the 2015 essential investment kit

2Th e 2015 Essential Investment Kitwww.fi sherinvestments.com

A Guide to Understanding Your Net Worth and Retirement Investing in 2015

Th e 2015 Essential Investment Kit

Th e 2015 Essential Investment Kit 800-568-5082

Your Net Worth 1

Why You Should Worry About Net Worth 2

Where Do You Stand? 3

How to Calculate Your Net Worth 4

What Do All Th ese Mean? Defi nitions 6

How Do You Stack Up? 10

Strategies to Increase Your Net Worth 12

Common Risks to Your Net Worth 15

Conclusion 17

401(k) and IRA Tips and Aswers 18

What Are 401(k)s? 19

What Should be in Your 401(k) Now? 21

When is the Right Time to Roll Over a 401(k)? 23

When to Take Withdrawals | What Should You Be Investing In? 24

What Are the Greatest Risks to Your Retirement Investments? 30

How Can Fisher Investments Help? 32

Short Stock Market OutlookQ1 2015 33

About Fisher Investments 44

Disclosures 45

Table of Contents

Th e 2015 Essential Investment Kit | Your Net Worth 800-568-50821

Your Net WorthEverything You Ever Wanted to Know About Your Net Worth but Didnt Know Who to Ask

Youll get answers to these and many more questions in the next few pages:

Do you know how to calculate your net worth?

Have you ever tried?

Wonder how you stack up against everyone else?

What does your net worth say about how youll retire?

What tax and estate strategies come into play at your net worth level?


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Why You Should Worry About Net Worth

Typically net worth is the yardstick of choice for measuring financial success. You wouldnt be human if you didnt wonder how yours stacked up against your peers. Maybe youve self-consciously poked around on the Internet or eyed your neighbors new sports car and tried to guess if you were ahead or behind the curve. It doesnt have to be a mystery. Its OK to want to know! In fact, its smart to know exactly what youre dealing with so you can put a successful strategy in place.

Once you know your net worth, the next questions should be obvious. Is it enough to ensure a comfortable lifestyle for the rest of you and your loved ones lives? And what is your strategy to achieve this or if youre on track, to stay that way? Now lets dig in, its time to determine your net worth.


Where Do You Stand?

The following worksheet will walk you through how to calculate your current net worth and see how you stack up. As a general rule, try not to guess at future valuesnot yet! While its possible to calculate your future net worth using an expected annualized return, its important to get an accurate picture of your current net worth at this moment. This allows you to see exactly where you stand in relation to your peers.

To that end, were basing our calculation on a personalized version of mark-to-market accounting (valuing your assets at their current price, despite the fact they may have been worth more or less in the past or may be worth more or less in the future). For example, if you bought your house for $1.2 million and its now worth $900,000, then you value it as the latterdespite the fact you may expect the market to continue to rebound. Your net worth isnt static, so its normal for the total value to fluctuate along with the various markets to which youre exposed. Its imperative to take a long-term focus, so a dip (assuming you have a sound long-term strategy) isnt necessarily something to stress about on a week-to-week, month-to-month or even year-to-year basis.

A lot of folks debate whether you should calculate your net worth as is or include the taxes you have to pay in the future. Because tax rates vary among individuals, account types and investment vehicles, we will assume an as is calculation without including taxes.

However, no one knows your tax situation better than you (except maybe your accountant!) so when you think about your net worth consider the taxes youd have to pay were you to realize taxable gains today. Its key to consider taxes when thinking about where your net worth stands. You dont want to find yourself in a situation where you have to liquidate assets and suddenly realize the money youre walking away with is dramatically less than you anticipated. You also want to be aware of what assets make up your net worth and how they are taxed. Someone in the highest tax bracket with most of their assets in an investment portfolio may pay a lot less in taxes than someone in the same bracket with the equivalent value in an income-producing annuity.


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How to Calculate Your Net Worth

Net worth is essentially your assets minus your liabilities (or debts). Some net worth calculators only consider liquid investible assets (like stocks or cash), but the best strategy incorporates real estate and other illiquid holdings, giving you what we believe to be the most accurate number possible. Wealth is comprehensive and we want to capture the full picture of all your hard work. Using the worksheet on the next page, tally up your assets and liabilities (counting the liabilities as a negative value) to calculate your net worth.

Youll probably want to gather all your major financial documents before you startor have a good idea of the details of your accounts. Dont forget your other non-financial assets, which might include cars, boats, clothing, furniture and other personal property. The idea is to allow you to capture a snapshot of your total wealth at this moment in time.


Net Worth Worksheet (Expanded Definitions Available on Page 6)Liquid Assets

Cash & Cash Equivalents (checking, savings, CDs, etc.) $__________________

Taxable Investment Accounts (individual, joint, trusts) $__________________

Individual Retirement Accounts (IRA, SEP, Roth, etc.) $__________________

Retirement Plan Accounts (401(k), 403(b), 457, etc.) $__________________

Annuities (not included above) $__________________

Employee Stock Options $__________________

Other (specify ___________________________) $__________________

Total Liquid Assets $__________________

Non-Liquid Assets

Primary Residence $__________________

Secondary Residence $__________________

Other Real Estate $__________________

Business Investments $__________________

Other (specify ___________________________) $__________________

Total Non-Liquid Assets $__________________

Liabilities

Primary Residence Mortgage $__________________

Other Property Mortgages $__________________

Securities Margin Loan Balance $__________________

Line of Credit (credit cards, home equity line, etc.) $__________________

Other (specify ___________________________) $__________________

Total Liabilities $__________________

Net Worth (Total Assets Less Total Liabilities) $__________________


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Liquid AssetsCash & Cash Equivalents (checking, savings, CDs, etc.) This category can include the obvious accounts, but also cash-like and liquid assets such as US Treasury Bills or assets in a money market account.

Taxable accounts (individual, joint, trusts)Youll continue to be taxed in these accounts as you realize taxable gains (think selling a stock that has gone up since you bought it).

TrustsThere are a variety of types of trusts. Depending on your personal situation, a well-written one may be worth pursuing with an estate lawyer. One example of a type of trust often considered by higher-net-worth individuals is a generation-skipping trust (GST). A GST is a legal setup where assets are passed directly to your grandchildren, skipping over your children. Your children give up the opportunity to receive your assets in order to avoid the associated estate taxes. A GST can still benefit your children because any income generated by the assets can be made available directly to them while the assets remain in the trust in the name of your grandchildren. Keep in mind if you have this type of trust, you should still count these assets in your net worth because, while alive, you have control of them. But if youre thinking about the terminal net worth youll pass along to your children, you should exclude funds from a GST as they wont have access to the assets themselves.

Individual Retirement Assets (IRA, SEP, Roth, etc.)These have a unique tax structure, which you dont need to worry about for our calculation today. However, it may still be useful to have a basic idea of the differences. For most non-Roth accounts youre able to defer taxes until you take funds out. But with a Roth, you paid taxes when you put the money inmeaning your gains are tax free. If youre not sure what your tax liabilities or advantages are, its worth consulting a tax professional.

What Do All These Mean?

Retirement Plan Assets (401(k), 403(b), 457, etc.)Note that for the majority of these plans, the funds are not accessible until you roll them over into an IRA (which you can do when retiring or leaving an employer). These accounts are commonly invested largely in funds from a preselected list provided by your employer. One of the first things a high-net-worth investor should do upon retiring is explore options more consistent with long-term goals for these assetslikely starting with rolling your account into an IRA. We believe mutual funds are largely inefficient for investors with large portfolios.

This is because youre delegating management of your assets but getting none of the benefits of personalized, active management! Each fund may hold hundreds or even thousands of securities, making overlap likely and your strategy murky. Overlap means multiple funds could be holding the same stock at the same time. Maybe one is even selling said stock on the same day the other is buying it. The pitfalls of mutual funds are extensive and warrant a more thorough explanation, but for the purposes of understanding your net worth just assume there are more suitable methods for managing portfolios over $500,000.


