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Beyond Investment Illusions
1
Investment Illusion vs. Investment Reality
2
ILLUSION
Looking For What’s Not Really There?
3
ILLUSION
The S&P 500 Index is a composite of 500 leading companies in the United States. Past performance does not guarantee future results. For illustrative purposes only. The performance shown is index performance and is not indicative of any investment. Investors cannot invest directly in an index. Data Sources: Morningstar and Hartford Funds, 1/20.
Volatility Must Be FearedShort-Term Volatility: S&P 500 Index Quarterly Returns % (1980–2019)
-30
-20
-10
0
10
20
30
1980 1990 2000 2010 2019
4
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
1980 1990 2000 2010
REALITY
$870,281
Long-Term Growth: Growth of a $10,000 Investment in S&P 500 Index (1980–2019)
Volatility Should Be Expected
Past performance does not guarantee future results. For illustrative purposes only. The performance shown is index performance and is not indicative of any investment. Investors cannot invest directly in an index. Data Source: Thomson Reuters and Hartford Funds, 1/20.
5
2019
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
1980 1990 2000 2010
REALITY
1T-Bills are guaranteed as to the timely payment of principal and interest by the U.S. Government and generally have lower risk-and-return than bonds and equity. Equity investments are subject to market volatility and have greater risk than T-Bills and other cash investments.Past performance does not guarantee future results. For illustrative purposes only. The performance shown is index performance and is not indicative of any investment. Investors cannot invest directly in an index. Data Source: Thomson Reuters and Hartford Funds, 1/20.
Hypothetical Growth of $10,000 invested in S&P 500 Index (1980–2019)
Two Approaches To Volatility
$1,340,387
$407,613
Opportunistic: Added $2,000 every time the market dropped 8% or more in a month.
Apprehensive: Moved $2,000 into 30-Day US T-Bills1 every time the market dropped 8% in a month.
6
2019
ILLUSION
Sometimes Things Aren’t as They Appear
7
ILLUSION
Investors Believe Fixed Investments Are Risk-FreeAverage Annual Returns (1980-2019)
Equities¹ Bonds² Cash Investments³
11.81%
8.89%
4.23%
¹Equities are represented by the S&P 500 Index. 2Bonds are represented by the Ibbotson U.S. Long-Term Government Bond Index, an unweighted index which measures the performance of twenty-year maturity U.S. Treasury Bonds. Each year a one-bond portfolio containing the bond having closest to 20 years to maturity is constructed. To measure holding period returns for the one-bond portfolio, the bond is priced (with accrued coupons) over the holding period and total returns are calculated. The index includes reinvestment of income.³Cash investments are represented by the Ibbotson SBBI U.S. 30 Day Treasury Bill Index, an unweighted index which measures the performance of one-month maturity U.S. Treasury Bills. Treasuries are issued and backed by the full faith and credit of the U.S. Government.Past performance does not guarantee future results. For illustrative purposes only. The performance shown is index performance and is not indicative of any investment. Investors cannot invest directly in an index. Data Source: Morningstar and Hartford Funds, 1/20.
8
REALITY
Every Investment Carries Its Own Risk
Equities¹ Bonds² Cash Investments³
8.49%
5.67%
1.13%
¹Equities are represented by the S&P 500 Index.2Bonds are represented by the Ibbotson U.S. Long-Term Government Bond Index, an unweighted index which measures the performance of twenty-year maturity U.S. Treasury Bonds. Each year a one-bond portfolio containing the bond having closest to 20 years to maturity is constructed. To measure holding period returns for the one-bond portfolio, the bond is priced (with accrued coupons) over the holding period and total returns are calculated. The index includes reinvestment of income.³Cash investments are represented by the Ibbotson SBBI U.S. 30 Day Treasury Bill Index, an unweighted index which measures the performance of one-month maturity U.S. Treasury Bills.Treasuries are issued and backed by the full faith and credit of the U.S. Government.*Taxes are not taken into account. Had taxes been included, the performance figures would have been lower. The above indices are unmanaged and unavailable for direct investment. Consumer Price Index (CPI) is an index representing the rate of inflation of U.S. consumer prices as determined by the U.S. Bureau of Labor Statistics based on the cost of a variety of goods and services.Past performance does not guarantee future results. For illustrative purposes only. The performance shown is index performance and is not indicative of any investment. Investors cannot invest directly in an index. Data Source: Morningstar and Hartford Funds, 1/20.
