Our Investment Philosophy

II

Our Investment Philosophy and ApproachWe at Hajek Advisory Consultants, LLC use a highly diversified investment strategy derived from

decades of academic research in financial and market theory.

This approach has seven key components:

1. We believe that markets work. The capital markets do a good job of fairly pricing all available

information as well as incorporating investor expectations about publicly traded securities. Our

approach rewards investors with market returns while active management is expensive and does

not work.

2. We believe that only long-term investing in the equity markets offers you a return that outpaces

the effects of both inflation and taxes on your portfolio.

3. We believe that risk and return are related. Our portfolios are structured to take advantage of the

dimensions of risk offered by investing a measured portion in the small and value asset classes.

These size and value effects are strong across global markets.

4. We use two important methods for managing risk and moderating volatility:

• Adding fixed income

• Diversifying globally across more than 12,000 securities in about 50 countries

5. We believe that structured investing along with disciplined portfolio rebalancing help individuals

achieve their long-term financial goals and mitigate the damage that might be caused by

investing emotionally.

6. We use low-cost, institutional, asset class mutual funds.

7. We use a third-party custodian to hold your investments, and, as a Registered Investment Advisor,

we have a fiduciary relationship with all our clients: that means we always put your interests first.

We did not invent or create the information contained in this brochure. But through trial and error,

through the good and bad economic times, through our collective years of CPAs and financial

advisors, we have found that the fundamental building blocks of a good investment strategy are

academic research, transparency, and low-cost investment options. What we hope we have gained

from our long experience is the wisdom to offer advice that works for you.

1

Table of ContentsInvestors Are Emotional ..............................................................................................................................................................2

Stock Picking Does Not Work ....................................................................................................................................................6

Our Investment Philosophy Is Based on Academic Research .......................................................................................9

We Invest Globally for Optimal Portfolios ...........................................................................................................................16

Managing Risk Is Essential to Our Program .......................................................................................................................18

Rebalancing Maintains Portfolios ......................................................................................................................................... 26

Invest in Low-Cost, Institutional Funds ............................................................................................................................. 28

Planning for Lifetime Income Needs .................................................................................................................................. 30

Working with an Advisor Who Puts You First ................................................................................................................... 34

2

Investors Are EmotionalIndividuals tend to be anxious about investing. They worry about the ups and downs of the stock market and wonder if they should move their money to cash. But not investing is also risky, and allowing your emotions to keep you out of the markets can be hazardous to your financial health.

3

Emotional investing leads to underperformance Individuals who manage their own money tend to invest emotionally: they buy winners and sell out of

investments that do not seem to be doing well. Buying after a market has gone up and selling after it has gone

down achieves the opposite of buying low and selling high.

A company called DALBAR studies the actual returns investors achieve after taking into account sales,

redemptions and exchanges. DALBAR does not look at the performance reported by mutual funds, but instead

looks at how individuals actually invest. Over this 20-year period, individuals investing on their own have done

only half as well as the market.

Inflation erodes purchasing powerThe price of goods has historically increased by an average of approximately 3.5% per year. If you put all your

money in a safe for 10 years and the cost of goods increased by 3.5% each year, when you pulled the money

out it would buy only about 70% of the goods you could buy with that money today. We call the risk that your

investment will not keep pace with inflation purchasing power risk.

Source: DALBAR Quantitative Analysis of Investor Behavior 2013; S&P data provided by Standard & Poor’s Index Services Group, with results based on the S&P 500 Index. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Stock market S&P 500 Index

Average U.S. stock investor

9.2%

5.0%Compound Average Annual Returns: 1994-2013

Graphic 1

Individuals fail to achieve market returns

After 10 years, $100 would buy only an equivalent of $70 in goods today.

Source: Forum Financial Management LP. Inflation data provided by © Stocks, Bonds, Bills, and Inflation Yearbook, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).

Devaluation of a dollar after 10 years of 3.5% annual inflation

Graphic 2Inflation erodes your savings over time

4

A long life might result in outliving your moneyBut that’s not the only kind of risk. You might retire at age 65, but you could easily live another 30 years: for a

couple, each age 65, there is a 50% chance that one partner will live to age 92 and a 20% chance that one will

live to age 98, according to the Society of Actuaries.1 The money that you saved during your working years has

to last for the rest of both of your lives. You could easily live as many years in retirement as you lived working.

The risk that you will outlive your money is called longevity risk.

It is important to invest in equitiesHistory shows that equities outperform fixed income, and allow you to grow your investments over the long-

term, as you can see in Graphic 3.

Staying invested over the long run can significantly improve the performance of your portfolio. Individuals that

delay investing or move money in and out of the market in an attempt to time the market usually reduce their

returns, as seen in Graphic 1 (on page 3).

There is no evidence that anyone has ever been able to reliably predict in advance when to be in the market

and when to be out of it. If that were in fact possible, don’t you think that all those analysts, consultants and

gurus would be quietly getting rich for themselves on the sidelines, rather than trying to get dollars from

you? Investment managers have studies showing you, after the fact, how their models would have correctly

predicted when to be in the market and when to be out of it, but none of those models work consistently in

advance.

The S&P data are provided by Standard & Poor’s Index Services Group. U.S. long-term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Graphic 3Equities outperform fixed income over the long-term

$4,673S&P 500 Index

$109U.S. Treasury Bonds

$21U.S. Treasury Bills

$10,000

$1,000

$100

$10

$1

$01926 1934 1942 1950 1958 1966 1974 1982 1990 1998 2006

January 1926 – December 2013Annualized Return

S+P 500 Index: 10.1% U.S. Treasury Bonds: 5.5% U.S. Treasury Bills: 3.5%

5

Source: Dimensional Fund Advisors. Performance data for January 1970-August 2008 provided by CRSP; performance data for September 2008-December 2013 provided by Bloomberg. S&P data are provided by Standard & Poor’s Index Services Group. U.S. bonds and bills data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions. Past performance is not a guarantee of future results.

Graphic 4Being out of the market on a few important days can have an outsized impact on performanceJanuary 1, 1970 – December 31, 2013

Gro

wth

of

$1,0

00

Total period Missed 1 best single day

Missed 5 best single days

Missed 15 best single days

Missed 25 best single days

One-month U.S. T-bills

$77,804

$69,771

$50,588

$29,378

$16,533

$9,192

Annualized Compound

Return10.40% 10.13% 9.33% 7.99% 6.86% 5.17%

Most stock market returns come from a very few days with big market

moves. That means that it is literally impossible to catch the upward

movement in the markets by waiting until they start to go up. This

phenomenon is illustrated in Graphic 4. Missing out on only 5 of the best

days of market performance over the last 44 years reduces your return by

more than 1%; missing 25 of the best days (out of the more than 10,000

days the market would have been open) would reduce your return by

more than 3.5%, resulting in a return that is only 1.69% more than that of

1-month Treasury bills.