Retirement Plan Assets (continued)High-net-worth investors may have assets in a defined-benefit plan. Here an employer offers set payouts to a retired employee over timebased on salary history, length of employment and other factors. The investment decisions are undertaken by your employer and returns to you will not fluctuate based on market conditions. Some of these plans also have tax benefits. You should value these payouts as income and include them in your net worth as they arrive. If youre trying to calculate your terminal net worth you can value the package as a whole (minus taxes for the most accurate picture) but as with other assets, for your current net worth, know you likely dont have access to the entire sum yet. If you dont fully understand the structure of your plan, a quick call to your employers Human Resources department should turn up answers quickly.

Annuities (not included in other assets)You should value your annuities as whatever the principal isprovided youre getting it back at the end of the contract. Any income already paid out will show up in the cash accounts section and future payments should not be counted in your current total. Some annuities allow for the principal to be surrendered in exchange for a lifetime income stream. In this case, dont count the principal as it will not be recovered. Show the income in the cash accounts sections (dont count any not paid out yet).

Employee Stock OptionsThis one is a bit tricky as your stock may be locked up. Calculate it using the current price of traded stock in your company, just as you would any other security (times the number of shares). If you own a portion of a business thats not publicly traded, count it under business investments in the Non-Liquid Assets section.

OtherThis can include a variety of investments, such as rare art, antiques and wine. Its easier to establish a market value for some of these items than others. For example, if similar items are being sold at auctions or other publicly listed prices you can assume a relatively similar value. If the investment is recent you can assume a similar value to what you paid, but know this will not be exact as no market is static. Otherwise you may have to have your collection appraised or make your most educated guess.


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Non-Liquid AssetsPrimary ResidenceIn the age of the Internet, its no longer necessary to call an appraiser or real estate agent to get a rough estimate of the value of your home. Three commonly used websites are Zillow.com, Redfin.com and Trulia.com, which can all estimate your homes value. These sites are free and youll be able to tell with a quick glance whether their estimate is on point or not. Save yourself the hassle and fee of doing it the old-fashioned way.

Secondary ResidenceApply the same methodology to calculate value as you did for your primary residence, but note if your vacation home is out in the country in a sparsely-populated area the data may be inaccurate and you may want to enlist a local broker after all.

Other Real EstateSame as above.

Business Investments You may own part of the business you currently work in or have retired fromor maybe youve invested in a venture. Valuing these investments can lean towards the subjective because unless the business has recently been sold or had an offer placed on it, its quite difficult to ascertain the true market value. This value is going to be largely determined by you.

If you invested $100,000 in a restaurant and the place is bustling and looking to expand, you may want to value your investment more (if you can determine an approximate value). Conversely, if youre about to put boards on the windows of your business, its likely worth less than you initially put in. A helpful starting point may be to float the idea of selling your stake to a partner or competitor in the same business and see what ballpark theyd be willing to pay.

Other Life insurance is a common one that pops up in this category. If youd like to include it for the sake of knowing what net worth youre leaving your spouse or dependents, then you should value it as whatever number you would collect should you pass on at this moment. As that value changes, you should update this in your calculations. Note that if you only want to know your current net worth you should not include life insurance because its not money you will ever access.


LiabilitiesPrimary Residence MortgageCalculate this number as is, without assuming any future refinancing decisions. You should use the remaining balance, not your monthly payment. Additionally, if youre on an adjustable rate mortgage you should use your current interest rate to estimate future payments. The current interest rate environment is near historical lows, but if youre using mark-to-market (current value) accounting elsewhere, then apply it here as well for the sake of consistency.

Other Property MortgagesSame as above.

Securities Margin Loan BalanceIn this context, margin refers to borrowed money used to purchase securities. This is commonly referred to as buying on margin. Buying on margin can be risky as your losses can be greatly amplified. Youre also subject to the interest rate on the loan. Include the value of the loan balance, but be aware of updating your net worth with the losses of the borrowed money and value of securities bought if the investment depreciates.

Line of Credit This broadly applicable term can apply to anything from run-of-the-mill credit card debt to your old student loans.

Other Include any additional debts in this section. For example, a donation youve pledged to an institution or charity. Include what you owe and the principal and incorporate future interest cost.


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How Do You Stack Up?

Now that youve calculated your net worth, its time to see how you compare to your peers. These are the numbers folks want to know. It might even be the ones that had you looking into this report in the first place. The following data is provided by Nielsen Financial Track, a large, nationally representative sample of more than 80,000 respondents.

The first table shows total net worth by household and the second shows liquid net worth by household. You can see where you fall on the spectrum by finding your net worth range and the corresponding national percentile in the far right column.


Net Worth andIncome Producing Assets

# of US Households % % Cumulative

Households by Net Worth 119,206,509

Less than $25,000 51,281,554 43.0% 43.0%$25,000 to $49,999 7,226,849 6.1% 49.1%$50,000 to $74,999 5,846,232 4.9% 54.0%$75,000 to $99,999 4,677,411 3.9% 57.9%$100,000 to $149,999 7,703,183 6.5% 64.4%$150,000 to $249,999 10,464,111 8.8% 73.1%$250,000 to $499,999 13,440,469 11.3% 84.4%

$500,000 to $749,999 5,943,476 5.0% 89.4%$750,000 to $999,999 3,662,512 3.1% 92.5%$1,000,000 or more 8,960,712 7.5% 100.0%

2013 Estimated Net Worth and Income Producing Assets in the United States*

If you find yourself with $500,000 in liquid net worth or more (in the 94th percentile or higher in the table above), youve done well for yourself already. This puts you in about the top 6% of American households. This is when the investing strategies available to you really open up, because you have enough wealth to achieve proper diversification without inefficient structured products.

Structured products can include mutual funds, annuities, REITs and other instruments. These products are designed to offer diversification opportunities among other things, but are not personalized and often carry higher fees than we believe are warranted. High-net-worth investors can achieve an appropriate level of diversification and personalization without using products.

Households by Value of Income Producing Assets (Liquid Net Worth) 119,206,509

Less than $25,000 62,918,398 52.8% 52.8%$25,000 to $49,999 10,828,513 9.1% 61.9%$50,000 to $74,999 7,091,335 6.0% 67.8%$75,000 to $99,999 5,104,550 4.3% 72.1%$100,000 to $249,999 14,795,760 12.4% 84.5%$250,000 to $499,999 8,044,611 6.8% 91.3%$500,000 to $749,999 3,134,761 2.6% 93.9%$750,000 to $999,999 2,070,245 1.7% 95.6%$1,000,000 to $1,999,999 3,098,762 2.6% 98.2%$2,000,000 or more 2,119,574 1.8% 100.0%

*Source: Nielsen Financial Track, as of 12/31/2013.


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*Source: Global Financial Data, Inc.; as of 1/18/2013. Based on 10.03% annualized S&P 500 Index total returns from 1926-2013.

Lets Game Plan: Strategies to Increase Your Net Worth

Before you achieve your goal net worth, you need to understand the factors that go into a successful investing strategy. Most people arent fortunate enough to wake up one day with a high net worth, instead they maintain a disciplined, long-term approach starting with the following three considerations: cash flow needs, timeline and primary investment objective.

Most high-net-worth investors have exposure to stocks and bondsFisher Investments primary focus. Real estate, fine art, alternative investments or other non-equity vehicles may have a place in a well-rounded portfoliofor sentimental or economic reasonsbut the following considerations are meant to be specific to equities. Any investment requires careful due diligence and you should consistently start with our three objectives.

1. Cash Flow NeedsIts critical to understand how withdrawals will impact your portfolio. Like many investors, you may have unrealistic expectations of how much money youll be able to safely withdraw each year. A commonbut incorrectassumption is that since equities have historically delivered about 10% annualized average return in the long term,* it must be safe to withdraw 10% a year without drawing down the principal.

Nothing could be further from the truth. Though markets may annualize 10% over time, returns vary greatly year to year. Miscalculating withdrawals during market downturns can substantially decrease the probability of maintaining your principal. For example, if your portfolio is down 20% and you take a 10% distribution, you will need about a 39% gain just to get back to the initial value.

2. Time HorizonThe following table shows total life expectancies for Americans, based on current age. We believe these projections likely underestimate how long people will actually live given ongoing medical advancements. And dont forget these are projections of average life expectancyplanning for the average is not sufficient since about half of people in each bracket are expected to live longer. Factors such as current health and heredity can also cause individual life expectancies to vary widely.