Inflation-adjusted Average Annual Returns* (1980-2019) AVERAGE ANNUAL INFLATION (CPI) RATE WAS 3.07%*
9
Bonds13 Years
REALITY
Every Investment Carries Its Own Risk
Based on the inflation-adjusted rates on the previous slide, how many years will it take to reach your investment goals? How long will it take for $100,000 to become $200,000?
Years to Double Your Money250 50 75
Equities8.5 Years
CashInvestments
62 Years
This hypothetical illustration is based on a mathematical formula and not intended to predict or project the performance of any investment.
Cash Investments 62 Years
Bonds 13 Years
Equities 8.5 Years
10
REALITY
Other types of risk beside volatility exist and have had a significant impact on many investors’ goals.
1. Inflation Risk
2. Tax Risk
3. Longevity Risk
11
ILLUSION
Bulls and Bears Are Predictable
12
ILLUSION
Bulls and Bears Are Predictable
Market Cycles: Hypothetical Growth of $10,000 invested in S&P 500 Index (1950–2019)
Past performance does not guarantee future results. For illustrative purposes only. The performance shown is index performance and is not indicative of any investment. Investors cannot invest directly in an index. Data Source: Morningstar and Hartford Funds, 1/20.
$10,000,000
$1,000,000
$100,000
$10,000
$1,000
Bulls
Bears
1950 1960 1970 1980 1990 2000 2010 2019
$18,773,818
13
48%
26%
26%
During a Bear Market
During the first 2 months of a Bull Market
During the rest of a Bull Market
REALITY
Trying to Avoid a Bear Market Can Hurt Returns
Data Source: S&P Dow Jones Indices, 2/15.
50 Best Days1990-2019
Data Source: Ned Davis Research and Hartford Funds, 1/20.14
7.7
%
5.1
%
3.5
%
2.6
%
2.0
%
0.7
%
-0.5
%-1%0%1%2%3%4%5%6%7%8%9%
7.7
%
6.0
%
4.5
%
3.2
%
2.6
%
2.1
%
1.0
%
0.0
%
-0.9
%
-1.8
%
-9%
-6%
-3%
0%
3%
6%
9%
Hu
nd
red
sREALITY
Timing the Market Is Impossible
Past performance does not guarantee future results. For illustrative purposes only. The performance shown is index performance and is not indicative of any investment. Investors cannot invest directly in an index. Data Source: Ned Davis Research and Hartford Funds, 1/20.
Penalties of Missing the Market’s Best MonthsS&P 500 Index Average Annual Total Returns: 1990-2019
Penalties of Missing the Market’s Best DaysS&P 500 Index Average Annual Total Returns: 1990-2019
Market Index – All monthsExcludes 5 best monthsExcludes 10 best monthsExcludes 15 best monthsTreasury Bills – All monthsExcludes 20 best monthsExcludes 25 best monthsExcludes 30 best monthsExcludes 35 best monthsExcludes 40 best months
Market Index – All daysExcludes 10 best daysExcludes 20 best daysTreasury Bills – All daysExcludes 30 best daysExcludes 40 best daysExcludes 50 best days
15
ILLUSION
Investing In Winners Can Be EasyStaying on course can be difficult
16
ILLUSION
Investing In Winners Can Be EasyWinning Asset Classes as of 2005-2019
The historical performance of each index cited in this material is provided to illustrate market trends; it does not represent the performance of any particular investment product. Indices do not include payment of any expenses, fees, or sales charges which would lower performance results.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Indices are unmanaged, are unavailable for direct investment, and do not represent the performance of a specific fund.
