RISK MANAGEMENT How do you measure the risk of your savings not meeting

your retirement needs?

October 29th 2012

www.gnostam.com

Price of Barrel of Oil

Chart of US Treasuries 5 yr

Recent Depreciation of US $ �  How much value has $ lost since

2002? �  If had kept its “parity” with:

�  Chinese Yuan: Gallon of petrol $3.10 vs. > $4.00;

�  Euro: Gallon of petrol $2.90 vs. >$4.00;

�  Yen: Gallon of petrol $ 2.75 vs. > $4.00;

�  Swiss Franc: Gallon of petrol $2.50 vs. $4.00

How much Gold a $ would by in Mg

One 1963 $ now worth 15.7¢

Real Return if invested in T Bills since 1950

Real returns after taxes –ve!

Have TIPS kept up with inflation?

�  TIPS are US Treasuries that have their par value indexed to the Consumer Price index, while their coupon or interest remains fixed.

�  Implied inflation rate, [yield of 30 year TIPS minus yield on T bond] has been rising steadily. On 29th October 2012 it stood at 2.51%, while 30 year yield was 2.88%, so slight +ve return

�  But 10 year TIPS have a NEGATIVE return…. Or -0.76%.

Risk Management Solution �  You cannot rely on one asset class to protect

yourself from savings erosion, [inflation and US $ depreciation];

�  $ lost 3.56% per annum vs. Swiss Franc from 1/1/2004. Bonds returned approximately 4.95% pre tax. If paid 25% tax and fees, then the return would have been equal to inflation, and took more risk as duration approx 4-5 years, and included non AAA rated bonds;

�  Solution diversify with care….. It works, if you have a good idea of our risky environment and can develop …….. A STRATEGY FOR YOURSELF!

Thank you for your attention

Gnostam LLC PO Box 960 Inverness, CA 94937 USA Tel: 206 384 0069   E-mail: pcorsano@gmail.compcorsano@gnostam.com