IMPORTANT DISCLOSURES

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing
in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The following
constitutes the general views of Fisher Investments and should not be regarded as personalized investment
advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be
a recommendation or a forecast of market conditions. Rather, it is intended to illustrate a point. Current and
future markets may differ significantly from those illustrated herein. Not all past forecasts were, nor future
forecasts may be, as accurate as those predicted herein.
CONTENTS
INTRODUCTION 1
INVESTMENT ACCOUNT TYPES 5
MAIN TYPES OF INVESTMENT OPTIONS 9
EQUITIES 9
FIXED INCOME 13
FUNDS 20
CURRENCIES 27
DERIVATIVES 30
INTRODUCTION
How should you invest your hard-earned savings? It might be the most important question you ask
about your retirement. The financial services industry is rife with recommendations, yet few investors
fully understand what investment vehicles are available to them—the opportunities, the risks and how
suitable each one may be based on their unique goals. Those in the financial services industry—financial
advisors, brokers, etc.—often use jargon to steer you toward investments that benefit them or their
business. Few explain how certain investments work and why some options might be more appropriate
for your situation than others.

That’s why we put together this guide. At Fisher Investments, as a fiduciary, we are committed to
investor education and believe an informed investor is a better investor. We’ll introduce a variety of
the most common investment vehicles and detail the risks and opportunities of each. For a deeper
discussion of investments’ pros and cons, and how they may help you achieve a comfortable retirement,
we recommend contacting Fisher Investments to learn more.

1
 INVESTMENT
ACCOUNT TYPES
INVESTMENT ACCOUNT TYPES
Before we dive into investment choices, it’s important to understand the different account types you can
utilize. This is because the type of account you use can help determine whether a certain investment type
is appropriate for your situation and goals. The main account types are:

• Taxable: These include individual and joint accounts, corporate accounts and certain types of
trusts. The tax on gains and income varies depending on the account type and the account owner’s
tax bracket.

• Tax Deferred: Common types include traditional 401(k)s and Individual Retirement Accounts
(IRAs).

• Tax Exempt: These range from Roth 401(k)s and Roth IRAs, which allow for tax-free growth, to
529 Savings Plans, that allow for tax-free withdrawals for qualified education expenses.

Below is a breakdown of common types of accounts and the associated tax treatment of contributions
and withdrawals. We recommend consulting a tax advisor to create a plan that fits your individual
circumstance.

RETIREMENT ACCOUNTS’ TAX TREATMENT

CONTRIBUTIONS WITHDRAWALS
Pre-Tax After-Tax Tax-Free? Taxable?
Traditional 401(k) or 403(b) yes yes1 no yes4
Roth 401(k) or 403(b) no yes yes4,5 no
Traditional IRA yes2 yes3 no yes4
SEP IRA yes yes no yes4
ROTH IRA no yes yes4,5 no
1
Employer plan dependent.
2
Full deductibility of a contribution is dependent on income limits and whether an individual is covered by an employee-sponsored plan.
3
Higher earners will not receive a tax deduction for IRA contributions .
4
Early-withdrawal penalties generally apply before age 59.5, with some exceptions.
5
Earnings can be withdrawn tax-free only after account is open 5 years or in case of disability or death

While this isn’t an exhaustive list of account types, it can help you consider how certain investments may
be more suitable for some account types than others.

5
 MAIN TYPES
OF INVESTMENT
OPTIONS
EQUITIES
An equity investment represents partial ownership of a business or other entity. There are two main
types of equity investments: common stock and preferred stock. While both are technically equity,
these securities are very different. When investors refer to the “stock market” or “stocks,” it’s usually in
reference to common stocks. Preferred stocks have characteristics similar to fixed income. The common
stock market is much bigger and investors exchange shares more frequently. Additionally, common
stock provides higher capital appreciation potential, gives owners voting rights and allows investors to
participate in a company’s future profits—characteristics not typical of preferred stocks.

Because stocks offer a share in the future profitability of a company, which is theoretically unlimited, the
potential upside is equally unlimited. This is among the reasons why stocks have offered superior returns
over the long run. However, investing in stocks comes with risks and is also subject to loss for a variety
of reasons. Investors can even face total loss if a company goes bankrupt. In this section, we explore
common stocks in more detail.