■ Large-Cap Growth stocks are represented by the Russell 1000 Growth index. ■ Mid-Cap Growth stocks and Mid-Cap Value stocks are represented by the Russell Midcap Growth and Russell Midcap Value indices, respectively. ■ Small-Cap Growth stocks and Small-Cap Value stocks are represented by the Russell 2000 Growth and Russell 2000 Value indices, respectively. ■ International (Int’l) stocks are represented by the MSCI EAFE Index. ■ Bonds are represented by the Bloomberg Barclays US Aggregate Bond Index. ■ Cash Investments are represented by the Bloomberg Barclays U.S. Treasury Bill (1-3 Months) Index. Data Sources: Morningstar and Hartford Funds, 1/20.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Int’l14.02
Int’l26.86
Large-CapGrowth11.81
Bonds5.24
Mid-CapGrowth46.29
Small-CapGrowth29.09
Bonds7.84
Mid-CapValue18.51
Small-CapGrowth43.30
Mid-CapValue14.75
Large-CapGrowth
5.67
Small-CapValue31.74
Large-CapGrowth30.21
Cash1.82
Large-CapGrowth36.39
17
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Int’l14.02
Int’l26.86
Large-CapGrowth11.81
Bonds5.24
Mid-CapGrowth46.29
Small-CapGrowth29.09
Bonds7.84
Mid-CapValue18.51
Small-CapGrowth43.30
Mid-CapValue14.75
Large-CapGrowth
5.67
Small-CapValue31.74
Large-CapGrowth30.21
Cash1.82
Large-CapGrowth36.39
Mid-CapValue12.65
Small-Cap Value23.48
Int’l11.63
Cash1.77
Large-CapGrowth37.21
Mid-Cap Growth26.38
Large-CapGrowth
2.64
Small-Cap Value18.05
Mid-CapGrowth35.74
Large-CapValue13.45
Bonds0.55
Mid-CapValue20.00
Int’l25.62
Bonds0.01
Mid-CapGrowth35.47
Mid-CapGrowth12.10
Large-CapValue22.25
Mid-CapGrowth11.43
Small-Cap Value-28.92
Small-CapGrowth34.47
Mid-CapValue24.75
Large-CapValue0.39
Int’l17.90
Small-Cap Value34.52
Large-CapGrowth13.05
Cash0.03
Large-CapValue17.34
Mid-CapGrowth25.27
Large-CapGrowth
-1.51
Small-CapGrowth28.48
DiversifiedPortfolio
7.82
Mid-CapValue20.22
Small-CapGrowth
7.05
DiversifiedPortfolio-33.45
Mid-CapValue34.21
Small-Cap Value24.50
Cash0.07
Large-CapValue17.51
Large-CapGrowth33.48
Mid-CapGrowth11.90
Mid-CapGrowth
-0.20
DiversifiedPortfolio
12.21
Small-CapGrowth22.17
Mid-CapGrowth
-4.75
Mid-CapValue27.06
Large-CapValue7.05
DiversifiedPortfolio
16.25
Bonds6.97
Large-CapValue-36.85
Int’l32.46
DiversifiedPortfolio
19.13
DiversifiedPortfolio
-1.15
Mid-CapGrowth15.81
Mid-CapValue33.46
DiversifiedPortfolio
8.05
Int’l-0.39
Small-CapGrowth11.32
DiversifiedPortfolio
17.48
DiversifiedPortfolio
-7.57
Large-CapValue26.54
Large-CapGrowth
5.26
Small-CapGrowth13.35
Cash4.78
Large-CapGrowth-38.44
DiversifiedPortfolio
29.07
Large-CapGrowth16.71
Mid-CapValue-1.38
DiversifiedPortfolio
15.31
Large-CapValue32.53
Bonds5.97
Small-CapGrowth
-1.38
Mid-CapGrowth
7.33
Large-CapValue13.66
Large-CapValue-8.27
DiversifiedPortfolio
25.90
Small-Cap Value4.71
Mid-Cap Growth10.66
DiversifiedPortfolio
4.58
Mid-CapValue-38.44
Small-Cap Value20.58
Large-CapValue15.51
Mid-CapGrowth
-1.65
Large-CapGrowth15.26
DiversifiedPortfolio
28.84
Small-CapGrowth
5.60
DiversifiedPortfolio
-1.40
Large-CapGrowth
7.08
Mid-CapValue13.34
Small-CapGrowth
-9.31
Int’l22.66
Small-CapGrowth
4.15
Large-CapGrowth
9.07
Large-CapValue-0.17
Small-CapGrowth-38.54
Large-CapValue19.69
Int’l8.21
Small-CapGrowth
-2.91
Small-CapGrowth14.59
Int’l23.29
Small-CapValue4.22
Large-CapValue-3.83
Bonds2.65
Small-CapValue7.84
Mid-CapValue-12.29
Small-CapValue22.39
Cash3.00
Cash4.80
Mid-CapValue-1.42
Int’l-43.06
Bonds5.93
Bonds6.54
Small-Cap Value-5.50
Bonds4.21
Cash0.05
Cash0.02
Mid-CapValue-4.78
Int’l1.51
Bonds3.54
Small-CapValue-12.86
Bonds8.72
Bonds2.43
Bonds4.33
Small-Cap Value-9.78
Mid-CapGrowth-44.32
Cash0.15
Cash0.13
Int’l-11.73
Cash0.08
Bonds-2.02
Int’l-4.48
Small-CapValue-7.47
Cash0.26
Cash0.82
Int’l-13.36
Cash2.21
REALITY
The historical performance of each index cited in this material is provided to illustrate market trends; it does not represent the performance of any particular investment product. Indices do not include payment of any expenses, fees, or sales charges which would lower performance results.
