IBF Reference Sheet FAQ

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INSTITUTE of BUSINESS & FINANCE

Certified Fund Specialist® – CFS® Certified Annuity Specialist® – CAS® Certified Estate and Trust SpecialistTM – CESTM Certified Income SpecialistTM – CISTM Certified Tax SpecialistTM – CTSTM

Since 1988

Master of Science in Financial Services – MSFS

Long-Term Growth The table below shows the growth of $10,000 over a 42-year period (1969-2010). As you can see, value dramatically outperformed growth; large value outperformed large growth by 50%, almost 4-1 in the case of mid cap value vs. mid cap growth and almost 9-1 in the case of small cap value vs. small cap growth (growth and value stocks are defined by Fama-French and include all stocks traded on the NYSE, divided into three parts: large, mid and small cap).

Growth of $10,000 from 1969 to the end of 2010

$2.8 million $1.5 million $493,000 $396,000

$319,000

Small Cap Value

Small Cap Growth

Mid Cap Value

$330,000

Mid Cap Growth

Large Cap Value

Large Cap Growth

From the beginning of 1928 through 2010, $10,000 invested in small cap value stocks grew to $590 million versus $15 million for small cap growth stocks (a margin of 40 to 1). The same dollar invested in large cap value stocks grew to $64 million versus $11 million for large cap growth stocks (a margin of almost 6 to 1). From 1928 through 2010, the standard deviation for small cap value stocks was only slightly lower than it was for small cap growth stocks; however, large cap growth stocks had less risk (20% standard deviation) than large cap value stocks (28% standard deviation). Looking at all 3-year rolling periods from 1970-2010, growth stocks showed positive returns 90% of the time versus 92% of the time for value stocks; for all 5-year periods during these same 31 years, growth stocks had gains 81% of the time versus 89% of the time for value stocks.

Commodities Growth of $1 [1926-2010] Wheat (bushel) Inflation T-bills

Growth of $1 [1981-2010]

$4.23

Wheat (bushel)

$1.31

$12.23

Silver

$1.50

$20.55

Gold

$2.41

Silver

$30.91

Inflation

$2.54

Gold

$68.85

Oil (barrel)

$2.61

5-Year Gov’t Bonds

$4.48

$84.12

T-bills

20-Year Gov’t Bonds

$92.94

5-Year Gov’t Bonds

$11.59

Oil (barrel)

$107.51

20-Year Gov’t Bonds

$18.33

S&P 500

$2,982.24

S&P 500

$21.19

Small Stocks

$16,054.70

Small Stocks

$30.64

In 1934, the Bureau of Labor Statistics began to gather daily commodity prices. This information eventually became the CRB Spot Market Price Index, price changes for 22 actively traded commodities. The CRB Index is equally weighted; each component comprises the same weight and importance in the index. Since 1947, the inflation-adjusted price of the CRB index has steadily fallen, with two exceptions—the 1970s and late 2000s. The inflation-adjusted annual decline of the CRB Index has been ~1% per year over the past 63 years. This translates into a cumulative, inflation-adjusted loss of 40% for this commodity index. Although these numbers are quite surprising, they are logical once things like new technologies, recovery systems, increased foreign competition, price controls, tariffs and substitutes paid for by governments are factored in.

Institute of Business & Finance

(800) 848-2029

www.icfs.com


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