Do you think you’re a good enough investor to be able to pick the

handful of days, in a lifetime of investing, when you should be in the

market? No one is. You need to be invested every day. Staying invested

and choosing an appropriate mix of investments in a portfolio, then

maintaining that portfolio through rebalancing, is a much better way to

achieve your long-term investment objectives.

Market timing does not work

6

Stock Picking Does Not WorkA whole industry of financial media has grown around the idea that if you listen to enough programs about money, you can buy the stocks that will make you rich. These are entertainment programs that tend to focus on quick, high returns and do not talk about the role risk plays in each investment over the course of an investor’s life. Unfortunately, individuals are often led astray by the financial advice they hear from the media.

Traditional investment managers attempt to outperform the market by taking advantage of so-called mispricing in the markets, or trying to predict which individual securities will perform better in the future.

However, there is no evidence that any individual investors or professional managers can identify in advance the few stocks that account for much of the market’s return each year, and spending your time trying to pick those few stocks may result in missed opportunity. We believe that investors should diversify broadly and stay fully invested to capture the return of the market as a whole.

Let’s look at these ideas more closely.

6

7

Strong performance of a very few stocks accounts for much of the market’s return each year, as Graphic 5

demonstrates. There is no evidence that managers can identify these stocks in advance. Investors should

diversify broadly and stay fully invested to capture the expected returns of the broadest possible market.

Very few equity funds beat their category benchmark consistentlyLet us take a closer look at mutual fund performance. According to CRSP, the most comprehensive database

of stock and mutual fund data, only about half of equity funds survived for the 10 years ending in 2013.2 Often

those that were closed had poor track records. Of those that survived, we want to know how many actually

beat their chosen equity benchmark. As you can see in Graphic 6, very few active managers actually deliver

returns higher than those of the market. Furthermore, research by Eugene Fama and Kenneth French indicates

that even fund managers who have outperformed the market for 10 years are no more likely than any other

manager to win again over the next 10 years.3

It is not easy to beat the market

Source: Dimensional Fund Advisors. Results based on the CRSP 1-10 Index. CRSP data provided by the Center for Research in Security Prices, University of Chicago. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions. Past performance is not a guarantee of future results.

Graphic 5It is almost impossible to choose the stocks that outperform• Strong performance among a few

stocks accounts for much of the market’s return each year.

• There is no evidence that managers can identify these stocks in advance – and attempting to pick them may result in missed opportunity.

• Investors should diversify broadly and stay fully invested to capture expected returns

9.9%

6.5%

-0.3%

Compound Average Annual Returns: 1926-2013

All U.S. StocksExcluding the Top 10% of Performers

Each Year

Excluding the Top 25% of Performers

Each Year

Source: Dimensional Fund Advisors, using CRSP data provided by the Center for Research in Security Prices, University of Chicago. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions.

Graphic 6Only 19% of equity managers beat their benchmarks over 10 years

10 Years as of December 31, 2013

Equity Managers that

Beat their Benchmarks

19%

8

Active management is expensiveAs Graphic 6 shows, only 19% of investment managers beat their performance benchmark over 10 years. Yet

most of us need our investments to work for us for 40 years or more.

While the record for active investment managers is dismal, their advice is expensive in two main ways:

• Fees paid to the mutual fund manager; these fees are known as the expense ratio of the fund

• Transaction costs, i.e., the cost of buying and selling stocks within a fund, which are not included in the

expense ratio

Every buy or sell a manager sends to market has a cost. These transaction costs are not reported, and average

1.44% per year in expense in addition to the stated expense ratio.4 Because transaction costs are hidden, one

rule of thumb, suggested by John Bogle, founder and former CEO of the Vanguard Group, is to multiply the

turnover of a mutual fund by 1.2% 5.

Graphic 7 shows the reported expense ratio for average actively managed funds is 1.35%. Accounting for the

hidden expenses raises fund expenses to 2.43%. Passively managed funds have much lower expenses due to

both lower fund management fees and lower turnover. The Dimensional funds we use in our program have

some of the lowest overall expenses in the industry due to their investment strategy, trading protocols and

value-added trading techniques.

Make no mistake: fund expenses are subtracted directly from your investment return.

Average Expense Ratio (%)

Average Turnover (%)

Estimated Total Cost (%)

Dimensional Equity Funds 0.35 5.7 0.42

Active Equity Funds 1.35 90.0 2.43

Expenses for the Equity Allocation exclude separate management fee.

Data as of December 31, 2013. Active Equity Funds is all active domestic mutual funds as provided by the CRSP Survivor-Bias-Free Mutual Fund Database. Dimensional Equity Funds is an average of the following Dimensional Fund Advisors mutual funds: DFQTX, DFUSX, DFFVX, DFSCX, DFIEX, DFALX, DISVX, DFCEX, DFREX, DFITX.

Graphic 7Actively managed mutual funds have higher expenses

9

Our Investment Philosophy Is Based on Academic ResearchWe need to step away from the popular financial media and take a look at academic research about the way investing really works. Wall Street’s message tends to be “invest with us and we’ll make you rich,” in a very short time horizon. Wall Street’s profit motives also affect which research it shows clients, because the primary purpose of Wall Street research is to sell you a product. Our investment philosophy comes from the academic world and is based on more than 87 years of investment results, not on what happened last year or even over the past few investment cycles. Academic researchers are motivated by truth and subject their research to stringent peer review before publishing conclusions.

Because an understanding of these principles is essential to understanding how we manage your investments, we provide a short synopsis of these ideas and how they have been developed over the past 60 years.

9

10

Modern Portfolio TheoryThe essence of modern portfolio theory states that investments should be considered in terms of risk as

well as reward. Investments with higher reward will have more risk than investments with lower reward.

Harry M. Markowitz, University of Chicago, first offered that insight in 1950, and it fundamentally changed

our understanding of investing, winning him a Nobel Prize in 1990, which he shared with William F. Sharpe

(discussed below) and Merton H. Miller.

Modern portfolio theory suggests that diversifying your investments will both reduce risk and increase return

over the long run. Markowitz contended that appropriate diversification was not so much a matter of how

many securities were included in a portfolio but, rather, the relationship of each to the others. You might think

that buying 20 different stocks will automatically give you a diversified portfolio, but it will not be diversified at

all if the stocks are all the same kind, no matter what kind that is.

What makes diversification work is having different securities reacting differently to the various economic and

market forces. One of the hardest parts of accepting modern portfolio theory is accepting upfront that when

the strategy is working, some portion of the portfolio is decreasing – that is, losing money – even while other

portions of the portfolio are going up. While Markowitz used individual securities to illustrate his theories, we

will be talking mostly in terms of asset classes; an asset class is a basket of securities that have similar risk and

return characteristics.