*Source: 2007 US Total Population Life Table (revised as of 06/28/2010), National Vital Statistics Reports, Volume 58, Number 21. Life expectancy rounded to nearest year.

Average Life Expectancy*

CurrentAge

Life Expectancy

51 8152 8153 8154 8255 8256 8257 8258 8259 8260 83

CurrentAge

Life Expectancy

61 8362 8363 8364 8365 8466 8467 8468 8469 8570 85

CurrentAge

Life Expectancy

71 85 72 8673 8674 8675 8776 8777 8878 8879 8880 89

CurrentAge

Life Expectancy

81 8982 9083 9084 9185 9286 9287 9388 9389 9490 95

The table below shows total life expectancies for Americans, based on current age.

The bottom line? Your time horizon may be much longer than you realizeespecially if you have a younger spouse or dependents. Prepare to live a long time and make sure you have enough money to maintain your lifestyle.


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3. Primary Investment ObjectiveNote: Your primary investment objective may change as your net worth grows. For example, you may switch to a more conservative strategy designed to preserve your wealth when you hit a level youre comfortable withif it allows for the other factors in your investing profile such as you and your spouses ages.

Time horizon and cash flow needs are key factors to consider in investing for the net worth you want. Another cornerstone is establishing a primary objective for your portfolio. A precise way to determine your portfolios objective is to define your terminal value objectivethe amount of money you would like to have at the end of your portfolios time horizon. This will dictate what strategy you want to takeand maybe what kind of lifestyle your children and grandchildren will have.

Possible terminal value objectives include: Maximizing terminal value: You want to increase

the purchasing power of your assets as much as possible across your time horizon. This means youd like to increase the value of your portfolio as much as possible over time.

Maintaining the value of the portfolio in real terms: You aim to maintain your present purchasing power at the end of your time horizon.

Depleting assets: You have no desire to leave any portfolio assets behind.

Targeting a specific ending value: You desire a specific ending value, perhaps for making a donation to charity.

Once youve considered how these three factorscash flow, time horizon and primary objectives play into your situation, youll have a better understanding of which investment approaches you should explore. Next, we look at factors that keep investors from reaching their optimum net worth.


Common Risks to Your Net Worth

Once you have established your net worth is where youd like it to be or well on its way, there can be a tendency to attempt to preserve your investments instead of seeking long-term, goal-based growth. The danger in this approach is by transitioning to investments widely considered to be conservative you may in fact be opening yourself up to a variety of risks you arent aware ofor even worse, running out of money. Below are some of the most common risks associated with investors who forget the considerations we discussed previously and instead aim for wealth preservation.

Ignoring InflationAn important portfolio factor to consider is inflation. It decreases purchasing power over time and erodes real savings and investment returns. Many investors fail to realize how much impact inflation can have.

Since 1925, inflation has averaged 3%* a year. If that average inflation rate continues in the future, a person who currently requires $50,000 to cover annual living expenses would need approximately $90,000 in 20 years and $120,000 in 30 years just to maintain the same purchasing power.

Similarly, if you placed $1,000,000 under your mattress today, in 30 years that money would only be worth around $400,000 in todays dollars. These numbers should startle you; inflation can be a silent portfolio killer.

Opportunity CostThe risk most often associated with a chronic fear of volatility is opportunity costthe risk of making decisions now that result in lower returns over the long term than you would have gotten otherwise. This most often manifests itself as investors taking a short-sighted approach to stocks. Because they fear the potential for heightened volatility in the near future, investors pile into bonds or some other fixed-income instrument, ignoring stocks higher long-term growth potential and lower volatility over long time horizons, i.e. thirty-year rolling periods.

If youre investing for the rest of you, your spouses and maybe even your grandchildrens lives then this may be a more realistic time horizon. Opportunity cost is insidious and compounds over your time horizondecades of too-low returns are very difficult to make up down the stretch. You dont want to choke one of the most growth-oriented aspects of your net worth by forgetting about opportunity cost.

*Source: Global Financial Data, Inc.; as of 1/18/2013. Based on US BLS Consumer Price Index from 1925-2012.


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Reinvestment RiskThis is the risk when your bond or fixed-income investments mature, yields have dropped and you can no longer reinvest in the equivalent of your expiring investment. For example, if you need 6% growth to keep your retirement on track, and sovereign and highly-rated corporate bonds are returning considerably less, youll be forced to invest in a lower-yielding investment or something riskier like junk bonds or bonds of countries with lower investment grades. This problem can be particularly acute for those who invest in annuities.

Interest Rate RiskIn a misguided effort to preserve their net worth, many investors can become overly fearful of volatility and shift their asset allocation heavily towards bonds or other fixed-income instruments. Since interest rates and bond prices have an inverse relationship, rising interest rates cause an investors fixed-income holdings to lose value. If investors sell these holdings before they mature, they can realize significant losses. The higher the interest rates rise, the worse the total return. Currently interest rates sit near generational lows.

Benchmark RiskA benchmark is the yardstick you use to measure your returns. For example, if youre invested in all equities, you likely benchmark against an all-equity index such as the S&P 500 or MSCI World. Over the course of your investing time horizon, benchmark riskhow much you differ from your benchmark, for good or badcan be detrimental. If fear of volatility or some other factor causes you to deviate from your benchmark and your performance lags by even just a percentage point or two, over the long run it can mean your net worth doesnt end up meeting your goals. If you need to average an 8 percent return (over a long time period) and you consistently clock in at 4-5 percent, it can cost you the lifestyle youve been working your whole life to ensure. You can take on benchmark risk by becoming too heavily weighted in any category relative to the benchmark.


Now you know your net worth and how it stacks up. If youre interested in increasing your net worth or preserving what you have, its imperative to have a long-term strategy. If youre looking to outpace inflation and grow your investments, you likely need some equity exposure. If youre happy where youre at, you still need to keep pace with inflation so sitting in cash isnt an option.

Conclusion

Th e 2015 Essential Investment Kit | 401(k) and IRA Tips 800-568-5082

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401(k) and IRA Tips and AnswersA Quick Guide to Retirement Investing

This guide sets out many of the things you should know about selecting, investing in and rolling your 401(k) over into an Individual Retirement Account (IRA). If you dont know where to start, youre not alone. But whether youre already retired or still building your career, we aim to answer some of the most pressing 401(k) and IRA questions.

What are 401(k)s? What should be in your 401(k) now? When is the right time to roll over a 401(k)? When should you start taking withdrawals? What should you be investing in? What are the greatest risks to your retirement investments? How can Fisher Investments help?

401(k)s have gained popularity among many employers. This has shifted the responsibility for securing your retirement from your employer to you. It may sound like a burden to some, but you should approach it as an opportunity.


Traditional Versus Roth: Which is Right for YOU?The main difference between these two types of 401(k)s are the way taxes are handled. Its basically Pre-Tax contributions (Traditional) or Post-Tax contributions (Roth). Its probable you made the decision as to which of these to use many years ago, but its worth understanding the difference because some issues apply to one and not the other.

TraditionalTraditional 401(k)s are not taxed until money is withdrawn. The advantage is a larger amount of money (remember, no taxes were taken out) can grow and compound over time. Because taxes are deferred, your reportable earned income is less for the year you make a contribution, meaning you could also potentially pay less taxes in that contribution year.

When you contribute to a Traditional 401(k), the income you apply to the account is tax-deferred. Your investments grow tax-free as long as you dont remove them from the accountno taxes on dividends, capital-gains distributions or profits. However, you have to pay taxes when you withdraw funds. These withdrawals are taxed at your ordinary income rate after age 59.5, which for many retirees is lower than when they were working.

RothWhen you have a Roth 401(k), you pay ordinary income tax on the contribution before you put the money in. Then, when you are eligible to take the money out at age 59.5, you pay no taxes. Those who prefer the Roth alternative may like knowing that whatever they take out is theirs, tax free. For some, it feels better. For others, theyre confident the growth of their assets in a Traditional 401(k) will make up for the taxes they pay up front.

What Are 401(k)s?