WHAT’S THE BENEFIT OF OWNING STOCKS?

Historically, stocks have offered superior long-term growth relative to other asset classes. This is the
primary reason we believe stocks should comprise a sizeable portion of an investing account when you
need long-term growth. Stocks are also highly liquid—meaning you can easily buy and sell them. Other
asset classes, like real estate, can be more difficult to sell quickly—which may require owners to seek
alternative sources of financing or even offer price discounts if they need to get cash quickly.

WHAT ARE THE RISKS OF OWNING STOCKS?

High Short-Term Volatility

Stocks, like all investments, have risks. For starters, stocks have relatively high short-term volatility. Even
day-to-day swings can be dramatic—gaining or losing significant value. For example, the 1987 stock
market crash known as “Black Monday” saw the S&P 500 lose about 20% of its value on a single day.
This was the worst single-day performance recorded in modern market history—and an outlier—but
stock markets regularly see changes of greater than one percent. That’s why, in our view, a long-term
approach is required for investing in stocks. Stock market crashes have generally been followed by
periods of even greater recovery.

9
Concentration

For most long-term investors, a properly diversified strategy is a prudent approach. Investing in a single
company—or even just a handful of companies—can increase the risk of losing a substantial portion of
your investment. There are countless examples of companies that have gone bankrupt over the years. In
the event of a bankruptcy, stockholders are the last to get paid. So even if there’s any money left after all
the debt gets paid, it usually amounts to very little. Whether it’s blatant fraud (e.g., Enron) or simply a
company failing to adapt (e.g., Sears), having too much of your nest egg in one stock can be dangerous.

Even investing in narrow parts of the market can amplify volatility. Consider the FAANG stocks—
Facebook (now Meta), Amazon, Apple, Netflix and Google (Alphabet)—that have been popular in
recent years. If investors only put their money into these stocks, they would have seen tremendous
returns coming into 2022, based on the performance of those companies over the prior decade.
However, many of these stocks fell materially more than the market in the 2022 bear market.

Some investors want their portfolio to align with their beliefs and choose to refrain from investing in
certain parts of the market like “sin stocks” (e.g., tobacco, alcohol, defense, etc.). Others have personal,
religious or moral reasons to avoid areas like energy or certain financials. There’s nothing wrong with
wanting a portfolio to reflect your preferences, but being too restrictive can limit your ability to diversify.

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FISHER INVESTMENTS’ VIEW ON STOCKS
We believe stocks are an essential asset class for investors requiring long-term capital growth. Despite
stocks’ high short-term volatility, we believe their superior historical average returns make stocks one
of the best investment vehicles for long-term wealth accumulation. Throughout this guide, we will
illustrate how stocks have performed over long periods relative to other asset classes.

12%

10.3%
10%
9.2%

8%

6.0% 5.9%
6% 5.6%
5.1%

4.1%
4%
2.9%

2%

0%
Domestic Non - US US AAA Gold, in Natl. Assoc. of US 10 - year US Muni Inflation,
Stocks, Stocks, Corp Bonds, USD Realtors, Treasury Bonds, US CPI
S&P 500 MSCI EAFE >20 - year (Jan 1974 – Median (Jan 1926 – >10 - year (Jan 1926 –
(Jan 1926 – (Jan 1971 – maturity Dec 2021) Price of Single Dec 2021) maturity Dec 2021)
Dec 2021) Dec 2021) (Jan 1926 – Family Home (Jan 1926 –
Dec 2021) (Feb 1968 – Dec 2021)
Dec 2021)

Source: Global Financial Data, FactSet, as of 2/18/2022.

One of the most frequent questions we field from investors is “When is the right time to invest in the
market?” Unfortunately, market timing is nearly impossible and even the greatest investors in the world
can have incorrect market forecasts. That’s why we believe long-term investors should refrain from
making short-term decisions. Investors who wait for clarity before investing in the stock market can
miss out on returns, which can be damaging to their long-term success. As Exhibit 2 shows, time in the
market tends to be more important than market timing.

