1. Ferro Financial, LLCCLIENT EDUCATION SERIESMARKET OVERVIEW SESSION 12121 N. Causeway Blvd Suite160 Ferro Financial, LLCMetairie, LA 70001

2. Objectives of Presentation Provide a Basic Understanding of CapitalMarkets Discuss Portfolio Construction The Importance of Diversifying Among AssetClasses Market Volatility and Long Term Investing Ferro Financial, LLC Investment Philosophy 3. Understanding the markets Stock Market Bond Market 4. The Stock MarketWorld Market Capitalization $35.6 Trillion as of December 31, 2010 Bloomberg Index Affiliation Developed MarketsCapitalization Over Time Emerging Markets($ Trillions): Frontier Markets 5. The Stock Market Own shares in a publicly traded company IT IS OWNERSHIP Apple Computer, Home Depot, AT&T, GAPClothing Store, Exxon Why own companies? Dividends Longterm capital growth Better than sitting in cash Beat rising prices (inflation) 6. The Bond Market Size - $95 Trillion vs. $35.6 Trillion GlobalStock Market MORE THAN TWICE THESIZE Complexity Government, Agency,Corporate, Municipal, Mortgage, Asset-Backed Risk Generally less volatile than stocks 7. The Bond Market LENDER USGovernment Foreign Government Company State Cities Why Lend Money? To get your money back + Receive interest 8. Portfolio Construction 9. Asset CategoriesThree major asset categories: Cash Fixed Income StocksCashFixed IncomeStocks 10. Asset ClassesAsset Class. A group of securities that exhibit similarcharacteristics, behave similarly in the marketplace, and are subject tothe same laws and regulations.Commodities CashReal Estate4%2% 4%Emerging Market Stocks 4% Short Term US Bonds 19% International DevelopedStocks 14% International Developed US Small Cap StocksBonds 10% 14%Emerging Market Bonds US Large Cap Stocks 5%24% 11. Table of Periodic Returns 12. Reducing Volatility with BondsInstead of eliminating riskier asset classes suchas stocks; invest more of the portfolio in bondsto reduce volatility. StocksBonds 13. In Portfolio Construction How asset classes work together is moreimportant than how the components workindividually. Objective in portfolio construction - Enhancethe overall performance of the portfolio, andreduce the downside risk. 14. Market Returns with Downside%Cash% Bonds % StocksAvg. Return 8%64% 28% 8.07% 8%54% 38% 8.34% 4%51% 45% 8.57% 5%40% 55% 8.81% 4%35% 61% 9.00% 4%24% 72% 9.26% 2%16% 82% 9.54% 0% 9% 91% 9.82% 0% 0%100% 10.03% Time Period 1/1970 to 12/2011 Return Information provided by the software MoneyGuide Pro 15. Market Returns with Downside%Cash% Bonds % StocksAvg. ReturnWorst 1 YrLoss 8%64% 28% 8.07% -4.23% 8%54% 38% 8.34% -9.05% 4%51% 45% 8.57%-12.33% 5%40% 55% 8.81%-17.40% 4%35% 61% 9.00%-20.40% 4%24% 72% 9.26%-25.80% 2%16% 82% 9.54%-30.46% 0% 9% 91% 9.82%-34.68% 0% 0%100% 10.03% -39.41% Time Period 1/1970 to 12/2011 Return Information provided by the software MoneyGuide Pro 16. How Diversification Works Number of stocks that are held within an assetclass Number of bonds held within a maturity period Diversifying across asset classes Diversifying within the sectors of the economy 17. Diversifying BondsShort Term BondsIntermediate Term Bonds Long Term Bonds 18. Diversifying Stocks Financial StocksTechnology StocksUtilitiesEnergy StocksHealthcareConsumer Durables Industrial 19. Diversified Portfolio Sample Portfolio7% 8% 7% Cash22% Short Term Bonds Intermediate Term Bonds 40% Large Companies16% 20. Investment philosophy 21. Modern Portfolio TheoryModern Portfolio Theory (MPT) was introducedby Nobel prize winner, Harry Markowitz in 1952.MPT attempts to maximize portfolio expected return for a givenamount of portfolio risk by carefully choosing the proportions of variousasset classes.The fundamental concept behind MPT is that the assets in a portfolioshould NOT be selected individually, each on their own merits.Rather, it is important to consider how each asset changes relative toevery other asset in the portfolio. 22. Investment managementstrategies 23. Active versus PassiveManagementActive Management Passive Management Manager tries to beat the Manager tries to match themarketreturn of the market High turnover tax Low turnover tax efficiencyinefficiency Low expense ratio High expense ratio Low transaction costs trade High transaction costs lots only to accommodate fundof tradingflows 24. Strategic versus TacticalStrategic ManagementTactical Management Long-term focus Short-term focus Select mix of Change mix ofinvestments and investments based onmaintain mixpredictions and Remain disciplinedforecastsdespite markets ups React to marketand downs movements by Rebalance to target mix changing mixas market moves up Success depends onand downability to predict market Changes based on life-movementstime events 25. Investment ProductsMutual FundsExchange Traded FundsCertificates of DepositGovernment Bonds 26. Summary Successful Long Term Investing: Have an Investment Strategy that is Based on a DisciplinedProcess: Diversify among different Asset Classes Use Diversified Securities Diversification among different segments of the overall economy Keep a long term time horizon 27. Ferro Financial, LLCPLANNING TODAY FOR THE LIVE YOULL LIVE TOMORROW2121 N. Causeway Blvd Suite160 Ferro Financial, LLCMetairie, LA 70001