A 401(k) is a retirement vehicle, typically set up by employers for their employees. Many employers encourage employees to save by matching their contributions over time. 401(k)s can be approached like any other long-term investment. You should achieve the right balance of good longer-term growth prospects and risk-appropriate strategy. 401(k) accounts are unique in two ways:

Your emotional attachmentyouve worked your whole life for this money.

Restrictive investment options most investors have to choose from up until they roll their 401(k) into an IRA.

Well delve into these points, but first its important to note there are two types of 401(k)s, Traditional and Roth. You can have and contribute to both, which many do. An incentive to have both is tax diversification in the event of regulatory changes. After reading this guide you may decide one option is much better for you and decide to focus solely on it, or have both. If your plan offers this option, you can split your yearly maximum between the two account types.


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Contributions: Amounts, Incentives and MoreCurrently the maximum yearly contribution to a Traditional or Roth 401(k) is $18,000. This amount has and probably will continue to change over time as the IRS adjusts for inflation. The IRS also allows for catch-up contributions. These are available only to investors over 50 and allow for an extra $6,000 a year in tax-deferred contributions. Roth IRAs dont benefit from the catch-up contribution in terms of taxes, but they do allow you to put more money into your account if youre over 50.

If possible, you should max out your contributions. You cant carry over your contributions from year to yearif you dont contribute in a given year, you lose the chance to ever get that tax deferral (in a Traditional account). Many employers offer incentives to encourage employees to participatetheyll match some or all of the money you put in. Your employers contributions can combine with yours for no more than $53,000 per year.*

WithdrawalsWithdrawing money early from your 401(k) will result in a penalty for most people and should only be done under the most extreme circumstances. Early withdrawals, even hardship withdrawals, are usually subject to a 10% penalty from the Internal Revenue Service (IRS) and also taxed as ordinary income. Provided you pay back the funds within five years, you may borrow from your 401(k) to fund a first-time purchase of a primary residence or to pay for your childrens education. Your individual situation may vary. If you are considering early withdrawals, you should consult a tax adviser. Withdrawal penalties end at age 59.5.

*As of 1/1/2015. For a current list of IRS limits and rules on contributions or withdrawal guidelines, please visit http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Contributions


What Should be in Your 401(k) Now?

Many people are obligated to choose from a pre-selected list of mutual funds in their employers 401(k) plan. This may be convenienteven helpfulwhen you first start saving for retirement. But as your portfolio grows, these mutual funds can become increasingly less efficient and can limit your investment opportunities.

Mutual FundsMutual funds can help smaller investors diversify, but there are several drawbacks for high-net-worth investors. For starters, they arent as cheap as youmight think.

Second, the strategy isnt customized to your specific situation. Each mutual fund can have thousands of investors that the fund manager doesnt know. They cant tailor the mutual funds investing approach to anyones specific time horizons, cash flow needs or other factors. That leaves you or a broker to ensure these critical factors are addressed.

In fact, if you own multiple equity mutual funds (which most 401(k) investors do) one manager could be buying a stock the same day the manager of your other fund is selling it. How does that lend itself to a cohesive strategy?

Investors tend to wait for the all clear, which is a costly exercise in investing. It can cause you to get into stocks years after a bull beginsmissing some of the biggest returns and reducing compound growths ability to work for you. Some investors wait for virtually all fears to evaporate, not realizing that point usually arrivesas it did in 1999when the market is nearing a euphoric top. The following chart shows this patternafter the 2008 bear market, investors withdrew from stock mutual funds fairly consistently all the way through 2012, while stocks rose.

So how hard is it to stay invested? DALBAR, a market research firm, studies this in its yearly analysis. Based on the twenty years ending in 2012, the average holding period for the average equity fund investor was just 3.3 years*a piece of a market cycle (about half an average-length bull market).

*DALBAR, Inc., Quantitative Analysis of Investor Behavior, 2013.


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Net Equity Mutual Fund Inflows

400

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1400

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-$60,000

-$40,000

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$0

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S&P 500 Price Level

US

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Equity Mutual Fund Net Inflows in Millions of USDS&P 500 Price Index

The overall takeaway is, for high-net-worth investors, mutual funds can be less efficient and can limit your investment opportunities.

If mutual funds are the only options offered by your 401(k) plan provider and your account is more than $500,000, you should endeavor to roll your 401(k) over to an IRA as soon as possible if your plan permits it. Then the world of personalized investment strategies opens up to you.

IRA: Individual Retirement Account, which can be either a Traditional or a Roth. This is what your 401(k) becomes when you roll it over. It is no longer hosted by your employer. An IRA allows for active management and a personalized strategy.

Source: FactSet as of 1/6/2015. S&P 500 Price Index and US Equity Mutual Fund Flows 4-Quarter Moving Average from 12/31/1991-9/30/2014.


For most people, the right time to roll over a 401(k) is whenever you retire or leave your employer. You can open a new 401(k) at a new employer and have multiple tax-deferred accounts (you can have 401(k)s and IRAs simultaneously at any point).

IRAs have the same tax structure as 401(k)s but they are individual and thus not offered through your employer. A downside is lower contribution limits (but if your new employer offers a 401(k) program, you can just open another account and reap the benefits of both). Another downside is the fear some feel at having to manage on their own or hire a professional manager.

If your 401(k) plan allows you to invest in whatever you like, there is less of a hurry to roll over (unless fees are a consideration). You may want to roll into an IRA to work with a different custodian (keeper of your assets) than the one your employer uses or maybe youd like to seek active management. With a small number of exceptions (based on employer and custodian), 401(k) accounts cannot be actively managed to your unique situation by a professional.

How Does a Rollover Work?There are two methods for rolling your 401(k) into an IRA if your plan permits it. Please be sure to check with your 401(k) plan administrator.

Option One (recommended): One consists of the custodian who holds your 401(k) directly transferring the money to the new custodian who is hosting your IRA. Or if youre keeping the same custodian but changing your 401(k) to an IRA, they will simply transfer it to the new account internally.

Option Two: The second method consists of your old custodian sending you a check, which you will then deposit with the new custodian. Theres a 20% withholding penalty applied to this transaction. Then you have 60 days to deposit with the new custodian. Youll then have to apply to get the withholding penalty refunded. You also have to fund the new account in full immediately, meaning youll need the equivalent of the 20% withholding penalty in cash ready to contribute to funding the new account. If you dont deposit the money in your new IRA within 60 days, its subject to ordinary income tax.

When is the Right Time to Roll Over a 401(k)?


24

For many, the goal of building a retirement portfolio is to provide income when you stop working. You should start taking withdrawals when you need income, provided you have a strategy in place to keep your assets from depleting. This usually means you arent taking more than about 5% in a given year (your personal situation may vary). Some investors may not need income from their portfolio until well into their retirement and others may need it right away. Well cover cash flow more extensively on the next page.

Required Minimum DistributionsThese legally mandated withdrawals begin to affect 401(k) and IRA owners when they reach 70.5 years of age (except for Roth IRAs). The amount you have to take varies from person to person. Its calculated by dividing the prior year-end fair market value of the IRA by the applicable distribution period. You should contact your custodian to calculate your Required Minimum Distribution (RMD) amount. Some accounts allow you to defer your RMDs until retirement even if youre over 70.5.

A Brief Word on Other Plan TypesSome investors may have other types of defined contribution plans, such as a Keogh Plan, 403(b), Profit-Sharing Plan, Spousal IRA or a SEP IRA. There are differences in contribution limits and various technical rules, but the applicable investing principles are largely the same.

When Should You Start Taking Withdrawals?Every investor has a unique profile and ideally should have a custom strategy. As a general rule, the longer your time horizon and greater your return expectations, the heavier you should weight stocks. The shorter your time horizon and lower your return expectations, the more you can favor less volatile assets like cash or bonds.

Retirement Investing 101Most high-net-worth investors have exposure to stocks and bonds. Your retirement portfolio requires careful due diligence and you should consistently start with the following three considerations: cash flow needs, time horizon and investment objective.

Before you achieve your retirement goals, you need to understand the factors that go into a successful investing strategy. Most people arent fortunate enough to wake up one day with a high net worth; instead they maintain a disciplined, long-term approach starting with our three main considerations.

