State of the

Markets2014

Name/Company 2013 S&P 500 Target

Stephen Auth – Federated Investors

Barry Knapp – Barclays Capital

Jeffrey Knight – Putnam Investments

Russ Koesterich – BlackRock

David Kostin – Goldman Sachs

Thomas Lee – JP Morgan Chase

Tobias Levkovich – Citi Research

Adam Parker – Morgan Stanley

John Praveen – Prudential International

Savita Subramanian – Bank of America

GROUP AVERAGE

Source: Barrons.com

Who accurately predicted the S&P 500 in 2013? FORECASTS

FINANCIAL TRIVIA

Name/Company 2013 S&P 500 Target

Stephen Auth – Federated Investors 1,660

Barry Knapp – Barclays Capital 1,525

Jeffrey Knight – Putnam Investments 1,490

Russ Koesterich – BlackRock 1,545

David Kostin – Goldman Sachs 1,575

Thomas Lee – JP Morgan Chase 1,580

Tobias Levkovich – Citi Research 1,615

Adam Parker – Morgan Stanley 1,434

John Praveen – Prudential International 1,600

Savita Subramanian – Bank of America 1,600

GROUP AVERAGE 1,562 ( off by average of 20%)

Source: Barrons.com

Who accurately predicted the performance of the S&P 500 for 2013?

Correct Answer: None of Them

FINANCIAL TRIVIA

"The only value of stock forecasters is to make fortune-tellers look good.“

Warren Buffett

We do not have, never have had, and never will have an opinion about where the stock market, interest rates, or business activity will be a year from now.

Warren Buffett

Agenda

Firm Update

Align’s Approach

Market Factors

The Distinction: Volatility v. Risk

Align Wealth Management

Fiduciary Wealth Management

Serving community of 1 3 0 C L I E N T S

$ 1 8 5 M I L L I O N under management

Over 2 0 Y E A R S O F S U C C E S S

Our passion is helping you make the most of your one financial life.

Experience • Independence • Transparency

+29.6%

2013 SNAPSHOT

Dec 28 Close1,402.43

Dec 31 Close1,848.36

Best year since 1997

9

Financial Headlines from 2013

“Rebirth of Equities Ain’t Necessarily So” January 12, Financial Times

“Stock Markets Defy Economic Woes” March 7, Financial Times

“Stock Market Optimism on This Scale Hard to Explain” May 18, Financial Times

“U.S. Government Shutdown Battle Looms as Budget Woes Fester” June 7, Wall Street Journal

“As Investors Rush in, Stocks Are Sending Warning Signals” July 7, Wall Street Journal

“Lofty Profit Margins Hint at Pain to Come for U.S. Shares” August 24, Wall Street Journal

“Get Ready For a Drop in Stock Prices” October 7, Wall Street Journal

“Is This a Bubble?” November 16, Wall Street Journal

% of Time Stocks Up

Following Year

Average Gain Following Year

Whenever market is up at least 20% for the year 64.5% 7.4%

All years other than when market gains more than 20% 65.9% 7.2%

Whenever market is up for the year 65.0% 8.4%

All years since 1896 65.2% 7.2%

A HISTORY LESSON

A History Lesson

Treasury Yields Nearly Doubled from Mid-Year Lows

150.0%

160.0%

170.0%

180.0%

190.0%

200.0%

210.0%

220.0%

230.0%

240.0%

250.0%

260.0%

270.0%

280.0%

290.0%

300.0%

310.0%10-Year U.S. Treasury Yield

Source: Federal Reserve

Data as of 12/26/2013

Barclays Aggregate Bond Index (formerly the Lehman Brothers Aggregate Bond Index) includes U.S. government, corporate, and mortgage-backed securities with maturities of atleast one year. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Data Source: Google Finance. All data as of December 31st, 2013.

BONDS

Why Own Bonds?

