Keys to Investment Success

1. Keys to Investment Success Presentation by Jeremy Duffield Vanguard Investments Australia Ltd

2. Key Principles 1. Set your Goals & Objectives 2. Get the Asset Allocation right 3. Review the Risks 4. The Power of Diversification 5. Minimise Costs With Indexing

3. Section One Asset Allocation - your most important decision

4. 1. Setting Your Goals • Your Objectives • Your Time Horizon • Your Risk Tolerance • Your Financial Situation

5. 2. Asset Allocation • 90% of performance comes from asset allocation • Markets drive performance • Use time to select asset sectors

6. Asset Sector Performance Growth of $10,000 invested in June 1983

7. Asset Sector Performance 3. RiskVariability of Returns - 1 Year

8. 3. RiskVariability of Returns-1, 5, 10 Years Minimum and Maximum Aus Shares Int'l Shares 100 1, 5 and 10 yr Returns 80 Listed Property 60 Cash Aus Bonds 40 20 0 -20 1 5 10 1 5 10 1 5 10 1 5 10 1 5 10 -40

9. The Investor Challenge Long Term Return Short Term Risk

10. 4. DiversificationHolding a range of shares • Sharemarket return +10 % • 1 share -30 % to +50 % • top 20 shares -6 % to +26 % • top 300 shares -3 % to +23 %

11. Conservative International Shares 10% Cash 40% Listed Property 5% Australian Shares 15% Fixed Interest 30% Aggressive Fixed Interest 10% International Shares 30% Listed Property 10% Australian Shares 50% 4. DiversificationHolding a range of shares DiversificationHolding a range of assets

12. DiversificationPerformance of asset mixes DiversificationPerformance of asset mixes

13. Establishing your asset allocation - next steps • Read Guide to Asset Allocation • Determine your • objectives • time horizon • Risk tolerance  “risk quiz” • Determine your asset allocation • select a diversified fund or • create your own mix • Invest • Stay the Course

14. Section Two Implementing your asset allocation with Index Funds

15. Managed Funds • Pooling of many investors • Diversification • Professional Management • Convenience

16. Active v. Index INDEX FUNDS ACTIVE FUNDS • try to outperform • regular trading • higher costs • market performance • buy & hold • low cost

17. What is an Index Fund ? • an Index measures the change in value of a market over time • an Index fund tracks the performance of that market index

19. The Evidence #1 The Evidence #1 Retail Trusts Vs the Index (6 years to Sept 2000) (before tax after fees )

20. The Evidence #2 Retail Trusts Vs the Index (6 years to Sept 2000) (before tax after fees)

21. Why Index ? “Trying to beat the market represents the triumph of hope over experience” John C. Bogle Founder Vanguard Group

22. 5. Costs Matter • After asset allocation, costs most important • Start by controlling known costs • up front fees • exit fees • MER (annual management expenses) • commissions

23. Performance of $100,000 over 10 Years at 10%pa

24. The Index Fund CostAdvantage The Index Fund Cost Advantage Active Fund Costs Index Fund Costs Taxes * 0.1% Management Expense Ratio .35 - .95% Transaction Costs * 0.1% * Costs of Turnover

25. Using Index Funds Direct Property Index Core Direct Shares Active Funds

26. Review - Key Principles 1. Set Your Goals & Objectives 2. Get the Asset Allocation right 3. Review the Risks 4. The Power of Diversification 5. Minimise Costs 6. Stay the Course

27. Vanguard’s Index Funds • Nine Funds 6 Asset Sector Funds • International Shares • International Shares (Hedged) • Australian Shares • Property Securities • Diversified Bonds • Cash Plus • 3 Diversified Funds • High Growth • Growth • Conservative

28. Vanguard’s Index Funds • $5,000 minimum investment • No entry fees • No commissions • Management Expense Ratios (MER) less than half the industry average • 0.70% to 0.90% with reduced fees for amounts over $50,000 and $100,000

29. Section Three Questions?

30. Thank You