What Should You Be Investing In?


Cash FlowIts critical to understand how withdrawals impact your portfolio. Many investors have unrealistic expectations of how much money they will be able to safely withdraw each year. A commonbut incorrectassumption is that since equities have historically delivered about 10% annualized average return in the long term,* it must be safe to withdraw 10% a year without drawing down the principal.

Nothing could be further from the truth. Though markets may annualize 10% over time, returns vary greatly year to year. Miscalculating withdrawals during market downturns can substantially decrease the probability of maintaining your principal. For example, if your portfolio is down 20% and you take a 10% distribution, you will need about a 39% gain just to get back to the initial value.

Its important to keep in mind how withdrawals from a Traditional IRA account will affect taxes. You will be taxed at your earned income rate, which is lower for many in retirement, but should still be a consideration. You should consult your tax adviser to understand how different withdrawal rates may impact your tax situation.The following charts** show the probability of a $1,000,000 portfolio surviving 30 years with a variety of withdrawal options and the median value of the account at the end of the 30 years. As you can see, higher cash flows and less exposure to equities can significantly increase the chances of you (or your spouse) outliving your assets.

*Source: FactSet, Inc., as of 10/24/2014. Based on 9.96% annualized S&P 500 Total Return Index returns from 12/31/1925-9/30/2014.**The Monte Carlo simulation generates 2,500 iterations of possible future asset return paths by randomly sampling returns from an imposed probability distribution created using Fisher Investments forecasted return, volatility and correlation assumptions for equities, fixed interest, cash and inflation. Fisher Investments forecasts for these variables are based on various factors including historical data and current market conditions. Accordingly, the probability distribution of outcomes generated by our Monte Carlo simulation should be considered hypothetical only. All values are expressed in todays currency. To reduce the impact of statistical outliers, the top 2% and bottom 1% are omitted from simulation results. This simulation makes numerous assumptions, including but not limited to the use of S&P 500 Stock Index and/or US 10- year Government Bond Index historical returns to project the ending value in the future or cash flow availability. All values are expressed in todays dollars, as of 09/30/2014. The index(es) used in this analysis may not be the benchmark(s) selected for you or other clients.No assurance can be given that these returns will be achieved. This analysis is for informational purposes only. It has been formulated with data provided to Fisher Investments and is assumed to be reliable. Fisher Investments makes no claim to its accuracy. Investing in securities involves risk of loss. Past performance is no guarantee of future returns.

10% Cash Flow

1.4%16.2%

50% / 50%70% / 30%100%

% Probability Assets Survived 30 Years

50% / 50%70% / 30%100%

% ProbabilityEnding Value > Starting Value

50% / 50%70% / 30%100%

Median Ending Value

AAR: 5.8%AAR: 6.8%AAR: 8.0%

Portfolio Survival Years

17.5

7.3

14.7

8.0

13.18.5

$0$0$00%10.9%

0%Avg Min Avg Min Avg Min

0%

Scenario #1: In this scenario, we simulate the results of an investor taking annual withdrawals of $100,000 (10%) from a $1,000,000 portfolio (starting value) over a hypothetical 30-year investing time horizon.

Scenario #1 shows the probability of this portfolio lasting for 30 yearslet alone growingis very low. Unfortunately, this is true for all three asset allocations in this example (100% Stocks , 70% Stocks/30% Bonds and 50% Stocks/50% Bonds). Though the portfolio comprising 100% equities produces the highest probability of asset survival, a 16.2% chance of not running out of money in retirement is hardly comforting.


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7% Cash Flow

15.0%35.1%

52.5%

50% / 50%70% / 30%100%


0.6%

15.3%36.7%

50% / 50%70% / 30%100%


$0$0$128,716

50% / 50%70% / 30%100%

Median Ending Value

AAR: 5.8%AAR: 6.8%AAR: 8.0%

24.9


10.3

23.7

11.5

21.6

12.5

Avg Min Avg Min Avg Min

Scenario #2: In this scenario, we simulate the results of an investor taking annual withdrawals of $70,000 (7%) from a $1,000,000 portfolio over 30 years.

Scenario #2 shows the probability of asset survival and growth improves by reducing withdrawals. But even with 100% equity allocation, the likelihood of not running out of money is still only 52.5%.

5% Cash Flow

70.8%80.2%83.3%

50% / 50%70% / 30%100%


23.5%

45.5%64.6%

50% / 50%70% / 30%100%


$358,926$867,269

$2,007,287

50% / 50%70% / 30%100%

Median Ending Value

AAR: 6.0%AAR: 7.1%AAR: 8.5%28.7


14.7

28.9

17.2

28.5

18.0



Scenario #3 shows reducing withdrawals to 5% of a portfolio greatly improves the probability of both asset survival and growth across all three asset allocations.


3% Cash Flow

99.9%99.9%99.2%

50% / 50%70% / 30%100%


71.8%81.0%87.5%

50% / 50%70% / 30%100%


$1,498,317

$2,189,963 $3,752,725

50% / 50%70% / 30%100%

Median Ending Value

AAR: 6.1%AAR: 7.2%AAR: 8.7%30


2630 30 30 30



Scenario #4 shows materially better probabilities of both asset survival and growth. Using all three asset allocation scenarios, median ending value is higher than the starting value, though 100% stocks shows the best median portfolio growth.

0% Cash Flow

99.9%99.9%99.9%

50% / 50%70% / 30%100%


99.9%99.9%99.9%

50% / 50%70% / 30%100%


$3,285,570 $4,312,651

$6,680,773

50% / 50%70% / 30%100%

Median Ending Value

AAR: 6.2%AAR: 7.2%AAR: 8.8%30


Avg

30 30 30 30 30

Min Avg Min Avg Min

Scenario #5: In this scenario, we simulate the results of an investor taking no annual withdrawals.

For investors with no annual cash flow needs, probability of asset survival is excellent in all three asset allocation scenarios. However, as many may expect, a simulation of 100% stocks resulted in the highest median portfolio ending value.


28

*Source: 2007 US Total Population Life Table (revised as of 06/28/2010), National Vital Statistics Reports, Volume 58, Number 21. Life expectancy rounded to nearest year.

Time HorizonThe table below shows total life expectancies for Americans based on current age. We believe these projections likely underestimate how long people will actually live given ongoing medical advancements. And dont forget these are projections of average life expectancyplanning for the average is not sufficient since about half of people in each bracket are expected to live longer.

Average Life Expectancy*Current

AgeLife

Expectancy

51 8152 8153 8154 8255 8256 8257 8258 8259 8260 83

CurrentAge

Life Expectancy

61 8362 8363 8364 8365 8466 8467 8468 8469 8570 85

CurrentAge

Life Expectancy

71 85 72 8673 8674 8675 8776 8777 8878 8879 8880 89

CurrentAge

Life Expectancy

81 8982 9083 9084 9185 9286 9287 9388 9389 9490 95

Factors such as current health and heredity can also cause individual life expectancies to vary widely.

The bottom line? Your time horizon may be much longer than you realizeespecially if you have a younger spouse or dependents. Prepare to live a long time and make sure you and those that will depend on you have enough money.


Primary Investment ObjectiveYour primary investment objective may change as you age into retirement or your portfolio grows. For example, you may switch to a more conservative strategy designed to preserve your wealth when you hit a level youre comfortable withif it allows for the other factors in your investing profile such as you and your spouses ages.

Time horizon and cash flow needs are key factors to consider in investing for the retirement you want. Another cornerstone is establishing a primary objective for your portfolio. A precise way to determine your portfolios objective is to define your growth objectivethe amount of money you plan to have at the end of your portfolios time horizon. This will dictate what strategy you want to takeand what level of assets youll leave behind.

Possible terminal value objectives include:

Maximizing portfolio growth: You want to increase the purchasing power of your assets as much as possible across your time horizon. This means youd like to get your portfolio as large as you can, so you can buy more expensive goods and services or to pass along to your heirs.

Maintaining the value of the portfolio in real terms: You aim to maintain your present purchasing power at the end of your time horizon.

Depleting assets: You have no desire to leave any assets behind.