Graphic 8Diversification reduces portfolio volatility

Asset A Asset B Asset A & B

Modern portfolio theory suggests that diversifying your investments will both reduce risk and increase return over the long run.Graphic 8 is a simplistic illustration of how this would work if we had two assets with perfect negative

correlations, meaning that they move exactly opposite each other in response to market conditions. Although

both of these ideal asset classes have an overall upward slope over the long run and each asset class will

provide a reasonable rate of return over the long run, in the short run, one will win and one will lose. The

ultimate result is lower volatility or risk for the portfolio as a whole and a smoother path for your portfolio value

through time.

11

Capital Asset Pricing ModelWilliam Sharpe, Nobel Prize in Economics, 1990, first

introduced the capital asset pricing model (CAPM) in

1964; it is considered to be part of modern portfolio

theory. The CAPM states that there are two kinds of

risk:

1. Nonmarket risk is the risk of investing in a

particular company, security or industry.

Nonmarket risk is also called nonsystematic risk.

Investors should not expect to be rewarded for

taking on this kind of risk, which can be overcome

through diversification because it is the risk of one

security only and not of the system as a whole.

Modern portfolio theory suggests that taking

nonmarket risks should not increase an investor’s

expected return.

2. Market risk is the risk of investing in the capital

markets and is the risk for which an investor

can expect to be rewarded. Market risk is also

called systematic risk. You have this risk with

any investment in the market and you cannot

overcome it by diversifying which securities

you buy. This risk affects the whole system, and

includes war, recession, and inflation.

Simplifying greatly, Sharpe offers three practical

messages:

1. Diversify as much as possible.

2. Do not buy a few individual securities; hold a

broad portfolio in market-value proportions.

3. Bearing market risk should result in a higher

expected return as a reward.

The CAPM holds that the most efficient portfolio is the entire marketplace of assets, which means in effect the market portfolio.

The best way to know what a stock is worth is to look at its market price.

The kind of risk you bear must be the risk of the

overall market. Investors should not expect markets to

reward them for the risks of individual stocks that can

be diversified away; they should expect compensation

only for bearing market risks.

The CAPM holds that the most efficient portfolio is the

entire marketplace of assets, which means in effect

the market portfolio. Thus the CAPM provides the

intellectual foundation for a mutual fund that invests

in the entire market, i.e., an index fund.

Efficient Markets HypothesisEugene F. Fama earned a PhD in economics at the

University of Chicago in 1964 and has been associated

with Dimensional Fund Advisors since its formation

in the early 1980s. In 2013, Fama was awarded the

Nobel Prize in Economics.

Fama was the first to articulate the efficient markets

hypothesis, which states that, at all times, markets

incorporate and reflect the information known by all

market participants, so stock picking is futile. In plain

English, this means that the best way to know what a

stock is worth is to look at its market price.

This hypothesis reinforces what we said above about

market timing: active management strategies cannot

consistently add value by choosing securities or

timing when to be in or out of the market. A passive

investment strategy that uses a widely diversified

portfolio held for the long-term is most likely to

reward investors with the returns of the capital

markets.

12

were created as proxies for viewing the overall

performance of the market and were never intended

to be investment vehicles. Matching the performance

of an index is not an investment strategy, and

investing in an index is not the same as having a

diversified asset allocation approach.

Reconstitution cost is a major disadvantage of index investingIndexes change composition, usually annually;

that change is called reconstitution. Between

reconstitution dates, the holdings in an index remain

static, so if a small company becomes mid-cap or

gets acquired by a large company, it will continue to

be held until the next reconstitution date. As a result,

indexes can experience significant style drift, which

can cause indexes to capture asset class returns only

partially because some securities in the index have

undergone changes during the year.

Prior to the reconstitution date, the index sponsor

usually announces the securities to be added to or

deleted from its composition. Remember that the

index itself does not actually own any securities;

it is a reporting mechanism only. A manager who

wants to replicate the performance of the index has

to actually buy and own those securities. Prices can

be temporarily distorted by the spike in demand from

numerous index managers seeking to buy or sell

securities on the same day: by some estimates, a stock

may increase in price up to more than 7%6 when it is

added to the S&P 500 index, but the index manager

has no choice but to buy the new security on the

precise day that it is added to the index regardless of

a spike in price. This pricing behavior is illustrated in

Graphic 9.

Index fund investingAs a result of Sharpe’s research, and recognizing

the importance of the efficient market hypothesis,

investors began searching for a way to diversify and

invest in a wide variety of securities. The only vehicles

available at the time were indexes.

The Dow Jones Industrial Average was founded

in 1896 and contained only 12 stocks, for ease of

calculation; it now tracks only 30 stocks chosen by

the editors of the Wall Street Journal. We still use it

today because it has the longest history of any index.

The S&P 500 Index includes 500 stocks, not just 30,

and is therefore broader and more representative

of the market than the Dow. However, it is still a far

cry from representing the whole universe of stocks,

which contains over 12,000 stocks worldwide. There

are literally hundreds of indexes, each representing

a different slice of the worldwide stock and bond

markets.

An index fund is a mutual fund with the stated

investment goal of achieving the financial

performance of the index by holding the same

securities and in the same proportions as the index.

The costs of managing the fund are minimized

because the fund buys simply what is in the index,

although every fund will have fees for administration,

reporting, and maintenance.

There is no question that index fund investing has

been a boon for retail investors and investors are

better off using indexes rather than active managers.

However, an index is an arbitrary selection of

securities and is not an asset class, even if the index

includes hundreds or thousands of securities. Indexes

An index is an arbitrary selection of securities and is not an asset class, even if the index includes hundreds or thousands of securities.

13

For illustrative purposes only. S&P 500 data source: Anthony Lynch and Richard Mendenhall, “New Evidence on Stock Price Effects Associated with Changes in the S&P 500 Index,” Journal of Business 70, no. 3 (July 1997): 351-83. MSCI EAFE Index data source: Rajesh Chakrabarti, Wei Huang, Narayanan Jayaraman, and Jinsoo Lee, “Price and Volume Effects of Changes in MSCI Indices: Nature and Causes,” Journal of Banking and Finance 29, no. 5 (May 2005): 1237-64.

Graphic 9Reconstitution cost is a major disadvantage of index investing

S&P 500 Index MSCI EAFE Index

One-Day Return after Announcement (%) 3.2 3.4

Run-Up to Effective Date (%) 3.8 4.5

Decay after Effective Date (%) -2.1 -2.6

Time

Pri

ce

Announcement Effective

9.1%

14

Fama and French and the three-factor modelWe have introduced modern portfolio theory and the

capital asset pricing model, which say that you can

diversify away the risks of individual stocks but you

cannot diversify away the risk of the market itself. In

fact, you do not want to diversify away all risk because

risk provides the return. Both of these theories are

concerned with reducing exposure to risk where it

does not offer higher returns.

Eugene Fama and Kenneth French, both highly

respected academics, developed the three-factor

model, which expands Sharpe’s market factor and

provides additional information on how securities are

priced in the market.

