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© 2020 by Hartford Funds1
Back From the Future
Developed in collaboration with Annie Duke
© 2020 by Hartford Funds
© 2020 by Hartford Funds 2
• For two decades, Annie was one of the top poker players in the world
• 2004 Won a World Series of Poker bracelet
• 2004 Won the World Series of Poker Tournament of Champions
• 2010 Won the NBC National Poker Heads-Up Championship
• Prior to becoming a professional poker player, Annie was awarded a National Science Foundation Fellowship to study Cognitive Psychology at the University of Pennsylvania
• Author of “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts”
Annie DukeDecision Strategist & Former Poker Pro
© 2020 by Hartford Funds3
“Many people think investing is like chess—if you have the right strategy, you’ll win every time. But the day-to-day movements in the market can make investing feel much more like poker than chess.”
Annie Duke
© 2020 by Hartford Funds4
Agenda
The Long Shadow of Results
Using Time Travel to Make Better Decisions
Ulysses Agreements: The Sweet Song Of Sticking to aPlan
© 2020 by Hartford Funds
© 2020 by Hartford Funds
The Long Shadow of Results
© 2020 by Hartford Funds
© 2020 by Hartford Funds
The Long Shadow of Results
6
Worst Call Ever? Best Call Ever?
“Resulting” is the process of using the quality of an outcome to judge the quality of the decision that led to that outcome.
© 2020 by Hartford Funds
The Long Shadow of Results
7
The Relationships Between Decision Quality and Outcome Quality
© 2020 by Hartford Funds
The Long Shadow of Results
8
While Equities Soared, a Person With a Balanced Portfolio Wanted More Equities and Less Bonds (4/3/18–10/2/18)
All Stocks Portfolio—100% S&P 500 Index
Balanced Portfolio—60% S&P 500 Index and 40% Bloomberg Barclays US Aggregate Bond Index
All Bonds Portfolio—100% Bloomberg Barclays US Aggregate Bond Index
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Data Source: Morningstar, 2018. Index descriptions are included on last slide. For Illustrative purposes only. The performance shown is index performance and is not indicative of any Hartford mutual fund. Investors cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
© 2020 by Hartford Funds
The Long Shadow of Results
9
While Equities Declined, a Person With a Balanced Portfolio Wanted More Bonds and Less Equities (10/3/18–12/24/18)
All Stocks Portfolio—100% S&P 500 Index
Balanced Portfolio—60% S&P 500 Index and 40% Bloomberg Barclays US Aggregate Bond Index
All Bonds Portfolio—100% Bloomberg Barclays US Aggregate Bond Index
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Data Source: Morningstar, 2018. Index descriptions are included on last slide. For Illustrative purposes only. The performance shown is index performance and is not indicative of any Hartford mutual fund. Investors cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
© 2020 by Hartford Funds
The Long Shadow of Results
10
A Balanced Portfolio Came Out on Top (Even Though We Were Usually Disappointed at One Time or Another)
Years Stocks BondsBalanced
(60% stocks/40% bonds) Investor Mindset
2000-2002 -37.6% 33.5% -13.3% “Why do I own stocks?”
2003-2007 82.9% 24.2% 57.8% “Why do I own bonds?”
2008 -37.0% 5.2% -20.1% “Why do I own stocks?”
2009-2017 258.8% 40.7% 152.1% “Why do I own bonds?”
2018 -4.4% 0.0% -2.6% “Why do I own stocks?”
2019 31.5% 8.7% 22.4% “Why do I own bonds?”
Cumulative Returns 224.2% 166.9% 228.3%
Growth of $100k $324,209 $266,866 $328,340
Diversification does not ensure a profit or protect against a loss. From 2000-2019, a balanced portfolio (60% stocks/40% bonds), would have outperformed both stocks and bonds.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The performance shown above is index performance shown for illustrative purposes only and is not representative of any Hartford Fund’s performance. “Stocks” are represented by the S&P 500 Index, and “Bonds” are represented by the Bloomberg Barclays US Aggregate Bond Index. Indices are unmanaged and not available for direct investment. For illustrative purposes only. Source: Morningstar and Hartford Funds, 12/19.
© 2020 by Hartford Funds11
Using Time Travel to Make Better Decisions
© 2020 by Hartford Funds
© 2020 by Hartford Funds
Using Time Travel to Make Better Decisions
12
Two Methods of Time Travel
Backcasting: Imagine a future where your goal is reached. Then imagine how and why you reached your goal.
Pre-mortem: Imagine a future where your goal isn’t reached. Then imagine how and why you didn’t reach your goal.