Aug '81 - Aug '82 Mar '00 - Oct '02 Oct '07 - Feb '09S&P 500* (-23.4%) S&P 500* (-22.52%) S&P 500* (-40.25%)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%23.1%

10.6%

5.1%

14.4%

6.4%

4.6%

Barclays Agg Returns* Starting 10yr Treasury Yield

Equity Market Declines

Star

ting

Yiel

d /

Retu

rn o

n Co

re B

onds

Source: Litman Gregory Analytics. *Annualized Returns.

Why Own Bonds?

US StockMarket

GlobalReal Estate

International Developed Stocks

US Bond Market

Global Bonds

+32.39% +22.78% +1.73% -2.02% 1.42%

Emerging MarketsStocks

BONDSSTOCKS

-2.60%

Market Summary

2013 Annual Index Returns

Opportunistic Rebalancing IPB p 27

Our Investment Philosophy

Our approach in plain English

Evidenced-based Investing

Leverage academic research to master diversification

Engage only risks worth taking

Customize Your Portfolio to minimize risk, cost, tax

Rather than try to outguess the market, let it work for you

Building a PortfolioFour Principles to Our Discipline

TODAY’S INVESTMENT CLIMATE

For Advisor Use Only

Yea, But What About the Taper?

Source: UBS U.S. Equity and Derivatives Strategy 2014 Outlook

RISING RATES AND STOCKS1988: Rates up 3.25%

S&P 500 Stock Index +16.6%AGG Bond Index + 7.9%

1994: Rates up 3.00%

S&P 500 Stock Index + 1.3%AGG Bond Index - 2.9%

1999: Rates up 1.75%

S&P 500 Stock Index + 21.0%AGG Bond Index - .8%

2004: Rates up 4.25%

S&P 500 Stock Index + 10.9%AGG Bond Index + 4.3%

What Do Higher Rates Mean?

So, Where Are We Now?

1773

S&P 500 Price

109S&P 500 Earnings

Current P/E Ratio: 16Trend Line P/E: 15

So, Where Are We Now?

109S&P 500 Earnings

1773

S&P 500 Price

S&P Earnings Yield: 6.1%

10-Year Treasury Yield: 2.7%

Aren’t They the Same Thing?

Volatility vs. Risk

A History of Declines

1946–2013

Decline Number of Declines

Average

10% or more* 53 Annually

15% - 19% 21 Every 3 years

20% or more** 12 Every 5.5 years

*Average of -14.4%. **Average of -29.3% Source: Standard & Poor's

Standard & Poor’s500 Stock Index

18January 1946

1773

February 6, 2014

49The S&P 500 has had a positive annual return in 49 of the 68 calendar years 1946–2013 or 72% of the time.

Source: Standard & Poor’s

Percentage of Rolling Periods With Positive ReturnsFor The S&P 500, 1926 - 2013

729 of 998

827 of 950

847 of 890

$347,000,000

How much money did Warren Buffett lose in the stock market on October 19, 1987?

IPB p. 10

Portfolio Risk Levels

RISK LEVEL INVESTMENT ALLOCATION

PORTFOLIO TYPE 1-Year Loss Threshold

Probability of Violating

Loss Threshold

INV-GRADE BONDS

LARGE-CAP

STOCKS

SMALL-CAP

STOCKS

FOREIGN STOCKS

Conservative Balanced -5% 2.2% 60% 30% 5% 5%

Balanced -10% 1.4% 40% 40% 8% 12%

Equity-Tilted Balanced -15% 0.9% 25% 50% 10% 15%

Equity -20% 1.2% 0% 65% 15% 20%

IPB p. 5. 9,000 trading days

"I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it.“

-Peter Lynch Fidelity Magellan Fund Manager

"Only liars manage to always be out during bad times and in during good times.“

-Bernard Baruch

BE WELL.

“…a one-day drop in equities of 1.5% is followed by a ¼ % increase in hospital admissions on average over the next two days.”

Source: March 2013 study by Joseph Engelberg and Christopher Parsons, associate professors of finance at the University of California at San Diego

Thank You