy also leads them to trade more frequently, which incurs higher
transaction costs.
High fees and costs can inflict a significant penalty on net investment returns and terminal
wealth, as the attached graph demonstrates for various cost levels.
Over a long period of time, such as thirty years, the difference between a 1%, 2%, and 3%
annual fee may determine the quality of your lifestyle in retirement.
Passive investments generally charge lower fees than the average actively managed
investment, while eliminating the costs of researching stocks and reducing both trading costs
and tax impact.

15. 7 DON’T CONFUSE
ENTERTAINMENT WITH ADVICE
• The television, print,
and online financial
media are in the business
of entertainment.
• The emphasis is often
on short-term, sensational,
and emotionally
charged headlines.
• These messages can
compromise long-term focus
and discipline, and lead to
poor investment decisions.

16. Building wealth in the capital markets is a long-term endeavor that does not frequently capture
media attention. The business and financial media look to more sensational news to attract
readers and keep advertisers.
The short-term focus is particularly obvious in articles that dispense investment advice and are
framed to appeal to human emotion, especially fear and greed. Investors should view these
messages as entertainment, not advice, and resist the temptation to act on them.

17. 8 MANAGE YOUR EMOTIONS
COMMON COGNITIVE ERRORS AND BIASES
• OVERCONFIDENCE • FAMILIARITY
• SELF ATTRIBUTION • MENTAL ACCOUNTING
• HINDSIGHT • REGRET AVOIDANCE
• EXTRAPOLATION • CONFIRMATION

18. Behavioral finance examines the influence of social beliefs, psychology, and emotion on
economic decision making. Research suggests that humans are not naturally wired for making
good investment decisions, due to cognitive errors and behavioral biases.
Investors who are aware of this tendency are better positioned to avoid:
• Overconfidence: People overestimate their ability to anticipate future investment results.
• Self attribution: Investors may take credit for their successful investment decisions, while
blaming bad outcomes on outside influences.
• Hindsight: When viewing past outcomes, investors may apply selective recall and conclude
that future movements were obvious at that time.
• Extrapolation: Investors may expect recent market results to continue in the future, and
may place too much weight on certain factors or recent events.
• Familiarity: People may limit investing to areas in which they are familiar, resulting
in a false sense of control.
• Mental accounting: People partition their wealth in categories, resulting in inconsistent and
fragmented financial decisions.
• Regret avoidance: Investors who have experienced painful financial events tend to avoid
those investments or markets in the future.
• Confirmation: Investors seek out or interpret information that confirms what they
want to believe about an investment, markets, or their own skill.

19. 9 AVOID INVESTMENT MISTAKES
COMMON INVESTMENT PITFALLS
• NO INVESTMENT PLAN • MARKET TIMING
• LACK OF MANAGER SCRUTINY • WRONG TIME HORIZON
• CHASING PERFORMANCE • FORECASTING
• OVERCONCENTRATION • EXCESSIVE RISK TAKING

20. In today’s sophisticated marketplace, investors have access to information, advice, and tools
to help them grow wealth effectively. With these resources at hand, it would seem natural that
people could pursue a successful investment experience.
But lack of insight, emotions, and the temptation to speculate keep many investors from
reaching their financial goals. Without a well-defined investment plan, they may pick money
managers for the wrong reasons and make other decisions that increase risk in their portfolios.
By understanding markets and the nature of risk, and by learning to manage their emotions,
investors may avoid mistakes that can compromise returns.

21. 10 KEEP A LONG-TERM PERSPECTIVE—
AND STAY THE COURSE!
9.14% 3.83%
S&P 500 ―Average‖ Equity
20-Year Annualized Return Fund Investor
(time weighted) 20-Year Annualized Return
(dollar weighted)
Comparing time-weighted index returns to dollar-weighted fund
returns suggests that the ―average‖ equity fund investor buys high
and sells low while owning a given fund for less than five years.
Source: DALBAR Quantitative Analysis of Investor Behavior (QAIB), 2011.

22. Each year, Dalbar measures mutual fund investor performance using data from industry cash flows
versus market indices.
The research shows that the ―average‖ equity fund investor significantly underperforms the market
average, as represented by the S&P 500 Index. (In this study, the market average is considered a
proxy for a ―buy-and-hold‖ investor.)
The main reason for this poor relative performance is lack of investment discipline. The short-term
focus of many fund investors compels them to buy high and sell low, and to hold funds for less than
five years, on average.
So, investment returns depend on investor behavior. Those who invest for the long term and stay the
course typically earn higher returns over time than investors who attempt to time market highs and
lows.