© 2020 by Hartford Funds
Using Time Travel to Make Better Decisions
13
Backcasting—Diet
I stuck to my diet
I planned each day’s meals in advance
I ate out less
I scheduled a series of personal training sessions
I brought healthy food to work
© 2020 by Hartford Funds
© 2020 by Hartford Funds
Using Time Travel to Make Better Decisions
14
Pre-mortem—Diet
My kids have chips and cookies in their lunch, so that stuff is always around the house
I lost control of my eating when I was up late at night
I went on a vacation and ignored my diet the whole time
I didn’t have time in the morning to exercise
© 2020 by Hartford Funds
© 2020 by Hartford Funds
Using Time Travel to Make Better Decisions
15
Backcasting—InvestingImagine a future where your goal is reached
Geopolitical Events(kept perspective)
Bull Markets(didn’t get greedy)
Bear Markets(buying opportunity)
Tweets(didn’t follow)Hot Trends
(thought you were missing out)
Sector Shifts(didn’t chase them)
Government Policy(didn’t get rattled)
Fund Ratings(didn’t chase 5-star funds)
Rising Markets(stuck to your plan)
Volatile Markets(expected them)
The Media(tuned it out)
© 2020 by Hartford Funds
© 2020 by Hartford Funds
Using Time Travel to Make Better Decisions
16
Geopolitical Events(avoided international
investments)
Bull Markets(changed allocation)
Bear Markets(this one’s different)
Tweets(followed them)
Hot Trends(bought high, sold low)
Sector Shifts(went all-in)
Government Policy(overanalyzed)
Fund Ratings(chased 5-star funds)
Rising Markets(overoptimistic)
Volatile Markets(panicked!!!)
Pre-mortem—InvestingImagine a future where your goal isn’t reached
The Media(watched too much)
© 2020 by Hartford Funds
© 2020 by Hartford Funds17
Ulysses Agreements: The Sweet Song of Sticking to a Plan
© 2020 by Hartford Funds
© 2020 by Hartford Funds
Ulysses Agreements: The Sweet Song of Sticking to a Plan
18
© 2020 by Hartford Funds
Ulysses Agreements: The Sweet Song of Sticking to a Plan
19
Individual Investors Have Underperformed Market IndicesAverage Annual Returns for the 30 Year Period Ending 12/31/2019
Data Source: DALBAR’s Annual Quantitative Analysis of Investor Behavior (QAIB), 2020. Performance data for indices represents a lump sum investment in January 1990 to December 2019 with no withdrawals. Stocks are represented by the S&P 500 Index. Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index. Indices are unmanaged, unavailable for direct investment, and do not reflect fees, expenses, or sales charges. Unmanaged index returns do not reflect any fees, expenses or sales charges. Index performance is not indicative of any Hartford fund. See last slide for index descriptions.Dalbar’s Quantitative Analysis of Investor Behavior Methodology - Dalbar’s Quantitative Analysis of Investor Behavior uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1990, to December 31, 2019, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for various periods. These results are then compared to the returns of respective indices.Average equity investor and average bond investor performance results are calculated using data supplied by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor return rate and annualized investor return rate. Total investor return rate is determined by calculating the investor return dollars as a percentage of the net of the sales, redemptions, and exchanges for each period.
Average Equity Investor
S&P 500Index
Average FixedIncome Investor
Bloomberg Barclays US Aggregate
Bond Index
© 2020 by Hartford Funds
Ulysses Agreements: The Sweet Song of Sticking to a Plan
20
The Siren’s Call of Hot Trends$10,000 initial investment
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. 1Data Source: Factset, 2019—NASDAQ, 2Data Source: Factset, 2019—WTI Crude Oil ($/bbl), 3Data Source: Factset, 2019—NYSE Bitcoin Index
Index descriptions are included on last slide. For Illustrative purposes only. The performance shown is index performance and is not indicative of any Hartford mutual fund. Investors cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Tech Investor1 Oil Investor2 Bitcoin Investor3
© 2020 by Hartford Funds
Ulysses Agreements: The Sweet Song of Sticking to a Plan
21
Tech Investor1 Oil Investor2 Bitcoin Investor3
Hot Trends Can Fizzle Quickly$10,000 initial investment
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. 1Data Source: Factset, 2019—NASDAQ, 2Data Source: Factset, 2019—WTI Crude Oil ($/bbl), 3Data Source: Factset, 2019—NYSE Bitcoin Index
Index descriptions are included on last slide. For Illustrative purposes only. The performance shown is index performance and is not indicative of any Hartford mutual fund. Investors cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
© 2020 by Hartford Funds
Ulysses Agreements: The Sweet Song of Sticking to a Plan
22
Bear Markets Can Throw Us Off Course3 Possible Paths Through 11 Bear Markets (or Near Bears)1
Consistent Contributor (60% S&P 500 Index and 40% Bloomberg Barclays US Aggregate Bond Index; Adds $100 extra each month)
Balanced Investor (60% S&P 500 Index and 40% Bloomberg Barclays US Aggregate Bond Index)2
Apprehensive Investor (100% Bloomberg Barclays US Aggregate Bond Index)2
Bear Markets (and Near Bear Markets)
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. 1Data Source: Morningstar, 2019. 2No further investments were made. 3Data Source: Ned Davis Research, 2019. Index descriptions are included on last slide. For Illustrative purposes only. The performance shown is index performance and is not indicative of any Hartford mutual fund. Investors cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Bears Markets (and Near Bear Markets)3