Targeting a specific ending value: You desire a specific ending value, perhaps for making a donation to charity.

Once youve considered how cash flow needs, time horizon and primary investment objectives work with your situation, youll have a better understanding of which strategies you should be looking into further. Next, we look at factors that keep investors from reaching their optimum net worth.


30

Once you have established your net worth is where youd like it to be or well on its way, there can be a tendency to attempt to preserve your investments instead of seeking long-term, goal-based growth. The danger in this approach is by transitioning to investments widely considered to be conservative you may in fact be opening yourself up to a variety of risks you arent aware of. Below are some of the most common risks associated with investors who forget about the three considerations we discussed previously and instead aim for wealth preservation.

Opportunity CostThe risk most often associated with a chronic fear of volatility is opportunity costthe risk of making decisions now that result in lower returns over the long term than you would have gotten otherwise. This most often manifests itself as investors taking a short-sighted approach to stocks. Because they fear the potential for heightened volatility in the near future, investors pile into bonds or some other fixed-income instrument, ignoring stocks higher long-term growth potential and lower volatility over long time horizons, e.g., thirty year rolling periods. If youre investing for the rest of your, your spouses and maybe even your grandchildrens lives, then this is the sort of length of time you may be dealing with. Opportunity cost compounds over your time horizondecades of too low returns are very difficult to make up down the stretch. You dont want to limit one of the most growth-oriented aspects of your net worth by forgetting about opportunity cost.

Reinvestment RiskThis is the risk when your bond or fixed-income investments mature, yields have dropped and you can no longer reinvest in the equivalent of your expiring investment. For example, if you need 6% growth to keep your retirement on track and sovereign and highly-rated corporate bonds are returning considerably less, youll be forced to invest in a lower-yielding investment or something riskier, like junk bonds or bonds of countries with lower investment grades.

Ignoring InflationAnother important portfolio factor to consider is inflation. Inflation is insidious. It decreases purchasing power over time and erodes real savings and investment returns. Many investors fail to realize how much impact inflation can have.

Since 1925, inflation has averaged about 3% a year.* If that average inflation rate continues in the future, a person who currently requires $50,000 to cover annual living expenses would need approximately $90,000 in 20 years and $120,000 in 30 years just to maintain the same purchasing power.

Similarly, if you placed $1,000,000 under your mattress today, in 30 years that money would only be worth around $400,000 in todays dollars. These numbers should startle you; inflation can be a silent portfolio killer.

What Are the Greatest Risks to Your Retirement Investments?

*Source: FactSet, Inc.; as of 12/31/2014. Based on US BLS Consumer Price Index fr om 1925-2014 (2.97%).


Interest Rate RiskIn a misguided effort to preserve their net worth, many investors can become overly fearful of volatility and shift their asset allocation heavily toward bonds or other fixed-income instruments. Since interest rates and bond prices have an inverse relationship, rising interest rates cause an investors fixed income holdings to lose value. If investors sell these holdings before they mature, they can realize significant losses. The higher the interest rates rise, the worse the total return. Currently, interest rates sit near generational lows.

Benchmark RiskA benchmark is the yardstick you use to measure your returns against. For example, if youre invested in all equities, you likely benchmark against an all-equity index such as the S&P 500 or MSCI World Index. Over the course of your investing time horizon, benchmark riskhow much you differ from your benchmark, for better or worseis the greatest risk you run. You can take on benchmark risk by becoming too heavily weighted in any country, industry or other category relative to the benchmark. If fear of volatility or some other factor causes you to deviate from your benchmark and your performance lags by even just a percentage point or two, over the long run it can mean your net worth doesnt end up meeting your goals. If you need to average an 8% return (over a long time period) and you consistently clock in at 4-5%, it can cost you the lifestyle youve been working your whole life to ensure.


32

How Can Fisher Investments Help?

We Do 401(k)sSince starting our Private Client Group in 1995 we have literally assisted clients with thousands of 401(k) rollovers. We ensure the process is seamless by staffing a team of operational specialists, helping conduct an initial rollover call with the financial institution housing the assets, helping clients correctly complete any necessary paperwork and monitoring the asset transfer process from initiation to deposit. Along the way, they answer any questions you might have and keep you up-to-date on progress. In some cases we may even be able to manage 401(k) accounts for active plan participants. We can also help with 403(b)s, SEP IRAs, Profit Sharing Plans and other defined contribution plans.

Th e 2015 Essential Investment Kit | Stock Market Outlook 800-568-508233

Despite October and mid-December choppiness, global stocks ended 2014 positively, with the MSCI World Index rising 1.0% in Q4, bringing full-year returns to 4.9%.*

Peering into 2015, the global bull market should continue, with world stocks likely rising double digits. A correctiona sharp, sentiment-driven drop of -10% to -20% over a few weeks or monthsis always possible and can start for any or no reason, but corrections are impossible to predict. Th ey come and go relatively quickly with no lasting impact if you stay disciplined and ride through them, and they are normal in bull markets. We always encourage investors to prepare mentally for the possibility of quick, temporary drops, but tactically, that possibility shouldnt infl uence portfolio positioningthe longer-term market outlook matters far more.

Nearly six years in, market fundamentals remain robust. Th e world economy is growing, with an accelerating US leading the developed world. Most western nations governments are gridlocked, reducing radical legislative risk materially hurting stocksparticularly in the US, where 2014s midterms brought more gridlock, as we expected. Markets have historically celebrated gridlock with positive quarterly returns in 86.4% of midterm-year Q4s (technically, that percentage goes to 87% aft er a positive Q4 2014) and Q1 and Q2 of the years aft er (a feature weve called, Th e 86.4% Miracle). Why? We explored that in our 11/6/2014 midterm post-mortem, Goldilocks Gridlock.

Th e Republicans won 54 Senate seats, one below the majority the Democrats enjoyed (?) in the current Congress. Not a fi libuster-proof majority. Nor suffi cient to override a potential Obama veto without Democrats siding. Even when added to the increasingly GOP-controlled House (the Republicans added 14 more seats, bringing their edge to 248 187), it seems pretty clear contentious legislation backed by either party is likely a nonstarter. Th e gridlock now more resembles that seen under President Bill Clinton from 1994 on. (Exhibits 1 and 2)

Short Stock Market OutlookQ1 2015

*FactSet, as of 1/2/2015. MSCI World Index returns with net dividends, 9/30/2014 12/31/2014 and 12/31/2013 12/31/2014.


34

Exhibit 1: Senate Control Following Elections, Clinton Administration

Exhibit 2: Senate Control Following Elections, Obama Administration

-5

5

15

25

35

45

55

65

Initial Election Midterm #1 Re-Election Midterm #2

Republicans Democrats

43

57

52

48

55

45

55

45

-5

5

15

25

35

45

55

65

Initial Election Midterm #1 Re-Election Midterm #2

Republicans Democrats

42

58

47

53

45

55 54

46

Source: United States Senate. Independents were added to the Democrats total, as per their voting tendencies.

Source: United States Senate. Independents were added to the Democrats total, as per their voting tendencies.


Midterms ordinarily generate gridlock to some extent. Since 1926, the Presidents party increased control during midterms only twice. Midterms bring an unusually high frequency of positive market returns. Midterm election year Q4s and the subsequent Q1 and Q2 have each been positive in 86.4% of occurrences since 1928.

While the 86.4% fi gure repeating is an odd coincidence, that this far exceeds the average quarters 67.8% frequency of positivity isnt, in our view. Gridlock is bullish because it reduces one source of riskcontentious legislation impacting property rights, obstructing trade and business or otherwise materially disrupting commerce. Th ese sorts of laws are usually nonstarters in a gridlocked Congress. Th e likely absence of this negative is a positivebut most investors dont realize it. Many get blinded by ideology, attempting to discern what the election means. Or their search for a positive catalyst causes them to overlook the non-negative.