Fama and French started by looking at the size of

companies and how much a stock’s price was above

or below its accounting book value, and used this

information to divide the market into categories. They

took half of the companies, those with the largest

market value, and placed them into the large cap

category, and the other half was placed in the small

cap category. Next, if the company’s stock price was

relatively high compared to its book value, it was

placed in the growth category, and if the stock price

was relatively low compared to its book value, it was

put into the value category. They made no attempt

to evaluate good or bad companies, or good or bad

management, or anything else.

The results of their analysis can be seen in Graphic

10, which has been updated with more recent data.

The average annual return of the large cap growth

companies is 9.52% and for large cap value companies

it is 10.60%. The difference between those two annual

rates of return is 1.08%. Similarly, the annual return for

small cap growth companies is 9.18% and 13.86% for

small cap value: a whopping difference of 4.68%.

These averages cover 87 years; that means that in any

given year you will not get exactly these results. There

have been years in which growth companies did

better and value companies did worse. But it points to

a phenomenon we have already discussed: few active

managers beat an index or a market average in any 1

year or for a couple of years, let alone 87 years.

Fama and French applied the same techniques to

analyze non-U.S. companies in the developed world

and then in the emerging market countries. In each

case, the same relationships were true. It is interesting

that these relationships hold even in countries that

may not be well developed and which may not have

efficient markets.

The explanatory power of the capital asset pricing

model offered investors a new way to understand risk

and market performance, but this model using only

one factor could not explain everything. Fama and

French wanted to understand more, and the model

they developed says that the price of a security is

explained by three-factors:

1. Equity or fixed income – Equity securities have

a higher expected return because equities have

more risk than fixed-income securities.

2. Small or large – Measured by market

capitalization, smaller companies provide

higher expected returns (on average) than larger

company stocks; they are also riskier.

3. Value or growth – Value (out-of-favor) stocks tend

to have a higher expected return than growth

stocks.

This means that an investor can have the benefits of

indexing and potentially achieve a higher expected

return without reconstitution cost (since there is no

index to chase) and style drift.

The three-factor model holds that a portfolio tilted toward small and value securities has a higher expected return than a simple market index.

15

Source: Index data provided by Fama/French in U.S. dollars and is compiled from securities data from the Center for Research in Security Prices, Bloomberg and MSCI, except the data for the S&P 500, International Small, MSCI EAFE and MSCI Emerging Markets. International Small data compiled by Dimensional from Bloomberg, Style Research, London Business School, and Nomura securities data. MSCI EAFE and MSCI Emerging Markets data provided by MSCI; copyright 2013, all rights reserved. MSCI Emerging Markets Index is shown gross before foreign withholdings taxes on dividends; all other data is shown on a net basis.

Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. Small company risk: Securities of small firms are often less liquid than those of large companies. As a result, small company stocks may fluctuate relatively more in price. Emerging markets risk: Numerous emerging countries have experienced serious, and potentially continuing, economic and political problems. Stock markets in many emerging countries are relatively small, expensive, and risky. Foreigners are often limited in their ability to invest in, and withdraw assets from, these markets. Additional restrictions may be imposed under other conditions. Foreign securities and currencies risk: Foreign securities prices may decline or fluctuate because of: (a) economic or political actions of foreign governments, and/or (b) less regulated or liquid securities markets. Investors holding these securities are also exposed to foreign currency risk (the possibility that foreign currency will fluctuate in value against the U.S. dollar).

Graphic 10Small cap and value appear to out-perform globallyAnnual index data

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U.S.Stocks 1927–2013Non-U.S. Developed

Markets Stocks 1975–2013Emerging Markets Stocks 1989–2013

13.86

12.09

10.60 10.159.52 9.18

15.65 15.11

10.56

9.16

15.08

13.01

11.1110.06

16

We Invest Globally for Optimal PortfoliosIndividual investors have an overwhelming preference for

investing at home. This is true whether you live in the United

States or Austria, Australia, Belgium or Denmark. Financial

professionals refer to this preference as home bias.

Behavioral research suggests that familiarity makes stocks from our

home country seem less risky. But whatever the reason for home

bias, we want to get beyond it in our investments. For those

of us who live in the United States, investing only in the U.S.

would mean giving up approximately half of the diversification

available to us.

A rule of thumb for creating a portfolio without home

bias starts by adding together the total value of all the

stocks in each country and then allocating to each

country based on its percentage of this world

market capitalization. For example, if all the stocks

from Country X equal 10% of total world market

capitalization, then you would invest 10% of

your portfolio in Country X – regardless of

whether you live in Country A, B or C. Using

this rule of thumb would indicate that U.S.

investors should invest approximately 50% of

their funds in U.S. securities. (See Graphic 11.)

We believe in markets and we believe in

investing to get a market return. If price is

the best indicator of value, then investing

according to market cap represents a well-

reasoned approach to allocating our investments

between the U.S. and overseas. We call this

allocation global neutral, meaning the portfolio

has approximately the same allocation to both

global and domestic securities as the overall market

portfolio.

17

Investing globally offers more diversificationInvesting globally offers the additional benefit of increasing diversification. Individual countries and regions

are still not highly correlated with each other, which provides significant opportunities for diversifying a

portfolio.

While the U.S. economy is huge and contains companies that range in size from minuscule to gigantic and

conduct every kind of business imaginable, every company within the U.S. is subject to the same set of laws

and regulations, the same fiscal and monetary policies and the same cultural and sociological biases. There is

inherently some degree of correlation among all the securities in the U.S. or any single marketplace.

Increasing the global exposure of a portfolio means investing in countries with conditions and economies

different from those of the U.S., as mentioned above. Adding to a portfolio any investment that is not highly

correlated with its other investments provides an opportunity to reduce risk, and the different regions and

countries of the world may not be highly correlated to U.S. investments. Even stressed economies in the

emerging world offer opportunities to invest in non-correlated assets that can improve the risk/reward profile

of a U.S. portfolio. There is one additional important fact about global investing: only once in 25 years has the

U.S. market been the top performer in the world.

Source: Dimensional Fund Advisors, which is an investment advisor registered with the Securities and Exchange Commission.

Graphic 11The U.S. markets are larger than the international developed marketsAs of May 2014

International Developed 40%

United States 50%

Emerging Markets 10%

18

Managing Risk is Essential to Our ProgramManaging risk is essential to achieving your long-term financial goals. We define risk in terms of volatility, and there are two essential truths: 1. The volatility of the equity markets represents the risk of the equity markets – and that risk is the reason

equities have a higher long-term return than fixed-income securities. 2. Managing risk, rather than trying to eliminate it, can result in higher investor returns as well as a better

investor experience.

18

19

Using asset classes to manage risk through diversificationAsset classes can be defined in very broad terms, such as equity or fixed income, or might be defined more

narrowly, in categories such as small cap stock or large cap growth stock. The asset class holds all securities

that satisfy the asset class definition irrespective of fund managers’ opinions about the future performance

of individual stocks or sectors. We use asset classes as the building blocks of our asset allocation strategy

because each asset class represents different risk/reward characteristics that can be combined into a truly

diversified portfolio. Asset classes are not indexes and attempt to eliminate some of the disadvantages such as

reconstitution costs and yet capture the return of the asset class.