© 2020 by Hartford Funds
Ulysses Agreements: The Sweet Song of Sticking to a Plan
23© 2020 by Hartford Funds
© 2020 by Hartford Funds
Ulysses Agreements: The Sweet Song of Sticking to a Plan
24
Balanced Investor (60% S&P 500 Index and 40% Bloomberg Barclays US Aggregate Bond Index)
Big Drops and Negative Headlines Can Tempt Us to Change Course$100,000 initial investment
“Stocks Plunge Worldwide on Fears of a US Recession” CNN Money, 1/21/08
“Worst Crisis Since ‘30s, With No End Yet in Sight” The Wall Street Journal, 9/18/08
“Consumer confidence index at all-time low” CNN Money, 10/28/08
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Data Source: Morningstar, 2019. Index descriptions are included on last slide. For Illustrative purposes only. The performance shown is index performance and is not indicative of any Hartford mutual fund. Investors cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
© 2020 by Hartford Funds
Ulysses Agreements: The Sweet Song of Sticking to a Plan
25
Balanced Investor (60% S&P 500 Index and 40% Bloomberg Barclays US Aggregate Bond Index)
Reactionary Investor (Invests as a balanced investor, then moves 100% into 3-month T-Bills when the market dropped 30%)
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Data Source: Morningstar, 2019. Index descriptions are included on last slide. For Illustrative purposes only. The performance shown is index performance and is not indicative of any Hartford mutual fund. Investors cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Big Drops and Negative Headlines Can Tempt Us to Change Course$100,000 initial investment
© 2020 by Hartford Funds
Ulysses Agreements: The Sweet Song of Sticking to a Plan
26
The Market Has Recovered After Major CrisesDow Jones Industrial Average change* following 51 major geopolitical crises 1900–2014
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Source: Most investors worry about the wrong things when international drama hits the headlines, MarketWatch, 7/3/18. Index descriptions are included on last slide. For Illustrative purposes only. The performance shown is index performance and is not indicative of any Hartford mutual fund. Investors cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. *Measured from the market’s level prior to crisis hitting the market
1 Month after crisis
3 Months after crisis
6 Months after crisis
1 Year after crisis
© 2020 by Hartford Funds
Ulysses Agreements: The Sweet Song of Sticking to a Plan
27
Create a Ulysses Agreement with Your Financial Professional
• Backcasting exercise
• Pre-mortem exercise
• Pre-commitments for actions you’ll take
– When the market soars
– When the market plunges
– When headlines are negative
– Checking your portfolio value
– How often you’ll meet with your financial professional
© 2020 by Hartford Funds28
Summary
The Long Shadow of ResultsLuck can play a role in outcomes
Using Time Travel to Make Better DecisionsLooking back from the future
Ulysses Agreements: The Sweet Song Of Sticking To A PlanPre-committing to decisions ahead of time
© 2020 by Hartford Funds
© 2020 by Hartford Funds29
The Bottom Line
It turns out that the best way to sharpen our view of what lies ahead is to imagine looking back on what has already happened.
—Annie Duke
© 2020 by Hartford Funds
© 2020 by Hartford Funds
Next Steps
1. Get our “Back From the Future” brochure
2. Do backcasting and pre-mortem sessions with your financial professional
3. Work with your financial professional to create a Ulysses Agreement
30
MAI165
© 2020 by Hartford Funds31
Index Descriptions:
Indices are unmanaged, and unavailable for direct investment and do not represent the performance of any Hartford Funds.
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.
Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.
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.
3-month US Treasury Bill is a short-term U.S. government security with a constant maturity period of 3 months. The Federal Reserve calculates yields for“constant maturities” by interpolating points along a treasury curve comprised of actively traded issues of term (e.g., 1 month) maturities.
NASDAQ is a market-value weighted index of all common stocks listed on the National Association of Securities Dealers automatic quotation market. NASDAQ is commonly used as a barometer of tech stocks.
WTI Crude Oil West Texas Intermediate (WTI) crude oil is produced, refined, and consumed in North America. It is lighter and sweeter than the other major oil benchmarks: Brent crude and Dubai crude.
NYSE Bitcoin Index aims to represent the value of (1) bitcoin in U.S. Dollars (USD) as of 4 PM U.K. time each weekday. The Index is calculated sourcing data from qualified exchanges, currently GDAX and itBit. Only bitcoin transactions conducted in USD are eligible to be input into the Index.
Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market. Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall.
The views and opinions expressed herein are those of Annie Duke, who is not affiliated with Hartford Funds. The information contained herein should not be construed as investment advice or a recommendation of any product or service nor should it be relied upon to, replace the advice of an investor’s own professional legal, tax and financial professionals.
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.
References to third party marks and content are for illustrative purposes only. No endorsement or association with a third party is intended unless otherwise disclosed. Hartford Funds Distributors, LLC, Member FINRA.
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