1. INVESTING AT LEVEL 3 Review and Discussion Lou Annacone, Facilitator
James B Cloonan, Founder
Higher Returns With Minimal Risk and Cost
for the Long Term Individual Investor
Review and Discussion
Lou Annacone,
Facilitator

2. Welcome to Austin Chapter AAII Holiday Party and Review
Hello Individual Investors,
Ladies and Significant Others.
Two things to remember
1. I didn't write the book
2. This talk is for everyone

3. Disclaimer You are urged to seek independent verification
AAII is a non-profit Investment Education Leader
For over 30 years AAII has provided unbiased investment education to over a million Individual Investors
Home office staff in Chicago has PhDs, CFAs and other investment professionals
AAII sells NO financial products or advise
other than Low Cost Subscriptions and Analysis tools
AAII Austin is an Independent Volunteer Chapter
You are urged to seek independent verification
and visit AAII.com for the full disclaimer

4. LOU's Comments and Critique
It's a do it yourself approach
Level3 investing provides
strategies and techniques for the long term
Thus it is more appropriate for
investors with a 20 year horizon or as an extra
It is a simple basic approach for Passive Investors.
The concern is with Accumulation
rather than dividends.
Basically a smarter less costly EFT index
approach based on common sense results

5. what effort, with who, using what.
The Investors Process
Inter
mediates
You
Investments
Stocks
ETFs
Funds
Indexes
Bonds
Metals
REITs
Experience
Psych
Brain
Effort
Advisors
Brokers
None
Rules
Fees
Your task is to choose
what effort, with who, using what.
And it ain't easy !

6. 4 Objectives Provide a framework to overcome the barriers of
Show that Modern Portfolio Theory and Fundamental
Analysis "falls short" in achieving possible levels of
return for Long Term Individual Investors
Offer alternatives to increase Wealth
and Income that are Reality Based
instead of Theoretical model based
Argue that controlling "Real Risk" rather than
short term "Ghost Risk" is the meaning of
Level3 Investing for the long term
Provide a framework to overcome the barriers of
Psychology, Excess Costs, Volatility Noise and
Misdirection of the Financial Advisor industry

7. The Levels Level 1 Level 2 Level3 Most Investment Advisers
'It's the "Psst method..." Any tips?
Impulsive and Emotional and Luck based
Marked by constant Buy and Sell actions and costs.
Level 2
Efficient Market - Modern Portfolio Theory approach
Most Investment Advisers
base advice on Asset Allocation, Efficient Frontier
as the academic model
of Risk and Return, Rational Actions and Random Chance
This is the "Best Practices" option preferred by
the Investment Services Industry
Level3
A new strategy based on Reality Common Sense
rather than a forced Mathematically based models
of Return and Risk

8. The Impact of 1974 ERISA and Beyond
The Employee Retirement Income Security Act
Move to Defined Contribution Plans and away from
Defined Benefit Plans
Retirement Plan Risk shifted from Employers to Employees
Today DC plans hold $5 Trillion managed by FAs and investment providers
The Mutual Fund and Financial Advisor Industry
has blossomed to as a self regulated multi $Trillion cartel
The 401k and other tax advantaged plans also
grew out of this Law

9. Not having assets that you will need long term
RISK
Academic
The Probability of an unwanted event or state
Moral
Transfer of cost to some one due to lack of info
Practical
Non math based - having fewer Assets when needed
Level3
Not having assets that you will need long term

10. Why You May Fail - Active
Research Inappropriate - Basically not understanding
what matters
Adviser Hunt and Switch - Falling for promises to
move your money
Churning - Sell,buy, buy, sell,
Pay fees to chase returns
Far too often the problem is... YOU

11. Index - "Shmindex (it's marketing)"
The S&P 500 is most well known,
it's touted as unmanaged and passive
Secret meeting each year ?
It is a top heavy weighted list that various company
"Index Funds" are based on.
Majority of $ managers fail to beat the market
and then you have to pay their fees plus fund fees
Fees can burden Longterm investment
by half or more of the potential growth
Level3 Passive Strategy suggests
low cost equal weight indexes that out perform

12. Level3 Passive Portfolio
40% RSP Guggenheim S&P 500 Equal Weight EFT .40 xp
Reduces bias toward the largest companies and
provides broad exposure to achieve attractive risk-adjusted performance results. 
20% EQAL PowersShares Russell 1000 EW ETF .20 xp
An unmanaged index considered representative of large-cap stocks.
Diverse style holdings of 29% Lg, 54% Mid and 17% Sm 
20% VOE Vanguard Midcap Value ETF .08 xp
MSCI USA Mid Cap Value Index based captures mid cap US securities. The value investment
variables: book value to price, 12-month forward earnings to price and dividend yield
20% VNQ Vanguard REIT ETF .12 xp
MSCI US REIT Index based it is comprised of equity REITs. The index is based on
capturing large, mid and small caps securities invested in Health, Office and Retail
ALL ETFs - ALL low cost

13. 10 year time line

14. or International Investments ?
The Bond Mattress and Foreign Conflicts
Why no Bonds, SmallCap
or International Investments ?
Practical analysis of significant Bond holdings during
the Longterm Accumulation Phase confirms
limited growth and increased risk of not meeting goals
Small and Micro Caps can have high volatility
and be a drag on performance just when needed
Foreign investments are shown to be higher risk
and higher fee cost for retirement accumulation

15. Fidelity- Saver for Retirement
Example Advisor Recommended Portfolio
Fidelity- Saver for Retirement
Contra Fund - FCNTX - .70% exp
International Discovery Fund - FIGRX exp
Large Cap Stock Fund - FLCSX exp
Short Term Bond Fund - FSHBX exp
Small Cap Discovery Fund *- FSCRX exp
Strategic Income Fund* - FSICX exp
* Substitute this fund to make it an in Retirement Portfolio
Use Portfoliovisualizer.com to find 20 yr returns- then add costs

16. Passive or Aggressive
A passive portfolio is a lower cost and risk index based
attempt to match market returns
An Aggressive portfolio uses a variety of plays
in an attempt to beat market returns
AAII Level3 Passive Portfolios
Plan Z - 100% Guggenheim ETF
Enhanced Z - Add 20% VNQ.
L3 Portfolio 4 ETFs - 12% ret
AAII Active Model Fund Portfolios
Model Fund - 3 Mutuals & 6 ETFs
Shadow Stock- 20 Micro Caps- 15.4% ret

17. .COM
L3 Web site
Gone fishin' Oxford

18. Summary Opinion Investing at Level3 is the culmination of the
life work of the founder of AAII
It is a primer for investing for the long term with
basic terms defined and well thought out strategies
Everyone can benefit from Level3
but our children and grandchildren
would see the greatest impact
The Passive Level3 approach can mean
double or more resources available for retirement
We should all share Unbiased Investment Education
with our Children and Grandchildren

19. Thank You AAII Austin Chapter a Look Ahead January - Tuomo Lampinen
PortfolioVisualizer.com
February - Richard Smith. CEO
TradeSmith.com
AAII SanAntonio Roadshow ?
Extra meetings, 1 per quarter