We invite you to look at Graphic 12, which shows asset class performance for the last 20 years. If there were a

consistent pattern in asset class performance, this colored chart would be a good way to recognize it. Think

about the events of those years. Do you see any pattern for years with wars or floods or riots? A war may start

during the year, but that could easily be good for the markets rather than negative. Even during times of great

economic turmoil, many asset classes will have positive returns. A crisis of some kind may result in some or

many equity asset classes turning negative, but how do you know which ones? For how long? This appears to

be random. That is the point of the efficient markets – and why active management does not work.

Our program is more diversified than any mutual fund you could buy. Since asset class performance is

random, the best strategy for managing risk is to own a portion of all asset classes. Combining the risk/return

characteristics of multiple asset classes in one portfolio serves to optimize returns and lower overall risk. This

disciplined asset allocation program is a prudent way to manage your investments in volatile markets. Each

asset class listed includes hundreds of stocks and bonds such that, in a fully diversified portfolio, a typical

investor owns more than 12,000 stocks across about 50 countries.

20

The randomness of returns shows the importance of diversification

Asset Class(representative index)

Per Annum

U.S. Short-Term Government BondsBofA Merrill Lynch 1-Year US Treasury Note Index

3.11%

U.S. Intermediate Credit BondsBarclays Credit Bond Index Intermediate

5.81%

U.S. Inflation Protected Securities Barclays Capital US TIPS Index

6.25%

Global Government Bonds Citigroup Global Government Bond Composite Index 1-3 Year (hedged)

3.68%

U.SPer

Annum

U.S. Stock MarketDimensional U.S. Adjusted Market 2 Index

8.73%

U.S. Large Cap StocksS&P 500 Index

6.03%

U.S. Small Cap Value StocksDimensional U.S. Small Cap Value

12.97%

U.S. Micro Cap StocksDimensional U.S. Micro Cap Index

11.92%

U.S. Real EstateDow Jones US Select REIT Index

8.52%

International Per Annum

International Stock MarketDimensional International Adjusted Market Index

8.83%

International Large Cap StocksMSCI EAFE Index

5.44%

International Small Cap StocksDimensional International Small Cap Index

10.03%

International Small Cap Value StocksDimensional International Small Cap Value Index

12.53%

Emerging Markets StocksDimensional Emerging Markets Adjusted Market Index

11.41%

Fed

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1994 1995 1996 1997 1998 1999 2000 2001

17.9% 37.6% 37.1% 37.7% 28.6% 72.4% 31.0% 28.3%

12.9% 35.7% 25.8% 33.4% 20.0% 29.9% 19.9% 24.3%

12.8% 33.3% 23.6% 31.8% 14.4% 28.0% 13.2% 12.3%

7.8% 30.8% 23.0% 30.9% 11.8% 27.0% 9.4% 9.8%

2.7% 19.2% 22.5% 19.7% 10.2% 22.5% 8.0% 7.9%

2.7% 12.2% 9.0% 8.4% 8.3% 21.0% 7.6% 7.3%

2.5% 11.2% 7.1% 6.6% 7.3% 20.6% 7.3% 6.3%

1.3% 11.2% 6.4% 5.9% 6.5% 17.6% 2.8% 1.1%

1.0% 7.9% 6.0% 1.8% 5.9% 7.6% -2.3% -0.1%

0.5% 5.8% 5.6% -6.2% 3.9% 4.2% -9.1% -3.0%

0.3% 2.5% 5.5% -10.3% -5.6% 4.0% -9.1% -11.9%

-0.1% 2.1% 5.4% -11.7% -5.9% 2.4% -10.1% -13.6%

-2.6% -8.8% 4.0% -14.5% -17.0% 0.2% -14.2% -16.5%

-21.2% -2.6% -29.5% -21.4%

21

Graphic 12

Per Annum: January 1, 1992 to December 31, 2013 (annualized), except where data inception is after January 1, 1994. Barclays Capital U.S. TIPS Index data begin March 1, 1997. BofA Merrill Lynch One-Year U.S. Treasury Note Index, copyright 2013 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Barclays Capital Intermediate Credit Bond Index Intermediate provided by Barclays Capital. Barclays Capital U.S. TIPS Index provided by Barclays Capital. Citigroup Global Government Bond Composite Index 1-3 Year (hedged), copyright 2013 by Citigroup. Dimensional U.S. Small Cap Value and Dimensional U.S. Adjusted Market 2 Index provided by Dimensional. The S&P 500 Index provided by Standard & Poor’s Index Services Group. Dow Jones U.S. Select REIT Index provided by Dow Jones Indexes. Dimensional International Small Cap Value data compiled by Dimensional from Bloomberg, StyleResearch, London Business School, and Nomura Securities data. Dimensional Emerging Markets Adjusted Market Index and Dimensional International Small Cap compiled by Dimensional from Bloomberg Securities data. MSCI data copyright MSCI 2013, all rights reserved. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All Dimensional data provided by Dimensional Fund Advisors, Inc.

Co

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

16.6% 68.1% 38.7% 31.1% 36.0% 46.5% 5.6% 86.9% 32.0% 13.6% 20.7% 46.2%

10.1% 66.7% 33.8% 24.4% 34.7% 11.6% 4.7% 53.7% 28.8% 9.4% 19.8% 42.8%

4.2% 63.6% 33.2% 23.5% 30.0% 11.2% -2.4% 53.3% 28.1% 5.4% 18.1% 38.4%

3.9% 62.3% 30.7% 19.7% 26.8% 10.0% -2.8% 45.0% 23.7% 2.1% 17.9% 32.4%

3.6% 60.5% 27.7% 13.8% 26.3% 7.3% -36.7% 41.5% 22.0% 1.4% 17.9% 29.5%

3.4% 51.7% 24.7% 13.5% 25.2% 6.1% -36.7% 41.4% 21.5% 0.6% 17.3% 25.8%

-1.8% 38.9% 23.0% 7.7% 22.0% 6.0% -37.0% 32.7% 20.1% -0.6% 17.2% 24.0%

-4.4% 38.6% 20.2% 7.5% 21.5% 5.9% -37.2% 31.8% 15.6% -6.1% 17.1% 22.8%

-7.4% 36.2% 16.6% 6.6% 17.2% 5.6% -39.2% 28.5% 15.1% -6.5% 16.9% 1.2%

-8.3% 28.7% 10.9% 4.9% 15.8% 5.5% -43.4% 26.5% 7.8% -12.1% 16.0% 0.8%

-11.9% 8.4% 8.5% 2.9% 4.5% 1.6% -44.3% 15.9% 7.8% -13.4% 8.1% 0.3%

-15.9% 6.9% 4.1% 2.8% 4.3% -7.7% -45.2% 11.4% 6.3% -14.8% 7.0% -0.2%

-17.4% 1.9% 1.9% 2.4% 4.3% -11.2% -45.9% 2.1% 1.3% -16.9% 1.4% -1.1%

-22.1% 1.5% 0.8% 1.4% 0.5% -17.6% -50.8% 0.8% 0.8% -18.4% 0.2% -8.6%

22

Source: Dimensional Fund Advisors, using CRSP data provided by the Center for Research in Security Prices, University of Chicago. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions.