Th is solid start helps explain why the third year of a US presidents term is historically the strongest of the four-year cycle, with an 18.5% average return and only two negative years since 1926both in the 1930s.*

We dont currently see a compelling reason for this bull market to end soon. Bull markets end one of two ways: the wall or the wallop. Bull markets climb a wall of worry until there is no more worry and no more wall to climb. At the euphoric top reality cant meet loft y expectations, and stocks start their slide. Or the bull market gets walloped by a huge, unseen negative with the power to knock trillions off global trade or GDP. Sentiment is warming but far from euphoricmost still dont fathom how bright the future can be. Some dogged fears persist, providing stocks more wall to climb. One example? Greece, which returned to headlines at year-end, as discussed in our 1/5/2015 commentary, Icarus, Grexit and Other Greek Mythology.

So Greece is in political crisis. Parliaments failure to back the governments Presidential pick triggered a snap election, scheduled for January 25, and the anti-austerity Syriza party leads current pollingrenewing jitters over bailout bust-up and euro exit. Eek! But heres a reality check: Weve been here before, and the last four years have proven Greece is a false fear. For investors, false fears tend to lose power over timebut that folks still pay them heed is bullish.

Greeces problems fi rst hit in late 2009, and since then theyve seemingly had a penchant for doing things in pairs. Th eyve had two bailouts, two defaults and now two government collapses. Collapse number two comes less than two months before their scheduled bailout exit, nullifying much of the concern about a potential Syriza-led government abandoning bailout commitments. Greece already got its money. Th ere is hardly anything to nullify.

*Global Financial Data, Inc., as of 02/19/2014. S&P 500 Total Returns for the years 1927, 1931, 1935, 1939, 1943, 1947, 1951, 1955, 1959, 1963, 1967, 1971, 1975, 1979, 1983, 1987, 1991, 1995, 1999, 2003, 2007 and 2011.


36

Th e outgoing coalition government was trying to negotiate some new items, like a provisional line of credit and default #3 (relief from bond payments owed to the ECB, but default is default), and a Syriza-led administration might have a harder time getting the troika to agree, but Syriza isnt anti-euro. Nor are most Greeks. And politicians have a funny way of moderating. Heck, Syriza has moderated since they went mainstream in 2012! Considering they poll below the minimum percentage of votes needed to govern alone, theyd likely have to form a coalition with one of the major partiesand agree to water down their agenda further to form a government. We just dont see this going the way hyperbolic headlines warn.

On the bright side, hyperbolic headlines do us all a favor. Th ey help keep fear alive, extending the proverbial wall of worry for stocks to climbjust as they have all through Greeces crisis. False fears arent fun to live through. Th ings can seem really bad! But theyre also sort of a gift . Th ey allow the most dismal expectations possible to get priced in. When reality eventually isnt so terrible, its a positive surprise, which is usually good enough to push stocks higher. Even if the outcome is, in a vacuum, bad! Its all relative. If bad is way less than a disaster markets have already priced, then for stocks, bad is actually good.

Th at last paragraph is pretty abstract, but Greece provides something of a case-in-point. Th roughout 2010 and 2011, most folks were positive Greece would collapse politically and economically, causing the euro to shatter, bringing all of Europe to depression as currencies went haywire, and taking global markets down with it. Headlines fretted this pretty much daily. Dont take our word for itGoogle Greece collapse or eurozone collapse and youll get hundreds of hits. Headlines like the following: Greek Default Could Spur Europe-Wide Contagion; Th e Trillion Dollar Question: Will Greece Exit the Euro?; Funds Flee Greece as Germany Warns of Fatal Eurozone Crisis. Some speculated preparations were being made on the continent, If the Euro Collapses, the Swiss Army Is Ready.

Th e more stories like this circulated, the more the world feared, discussed and traded on the possibility of the eurozone splintering and roiling the world. Folks made millions upon millions of investing decisions under the infl uence of deep-seated fear. Markets are forward-looking: Th ey dont wait for some big bad thing to happen to react. Fear strikes fi rst, folks pre-act. Ergo, widely held fears (or known positives, for that matter) get priced in.

Global markets had some heavy volatility tied to fears of the worst happening in Greece in 2010 and 2011. Th ey got some relief surrounding bailout #1, but things soon turned south again, driving fears even higher. But Greece didnt collapse and leave the euro! Instead they got bailout #2, which included a default. Bad! But what folks feared was a sudden, chaotic default crushing the euro. Th e reality of a planned, orderly debt restructuring, though not good for Greece and bond investors, was a welcome relief for markets globally.

A wallop, though possible, isnt probabletodays risks are either too widely known or too small to have a massive, surprising negative impact.


-3

-2

-1

0

1

2

3

4

5

6

III IV I II III IV I II III IV I II III IV I II III IV I II III

2009 2010 2011 2012 2013 2014

Seas

onal

ly A

djus

ted

Annu

al R

ate

Real GDP Growth Average Long-Term Average

Professional forecasters were too timid in 2014 and remain so now. Average return expectations are about as muted as 2014, with none higher than about 14%well below historical bull-market averages. Given stocks tendency to land outside the main cluster of professional forecastsand the low likelihood of a bear marketthis implies US stocks rise more than 10%. Whether 10% or 30% doesnt much matter practicallyeither way, 2015 looks like a good year for equities.

Geographically, America remains in the economic drivers seat, with growth above its post-war average in four of the past fi ve quarters. Th e Leading Economic Index (LEI) continues rising, fueled by the yield spread and credit availability, implying growth ahead. New orders in manufacturing and services are surging. Earnings and revenues are growing apace. Loan growth is accelerating. Corporate balance sheets are cash-fl ushfodder for continued capex and expansion. We discussed recent and expected growth in our 12/24/2014 commentary, Th is Week in Arbitrary Milestones.

While we believe the US economy warrants optimism, it isnt for the reasons headlines are espousing. Consider the GDP revision. Th e BEA announced GDP rose at a 5.0% seasonally adjusted annual rate, boosted primarily by consumer spending and business investment. Boom-ish! Not only the fastest in this expansion, the fastest since 2003. In our view, the revision just reinforces the US economys acceleration weve noted here for a while now. (Exhibit 3)

Exhibit 3: US GDP Growth

Source: US Bureau of Economic Analysis, as of 12/24/2014. US real GDP growth Q3 2009Q3 2014. Long-term average, Q2 1947-Q3 2014.


38

However, many experts continue drawing future conclusions on past information, suggesting theres momentum thatll drive the US economy forward based on big growth rates like Q3s. Even though the third take on summertime data wont say much about how autumn, let alone 2015, growth will play out. Dont get us wrong, several forward-looking economic indicators suggest optimism about the US economy is warranted. Th e Conference Boards Leading Economic Index rose 0.6% m/m in Novemberthe ninth rise in 11 months. No US recession has begun while LEI was high and rising in its 50+ year history. Likewise, in November, the New Orders component of the Institute for Supply Managements Manufacturing (66.0) and Services (61.4) were both well above the 50 level, indicating over half of fi rms surveyed reported expansion. Th ese are indications growth likely continues ahead, not a hot GDP read. Keep focused on what counts, not whats hotwatching backward-looking indicators and rather arbitrary growth levels to fi gure out where forward-looking stocks are going is a dangerous practice.

While most acknowledge Americas strength, few fathom the global economys strength. In the eurozone, for example, most fi xate on slowing services and manufacturing indexes, fearing a defl ationary depression, yet overall economic growth continues. We discussed the eurozones most recent GDP numbers in our 11/17/2014 commentary, Th e Eurozones Emerging Market Emerges, and Other Fun Q3 GDP Factoids.

Preliminary Q3 2014 eurozone GDP showed the 18-nation bloc grew 0.2% q/q (0.6% annualized), beating analysts estimates calling for 0.1% q/q growth. Th is comes a day aft er US Treasury Secretary Jacob Lew wagged an accusatory fi nger at European leadership, claiming all that severe austerity they allegedly enforced at Germanys insistence risks a lost decade. Th e defl ationary depression drumbeat continued even aft er these better-than-expected growth data, with most claiming growth will prove insuffi cient to create jobs, too weak to forestall defl ation, too sluggish to reduce debt and, perhaps most interestingly for investors, that core (French and German) weakness will prove too powerful for the rebounding periphery to off set. Th is last part is something of a sentiment sign-of-the-times worth noting.