Annual Returns of Asset Classes (2005-2019)
Chasing Winners Is A Losing Battle
Best
Worst
18
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Indices are unmanaged and do not represent the performance of a specific fund. You cannot invest directly in the indices. ■ Large-Cap Growth stocks and ■ Large-Cap Value stocks are represented by the Russell 1000 Growth and Russell 1000. Value indices, respectively.■ Mid-Cap Growth stocks and■ Mid-Cap Value stocks are represented by the Russell Midcap Growth and Russell Midcap Value indices, respectively.. ■ Small-Cap Growth stocks and ■ Small-Cap Value stocks are represented by the Russell 2000 Growth and Russell 2000 Value indices, respectively. ■ International (Int’l) stocks are represented by the MSCI EAFE Index. ■ Bonds are represented by the Bloomberg Barclays US Aggregate Bond Index. ■ Cash Investments are represented by the Bloomberg Barclays U.S. Treasury Bill (1-3 Months) Index. Three-month Treasury Bills are short-term securities issued by the U.S. government that are generally considered to be risk-free. □ Diversified Portfolio is represented by an equal portion (12.5% each) of the previously listed indices, excluding Cash Investments.Data Source: Morningstar and Hartford Funds, 1/20.
$250,649
$303,526$339,227
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
REALITY
Chasing Winners Is A Losing Battle
Investing in the Worst Performers: previous year’s worst-performing index.*
Investing in the Best Performers: previous year’s best-performing asset class.**
Diversifying Your Investment: divided across all asset classes without rebalancing.
The Strength of Diversification: $10,000 Annual Investment (2005-2019)
Assumes a $10,000 annual investment at the start of each year.Does not include taxes or transaction costs; excludes cash investments.*The worst-performing asset class in 2004 was Cash. **The best-performing asset class in 2004 was Mid-Cap Value.Diversification neither assures a profit nor protect against a loss.For illustrative purposes only.Data Source: Morningstar and Hartford Funds, 1/20.
Investing in the Worst Performers*
Diversifying Your Investment
Investing in the Best Performers*
19
Getting Beyond the Illusions
Don’t Go It AloneAn investment representative can help:
Find investments for your financial goals
Minimize the effects of “emotional investing”
Educate you on the market and its history
Create A Strategy 5+ year strategy
Goals and time frame
Rate of return
Income strategy
Estate planning
20
Getting Beyond the Illusions
Asset Allocation1
Your investment representative can help you:
Understand the advantages of diversification
Learn how a well-diversified portfolio can help provide more balanced returns
Systematic Investing2
Takes advantage of normal shifts in the market
Strengthens your investment discipline
1Asset allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss.2Continuous or periodic investment plans neither assure a profit nor protect against loss in declining markets. Because systematic investing involves continuous investing regardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.
21
A Clearer Perspective
22
The after-effects of your investment decisions:Stare at the pictureunwaveringly for 30 seconds . . .
23
24
25
Index Descriptions:
Bloomberg Barclays U.S. Treasury Bill (1-3 Months) Index tracks the performance of all outstanding 0-3 month outstanding Treasury Bills issued by the US government.
Bloomberg Barclays U.S. Aggregate Bond Index is comprised of government securities, mortgage-backed securities, asset-backed securities, and corporate securities to simulate the universe of bonds in the market.
Dow Jones Industrial Average is price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.
The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted capitalization index that is designed to measure developed market equity performance, and excludes the US and Canada.
Russell 2000 Growth Index measures the performance of the small-cap growth segment of the US equity universe. It includes those Russell 2000 Index companies with higher price-to-book ratios and higher forecasted growth values.
Russell 2000 Value Index measures the performance of small-cap value segment of the US equity universe. It includes those Russell 2000 Index companies with lower price-to-book ratios and lower forecasted growth values.
Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the US equity universe. It includes those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values.
Russell Midcap Value Index measures the performance of the mid-cap value segment of the US equity universe. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values.
Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.
Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth values.
S&P 500 Index is an unmanaged list of 500 widely held U.S. common stocks frequently used as a measure of U.S. stock market performance.
Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.
Additional Information Regarding Bloomberg Barclays Indices Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
26
The MIT AgeLab is not an affiliate or subsidiary of Hartford Funds.
Investing involves risk, including the possible loss of principal. Fixed income risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall; these risks are currently heightened due to the historically low interest rate environment. Diversification does not ensure a profit or protect against a loss in a declining market.
Hartford Funds Distributors, LLC, Member FINRA. All information and representations herein are as of 12/19, unless otherwise noted. SEM_VOA_0320 215945