Graphic 13Only 15% of active bond fund managers beat their benchmark over 10 yearsTen Years as of December 31, 2013

Bond Managers that Beat their Benchmarks

15%

The low returns of bonds make it very difficult for active managers to beat their category benchmark after feesActive bond managers believe they can identify better bonds that will increase yield without taking

on additional risk. In reality, bond managers are actually worse at beating the market than their equity

counterparts, with only 15% of bond managers able to beat their benchmark over the past 10 years, whereas an

average 19% of active equity managers beat their benchmark.

The day-to-day changes in interest rates cause every bond to fluctuate in value, even though many Wall Street advisors will not show you the fluctuating prices on your statements.

23

Individuals who have been battered by rocky markets tend to have a misconception that fixed income is riskless.Individuals who have been battered by rocky stock

markets tend to have a misconception that fixed

income is riskless. The day-to-day changes in interest

rates cause every bond to have volatility or risk, even

though many Wall Street advisors will not show you

the fluctuating prices on your statements. In talking

about bonds, you have to understand that there is

an inverse relationship between interest rates and

bond prices. For example, if you were to purchase a

$10,000, 20-year duration treasury bond with a yield

of 3%, and interest rates increased to 4% the following

month, the bond would be worth only about $8,000

if you needed to sell it. In other words, when interest

rates go up, bond prices go down. The opposite is also

true, that falling interest rates result in higher bond

prices.

There are two primary forms of risks inherent in

bonds:

• Credit risk is the risk that a bond issuer will default.

It can be low but is, nevertheless, present. The level

of risk for a particular bond is reflected in its rating

(A, AA, etc.), but no rating system can encompass

every possible eventuality for a given issuer.

• Interest-rate risk is the risk that an increase

in interest rates will cause the market value of

existing bonds to decrease. The longer the bond

has until maturity, the more a given change in

interest rates will affect the current value of a

bond. Furthermore, the longer the bond has until

maturity, the more time is available for changes

in marketplace interest rates to occur, thus also

increasing the volatility.

24

Chasing higher yields may result in disproportionately higher losses.

Potential loss is the hypothetical effect of a 2.65% increase in interest rates (which represents the largest historical annual change in 7-year treasury bond rates since 1990, according to the U.S. Treasury) plus a default similar to that of 2008 (calculated by applying the average historical default rate for each S&P rating category to current fund holdings, according to StandardandPoors.com/ratingsdirect). Portfolio allocation is a split between iShares Short-term IPS (STIP) and Barclays High Yield (JNK) that results in integer values for yield-to-maturity.

Source: Data from Morningstar. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions. Past performance is not a guarantee of future results.

Graphic 14Fixed income has the potential for loss due to interest rate changes and defaults

Yield

Potential Loss

1%3%

5%7%

-1%

-9%

-17%

-24%

Stretching for high yield can be as risky as the stock market The days of living on interest from a bond or CD have long passed. Lower interest rates have our clients asking,

“Where can I get yield?” The temptation of trying to get higher rates can be almost irresistible, even to the most

seasoned investor. There are only two ways to increase yields: extending maturities or lowering credit quality,

but both introduce substantial risk to the money you have invested in bonds. Once again, we see risk and

return are related, and shifting into riskier bonds can lead to cracks in what many investors believe to be the

sturdy foundation of a balanced portfolio.

So what exactly is the risk of reaching for a higher yield? To answer this question, we calculated the downside

loss that could result from increasing yields by investing in bonds with longer duration and lower credit quality.

Graphic 14 contains some shocking news for many investors. A high-yield bond investor targeting a yield of

7% may be exposed to the possibility of losing 24% of capital in a single year in the worst case scenario where

interest rates rise and bond defaults occur at historical highs.

Investors often do not realize that the risk of high-yield bond funds can be comparable to that of equities,

with a very real chance of substantial losses. Investors who need a higher return than short-term, high-quality

bonds currently deliver must accept some volatility of principal. We help those investors decide whether to add

a bit more exposure to equity markets or take an exposure to intermediate-term investment-quality bonds.

25

Generally having a highly diversified bond portfolio across several credit ratings, with shorter durations, helps mitigate interest rate risk and credit risk. Bond portfolios can be tilted either to principal preservation or income generation but not to both. These are the trade-offs in determining which bond allocation works for you.

26

Rebalancing Maintains Portfolios

26

27

A disciplined rebalancing strategy is an important part of a diversified investment strategy. In a given period,

asset classes experience different performance, which is both inevitable and desirable. As some assets

appreciate in value and others lose value, your portfolio’s allocation changes, which affects its risk and return

qualities, a condition known as asset class drift or style drift. If you let the allocation drift far enough away from

your original target, you may end up taking on more or less risk than you intended.

We typically think of rebalancing asset classes, but we rebalance our portfolios in terms of three factors:

1. Equities versus bonds

2. Domestic versus international

3. Asset class allocation

The purpose of rebalancing is to

move a portfolio back to its original

target allocation by following the

first rule of investing: buy low and

sell high. By selling assets that

have risen in value and buying

assets that have dropped in value,

rebalancing realigns the portfolio

back to its original allocations. We

generally rebalance client portfolios

when any rebalancing level strays

10% from its target weight.

Rebalancing might seem counter-intuitive because the natural instinct of most investors is to buy what is

going up, meaning winners, and to sell what is going down, meaning losers. Rebalancing forces us to behave

like contrarians, buying what is out of favor. Systematic rebalancing helps us overcome our tendency toward

emotional decision-making.

For most investors, however, this creates a dilemma: why sell the winners? There are three important reasons:

1. Because of the randomness and unpredictable nature of asset class returns, today’s winners are likely

to be tomorrow’s underperformers, as we saw in Graphic 12 (on pages 20-21), which shows the random

movement of asset classes.

2. Reducing risk is more important to the long-term growth of the portfolio than trying to get the highest

possible short-term returns.

3. We believe that the discipline of selling off winners in order to rebalance your allocations can significantly

reduce portfolio volatility.

Studies indicate that the discipline of selling off winners in order to rebalance your allocations can significantly

reduce portfolio volatility7, 8, 9. Remember that you chose your original asset allocation to reflect your personal

risk and return preferences for the long-term. Rebalancing keeps your portfolio aligned with these priorities by

using structure, rather than recent performance, to drive investment decisions. There is a cost to rebalancing

because every buy and sell is a trade, but we believe the long-term benefits far outweigh the costs.