First, some factoids: Germany avoided recession, growing 0.1% q/q (0.3% annualized) aft er a -0.1% Q2 decline. France grew a bit more, 0.3% q/q (1.1% annualized). Italy lagged both and was one of two nations contracting (Cyprus), with GDP falling -0.1% q/q. Th ese are factoids from the report about other peripheral nations: Spain (+0.5% q/q) and Greece

(+0.7% q/q) led growth.


We know what youre saying: Greece?!?! Yes, Greece! Revised data show Greece has grown since Q1, too, its fi rst quarter of positive GDP in about six years, ending a downturn that shaved between 25% and 30% of Greek GDP.

Look, we arent banging the drum shouting, ALLS WELL IN EUROPE!, but for many months now, folks have fretted the eurozone acting as something of an economic leech, sucking the lifeblood of global growth. Hence Mr. Lews comments that Europe was a drag on the world, and the medias near-immediate acceptance of that thesis.

With that said, skepticism about the periphery pulling up the eurozone is warranted. Th ese nations, for the most part, are not big enough to pull Germany and France up. (Not that stocks would require them to grow faster, as this expansion has repeatedly illustrated stocks dont much mind GDP growth rates.)

But the acknowledgement that the periphery is unable to lift the eurozone is a reversal of recent years dire fears, when the operating presumption was they were plenty big enough to take down not only the eurozone but the world. As recently as a few years ago, folks feared Greece would sink the eurozone. Th at the tiny Hellenic economy would infect other peripheral economies. And that, in turn, the periphery threatened both the eurozone economy in total and the mere existence of the euro. Th is was the alleged contagion, the disasters trigger, its Lehman momentTh e Fear of 2010, 2011, 2012 and even parts of last year. Heck, one prominent former US offi cial (who has a new book out!) said he was absolutely apoplectic over 2010s Greek bailout. (We dont know how he felt about 2012s second Greek bailout, which was more or less a default. Or the other 2012 default. Apoplectic, or some other fancy word for angry, we assume.)

Th at was the sentiment backdrop then, which an admittedly weak (in recession for 18 months) eurozone had to contend with. It outperformed those dire fears. We would suggest presently sluggish growth is still better than prevailing sentiment, which sees ghosts behind virtually every eurozone economic data point. Disinfl ation is seen as a looming defl ationary spiral, even when it is mostly a function of energy prices (which, wed add, are driving disinfl ation the world over). Slow growth is seen as teetering on the edge of a recession. High unemployment, a long-standing issue in the eurozone, is still high. Folks fret a lost decade a la Japans, which is pretty much exactly what folks feared would happen to the US in 2009 and 2010. Early recoveries typically face a high wall of worry. Th ats the eurozone today, and thats bullish.


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Choppy but rising LEIs indicate continued, uneven growth, which should beat dreary expectations. Similarly, in the UK, many fret strong household spending and services means the expansion remains unbalanceda misdirected pessimism, in our view. In China, most focus on slowing monthly numbers, ignoring that China growing around 7% contributes more than ever to global GDP growth.

Risks exist, as always, but as mentioned, we see none likely to truncate this bull market. Falling oil prices are oft en cited as such, but crudes steep decline is tied largely to a vast supply increase as US shale output booms and Saudi Arabia seeks to retain market share. Oil consumption is healthy, as shown in our 10/21/2014 commentary, About Th ose Falling Commodity Prices.

Why are prices down? Simple: Supply is up! When prices were high, miners and oil producers had a huge incentive to ramp up production to take advantage. Most expected Emerging Markets to keep the pedal to the medal, so producers fi gured theyd still reap huge rewards once those new mines and wells came online. But, as happens sometimes, they largely overshot. Supply jumped far higher than demandbut global oil consumption is still at all-time highs and rising.

Exhibit 4: Crude Oil (Annual Global Production and Year-End Price)

Source: FactSet, as of 10/20/2014.


Exhibit 5: Global Oil Consumption

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Source: US Energy Information Administration, as of 10/20/2014. Total petroleum consumption, 2000 2013.

Energy fi rms arent cutting back. Th e US shale fi elds are pumping apace, and OPEC hasnt dropped production to off setLibya is coming back online, and Saudi Arabia decided keeping market share was more important than supporting prices. On the demand front, OECD monthly oil consumption is largely in line with 2013, and full annual global demand is expected to rise by about one million barrels per day in 2014 and another 1.2 million in 2015.

Now, none of this means recent price movement results solely from longer-term supply and demand fundamentals. Commodity markets see sentiment-driven short-term volatility, too. We wouldnt be surprised if that were a factor these days, particularly with hard-landing fears plaguing China once again. But dismal sentiment doesnt match realityactual data, though wobbly by Chinese standards, show solid growth.

Whether the global economy picks up or slows a wee bit this year, we cant sayshort-term economic swings are tough to forecast (see every global think tanks missed forecasts for evidence). But we do know, from experience, that a combination of rising commodity supply and demand are pretty darned consistent with a growing world, regardless of what prices do.

Some suggest commodity markets volatility must soon spill over to equity markets. Th is is a fallacy. As we discussed in our 12/18/2014 commentary, Vexing Volatility, information fl ows freely and swift ly through all capital markets, making it impossible for oil markets to know something equity markets dont.


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Th e presumption volatile oil prices, currencies or far-fl ung indexes are a prelude to volatility elsewhere operates on the notion broad, global markets are unaware of volatility elsewhere. However, equity marketsand the billions of investors trading in equity marketsdont operate from so diff erent a script from bond or commodity markets. Markets, folks, are markets. If most bond or commodity investors know something, equity investors likely know it, too. You can see this in how oil prices, Energy stocks and Energy bonds are all moving in the same direction. Concurrently! Th ats markets near-simultaneously moving on this widely known information. If a market doesnt refl ect big volatility from another market, that isnt necessarily a sign of complacency. Its a sign the broad market impact may not be there. Perhaps its sector, country or company specifi c. Heck, gold has been in a bear market since 2011. Its a commodity. Its volatility hasnt been mirrored elsewhere. Same with iron ore. And copper. And natural gas, earlier in this cycle. Greek stocks fell massively through June 2012. Global stocks rose. EM stocks have been really bouncy and overall lackluster since 2011. Global stocks have been booming with relatively little volatility. Th ere is no sign volatility is contagious.

Th e Investment Policy CommitteeAaron Anderson, Ken Fisher, Bill Glaser and Jeff Silk

For daily commentary on market and economic events, please visit www.MarketMinder.com.


About Fisher InvestmentsFisher Investments is an independent, privately-owned money management company with offices in California, Washington and London. Over 26,000 private clients* and 100 prestigious institutions* entrust us with their financial futuresexperiencing our unique, high-touch service and investing expertise.

We strive to make our service model superior in quality, as well as structure. Every private client is assigned a dedicated Investment Counselor to service their account. We never earn commissions on trades or by selling you products. You can be confident our interests are aligned with yours.

Our investing process is managed by the Investment Policy Committee (IPC), a group with over 100 years of combined investing experience. Supported by thousands of man-hours per week by our Research Department, the IPC sifts through the noise of the markets and guides our clients disciplined strategies.

The IPC is co-headed by Fisher Investments CEO Ken Fisher, whos written the Portfolio Strategy column in Forbes for over 30 years, in addition to four New York Times best-selling books.

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Fisher Investments Investment Policy Committee


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Investing in securities involves the risk of loss. Past performance is no guarantee of future results. Investing in foreign stock markets involves additional risks including the risk of currency fluctuations.

Commentary in this summary constitutes the general views of Fisher Investments as of 1/8/2015 and should not be regarded as personal investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. The MSCI World Index measures the performance of selected stocks in 23 developed countries and is presented net of dividend withholding taxes and uses a Luxembourg tax basis. The S&P 500 Composite Index is a capitalization-weighted, unmanaged index that measures 500 widely held US common stocks of leading companies in leading industries, representative of the broad US equity market. Past performance is no guarantee of future results. You should consider headlines and developing stories in the broader context of overall market conditions and events. A single geopolitical event or corporate announcement is unlikely to move broad markets materially. You should carefully consider investment actions in light of your goals, objectives, cash flow needs, time horizon and other lasting factors.

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