In working with our clients, we strive to develop a structured plan that remains flexible for each individual’s

unique blend of goals, risk tolerance, cash flow, and tax status. No one knows where the capital markets will go

– that’s the point. In an uncertain world, we offer a well-defined, globally diversified strategy and manage your

portfolio to implement it over time.

Target %Sell

Buy

28

Invest in Low-Cost, Institutional Funds

28

29

The investment principles on which we base our program came originally from the world of academia, not

from Wall Street. These principles have been articulated and developed by Dimensional Fund Advisors, the

institutional investment company that has taken the Fama/French research and developed asset class-specific

mutual funds based on a multi-factor approach to investing.

Their funds are style-consistent and have extremely low internal costs and turnover, making their mutual

funds tax-efficient. They are quantitatively structured and managed, meaning that if a security fits a certain

asset class, it is included without regard to the opinion of any manager or the financial condition of the

company, and it is held as long as it continues to fit that asset class. Dimensional does screen for companies in

bankruptcy and certain other very negative characteristics.

We use primarily Dimensional’s mutual funds in our portfolios. Dimensional is an institutional fund manager

and does not sell directly to individuals because it does not want irregular retail cash flows moving in and out

of its mutual funds which can generate taxable events. If you want to use these engineered, asset class mutual

funds, you must work with a fee-based advisor who can help you construct an asset allocation strategy that is

appropriate to your own circumstances.

It can be expensive to trade securities, especially small cap stocks and less liquid bonds. Most managers are

only too willing to pay these costs to meet a forecast or follow an index. The costs they generate are buried in

financial statements and corporate ledgers, but the investor always pays in the form of lowered returns. Careful

trading at Dimensional reduces and even reverses the costs borne by traditional managers; these savings

accrue directly to the investor’s return. Dimensional’s strategies collectively hold over 12,000 securities, which

is made possible through their unique combination of technology and trading infrastructure.

30

Planning for Lifetime Income Needs

30

31

A New Approach to Creating Retirement Cash FlowThe challenge for many retirees is creating a

sustainable cash flow in a low interest rate market.

Many retirees cannot live on the current yields of

CDs, bonds, and stock dividends. Those who attempt

to satisfy their needs by using high-yield bonds or

dividend-paying stocks may take on risks they do not

understand. There seems to be a widespread belief,

pumped up by the financial press, that dividend-

paying stocks offer some inherent edge in creating

income. Recent history points out the flaw in this

strategy. Individuals have historically looked to the

banking sector for dividend income. However, during

the recent financial crisis, not only did bank stocks

suffer every bit as much as other stocks, the dividends

were often suspended. It took several years to recover

principal across the sector and a few individual stocks

may never fully recover.

To overcome these problems, many advisors have

advocated using a portfolio withdrawal rate of 4% from

a diversified portfolio, based on William Bergen’s 1994

research. He looked at every 30-year period since

1926 and found that a portfolio of 60% stocks and 40%

bonds could sustain a 4% withdrawal of the initial

balance adjusted for inflation each year without fully

depleting the portfolio.10 The idea was not to focus on

preservation of principal but to focus on making the

money last one’s lifetime.

This withdrawal rate methodology has been criticized

due to the historically higher interest rates used in

the original research, which cannot be expected in

today’s market. Thus some argue for an even lower

withdrawal rate. Nevertheless, withdrawing a portion

of one’s assets to fund retirement spending seems to

provide the best planning tool we have, although it

requires the retiree to focus on cash flow rather than

income from investments.

Most retirees need to change from a “savings mode”

focused on the accumulation of capital, to a “draw

down mode” that requires them to take money out

of their portfolio for spending needs. While many

advisors use buckets to describe a method for

allocating investments around when future spending

will occur, few if any have created a methodology for

how best to allocate money into buckets and then re-

balance between those buckets.

The Lifetime Income Portfolio is designed to allocate,

optimize and re-balance client portfolios into three

buckets.

This is how it works:

1. Clients provide basic information such as birth

dates, portfolio size and desired spending rate.

2. The program provides an allocation among

the three buckets (see next page) as well as

calculates the probability that the annual

spending will be sustainable over the lifetime of

the client.

3. Clients receive a fixed monthly withdrawal

deposited in the financial institution of their

choice. This amount can be adjusted yearly

based on inflation.

4. The program does not consider whether a

client has one account or several accounts (i.e, a

joint account and two IRAs); it will manage the

allocation irrespective of number of accounts.

The output includes a gauge that indicates how likely

the clients are to not outlive their money, given the

annual spending and cash flows provided by the

client.

Danger

Concern

Caution

Neutral

Comfort

Total to be Managed: $1,000,000

Annual Spending: $45,000

Portfolio Name: LIP 60 Long-Term

Probability of Success: 85.4%*

*The Probability of Success is the percentage of trials of your plan that were successful. For each portfolio option the simulation runs your plan 10,000 times, so if 6,000 of those runs are successful (i.e., you have money remaining at the target age), then the Probability of Success would be 60% and the Probability of Failure would be 40%. No guarantee can be given about future performance and rates of return shall not be construed as offering such a guarantee.

32

We recommend a bucket

approach to deal with these

three risks.

Short-Term*

Mid-Term

Long-Term

Hajek Advisory Consultants builds the buckets in a unique way that addresses three important risks to your retirement portfolio:

Point in time risk is the risk of

having your portfolio plummet in

value just when you have either

locked in a fixed dollar amount

to withdraw or a fixed dollar

amount to invest in bonds. For

example, individuals who retired

in 2007 and saw their portfolio

shrink significantly in 2008

often continued to pull the same

amount of money out each year,

effectively withdrawing a much

higher percentage of the portfolio

each year and thus reducing the

probability of the portfolio lasting

for a lifetime.

Longevity risk relates to living

longer than your money can

support. Life expectancy has

increased faster than the average

retirement age, which means

retirement assets must sustain

investors for longer than ever

before. We believe investors should

plan for an age, like 95, that is both

reasonably likely and requires the

assets to last much longer than

the 50th percentile life expectancy

people often use as a baseline.

We believe that the greatest risk

of all is behavioral risk, which is

when an individual investor reacts

in a self-destructive way to market

losses. In other words, when a

long-term investor panics and

sells out of the market, rather than

having the patience to allow for the

portfolio to recover.

1 Point in time risk 2 Longevity risk 3 Behavioral risk

*The percentage of the portfolio held in short-term instruments varies as we typically hold a stated dollar amount in cash that depends on expected client cash needs.

33

Short-Term Mid-Term Long-Term

Behavioral Risk Point in Time & Behavioral Risk Longevity

100% short-term bonds and money market instruments

70% mid-term bonds and 30% equity

90% equity with 10% in inflation protected bonds

3-5 years of spending needs 5-10 years of spending needs Remainder

Potentially the greatest benefit is helping resolve the behavioral risk of pulling money out of the market in

times of crisis because the retirees know they have 8 to 15 years of living costs in relatively low volatility asset

classes, allowing for peaceful sleep during financial turmoil.

We have found that the temptation to “pull the plug” on market investments during a crisis is alleviated when

an advisor can reassure clients that they have time on their side for the market to recover. While the overall

allocation of the portfolio often remains between 50% to 60% equities, using buckets allows us to better manage

client investment behavior.

There is also the possibility of creating an additional bucket if a retiree’s spending needs exceed 6% and

an immediate annuity can improve their chance of success. Although individuals are often reluctant to

purchase an annuity because the income stream has been traded for investment principal, recent research has

suggested that this option could benefit certain retirees.

Explaining the Buckets in More DetailThe first bucket will have a fixed

dollar amount allocated to money

market and short-term bond funds

to cover the first several years of

living costs. It acts as an umbrella

for rainy days that provides the

peace of mind to stay invested for

the long-term.

The second bucket will have a

varying balance that will initially

have several more years of living

costs, but may rebalance to the

growth bucket to avoid the point in

time risk associated with locking

in buckets at the beginning of the

retirement period.

The third bucket acts as the

engine that enables the portfolio

to overcome, or at least offset, the

withdrawals. It consists of mostly

equity with a small portion of

inflation-protected bonds.

34

The Value of an Advisor

34

35

While we have long believed that our clients achieve higher returns over the long run than those that

manage their investments themselves, two newly-released, independent studies have confirmed this belief.

Vanguard recently published a report indicating that returns over a full market cycle could be as much as

3% higher for individuals using investment advisors.11 A separate Morningstar report concluded that returns

increased by 1.6% for those using an advisor. Over time, working with an advisor could add as much as 22%

in additional retirement income!12 The reasons for the higher returns detailed in the studies include:

• Advisors counsel clients to take a long-term approach to their financial goals and avoid making short-

sighted moves based on current market conditions. This level of financial discipline can boost returns

significantly. Our firm gets to know your goals and risk tolerance levels so we can provide our best

advice to help you achieve these goals. We strive to take the emotions out of investing by sticking to

a long-term plan, while being flexible enough to change the plans if your personal situation changes.

This was revealed during the recent financial crisis. People who listened to the media may have moved

out of the market and reaped a short-term benefit but could not time their way back into the market.

• Advisors can also add value by properly using asset location strategies.13 Placing less-tax-advantaged

asset classes in tax-deferred accounts and tax-efficient asset classes in taxable accounts definitely adds

value. We manage your overall allocation strategy by employing these asset location strategies.

• Cost-effective investing strategies also can increase returns. We use low-cost, institutional mutual

funds and trade efficiently to keep your costs down.

• Maintaining asset allocations by strategic rebalancing is another way advisors can add value. Our

firm monitors your allocations continually and we trade whenever your allocations are outside a

predetermined range. We use dividend and capital gain payouts whenever possible to avoid realizing

capital gains in the rebalancing process.

• Advisors also add value during the spend-down phase of your investment plan. A sound withdrawal

strategy can not only increase returns but help you achieve peace of mind.14 Our Lifetime Income

Portfolio program protects the downside risk of the funds you need for the short and medium term,

while helping you beat inflation over the long-term.

We invite you to meet with one of our advisors to discuss in detail our investment philosophy and your

financial goals. Our highly credentialed team can add measurable value beyond a great investment

experience and will make you feel confident about your financial future!

Third-party research indicates that working with an advisor adds 1.6% to 3% in annual returns, which could result in having 22% more retirement income!

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We provide peace of mind to our clients.Learn what that means for you.

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Important DisclosuresHajek Advisory Consultants, LLC is a Registered Investment Advisor. There are two offices: St. Petersburg &

Celebration

The Home Office is located at 5308 Central Avenue, St. Petersburg, FL 33707 ph: 727.327.1239. The Celebration

Office is located at 1561 Castile St., Celebration, FL 34747 fax: 727.327.1461|

Before making an investment decision, please contact our office at 727.327.1239 to receive a copy of Hajek

Advisory Consultants, LLC Form ADV Part 2A and the Investment Advisory Agreement, both of which include

Hajek Advisory Consultants, LLC fee schedule. This information is intended to serve as a basis for further

discussion with your professional advisers. Your investment dollars are held at a third-party custodian,

and you will receive separate account statements directly from your custodian. Nothing in this publication

should be construed as investment advice. All information is believed to be from reliable sources; however its

accuracy and completeness are not guaranteed and no responsibility is assumed for errors and omissions.

Any economic and performance data published herein is historical and not indicative of future results. All

rights reserved. Please consult your personal advisor and investment prospectus before making an investment

decision.

© Forum Financial Management, LP, 2014-2015.

1 Society of Actuaries and the National Association of Personal Financial Advisors (NAPFA) presentation, November 2011, slide 35, sourcing MoneyGuidePro “Planning Age Calculator.”

2 CRSP data cited by Real Clear Markets: http://www.realclearmarkets.com/blog/sept12ac.pdf.

3 Eugene F. Fama and Kenneth R. French, “Luck versus Skill in the Cross Section of Mutual Fund Returns,” December 19, 2009.

4 Roger M. Edelen, Richard B. Evans, Gregory B. Kadlec, “Scale Effects in Mutual Fund Performance: The Role of Trading Costs,” March 17, 2007.

5 John C. Bogle, Bogle on Mutual Funds: New Perspectives for the Intelligent Investor (New York: Irwin Professional, 1994).

6 T. Clifton Green and Russell Jame, “Understanding the S&P 500 Composition Effect: Evidence from Transaction Data,” March 2010.

7 Norbert M. Mindel, Wealth Management in the New Economy, (New York: John Wiley & Sons, Inc., 2010), 151.

8 William J. Bernstein, “The Rebalancing Bonus, Theory and Practice,” 1996, www.efficientfrontier.com/ef/996/rebal.htm.

9 Consulting Group, “The Art of Rebalancing: How to Tell When Your Portfolio Needs a Tune-up,” June 2005, www.asaecenter.org/files/ArtofRebalancing.pdf.

10 About.com, Retirement Planning: http://retireplan.about.com/od/alreadyinretirement/a/safe_withdrawal_rate.htm.

11 Francis M. Kinniry Jr., Colleen M. Jaconetti, Michael A. DiJoseph, and Yan Zilbering, “Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha,” Vanguard Research, March 2014.

12 David Blanchett and Paul Kaplin, “Alpha, Beta, and Now . . . Gamma,” Morningstar Investment Management, August 28, 2013.

13 Please see “The Value of Advice, Asset Allocation,” in the News & Insights page of www.forumfin.com, 2014.

14 Please see “The Value of Advice - Rebalancing,” in the News & Insights page of www.forumfin.com, 2014.

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Hajek Advisory Consultants, LLC

Home Office5308 Central AvenueSt. Petersburg, FL 33707ph: 727.327.1239