11
EXHIBIT 2: IT’S TIME IN THE MARKET, NOT TIMING THE MARKET,
THAT’S IMPORTANT
What if You Missed the Best Days?

YOUR CUMULATIVE
RETURN DROPPED TO RETURN DROPPED TO
10 of the 9,130 trading days (0.11%) 1,350% 7.94%
20 of the 9,130 trading days (0.22%) 751% 6.31%
30 of the 9,130 trading days (0.33%) 438% 4.93%
40 of the 9,130 trading days (0.44%) 256% 3.69%
50 of the 9,130 trading days (0.55%) 142% 2.56%

Value of $500,000 Invested in 1988

Value of $500,000 Invested in 1988

$18,000,000
$15,971,761
$16,000,000

$14,000,000

$12,000,000

$10,000,000

$8,000,000 $7,251,088

$6,000,000
$4,255,796
$4,000,000
$2,689,755
$1,779,433
$2,000,000 $1,208,950

$0
Fully Invested Missing Best Missing Best Missing Best Missing Best Missing Best
10 Up-Days 20 Up-Days 30 Up-Days 40 Up-Days 50 Up-Days

Source: FactSet, as of 2/3/2023. Daily S&P 500 Total Return Index from 1/1/1988 – 12/30/2022.

12 800-568-5082
FIXED INCOME
Fixed income securities offer investors a fixed interest payment on a regular schedule. The most common
type of fixed income security is bonds, which are loans from investors to a company or government
entity in return for a fixed interest payment and a promise to repay the loan when it comes due (or
“matures”). Because fixed income securities offer a fixed interest payment with less direct exposure to the
earnings or losses of a company, potential returns are limited, relative to stocks. However, bond holders
are compensated for lower return potential in two ways. First, the interest payments are effectively
assured as long as the issuer remains solvent. Second, in the event of a bankruptcy and liquidation, bond
holders are paid back ahead of equity investors.

Despite these potential benefits, bond holders still face a variety of risks. For example, if a bond pays
annual interest of 4% but a new issuer offers a bond paying 6%, the 4% bond may lose principal value
as investors sell it in favor of the bond paying 6%. This can happen in inflationary periods, which are
often accompanied by higher interest rates. Another potential risk is insolvency. A corporation may issue
a bond in 2025 with plans to pay regular interest for the next 30 years, but if it goes bankrupt before
2055, investors may lose both future interest payments and their principal. In this section, we explore the
different types of fixed income securities and how their characteristics generally differ from one another.

Fixed Income: Bonds

WHAT ARE BONDS?
If an entity, like the US government or a corporation, needs to borrow money to pay for things, it may
issue bonds. Investors purchase these bonds—lending the entity cash—in exchange for a promise to get
repaid at a future point in time known as the “maturity date.” With most types of bonds, investors are
entitled to semi-annual interest payments (the “coupon rate” or “yield”) to compensate them for lending
cash, much like a bank charges interest on a mortgage.

Similar to most listed stocks, bonds operate in an auction market. However, most bond issuances are
priced exactly the same. For example, Treasury bonds are usually priced in $1,000 denominations while
municipal bonds are often priced in multiples of $5,000. Therefore, the auction market in this case
dictates the interest rate an issuer needs to pay, not the price.

13
The interest rate varies depending on a variety of factors, including:

Maturity dates: How far into the future the bond matures. In many circumstances,
longer maturities carry higher interest rates than shorter maturities to compensate
investors for the longer duration.

Creditworthiness of the issuer: Investors require higher interest payments from

issuers at greater risk of default (i.e., failing to make an interest payment). Credit ratings
agencies (e.g., S&P, Moody’s, Fitch) attempt to delineate between the risk different
issuers represent, but their methodology is an imperfect science.

This auction process occurs on the primary market—where transactions happen between an entity and
investors. Once the the initial auction concludes, investors are able to buy and sell on the secondary
market—where transactions can happen between investors or other market makers.

WHY INVEST IN BONDS?

Lower Short-Term Volatility

Bond prices change inversely to interest rates, meaning prices go down when interest rates rise and
vice versa. Because interest rates don’t tend to move dramatically over short periods, the value of bonds
usually stays relatively steady. This could help provide a hedge against the volatility of other assets, like
stocks.

Priority Repayment in Bankruptcy

In the event the bond issuer enters bankruptcy, bondholders must be paid before stockholders. In this
way, bonds may be less risky than stocks.

WHAT ARE COMMON TYPES OF BONDS?

Government Bonds

The most common form of US government bonds is known as “Treasury” debt, or “Treasuries.”
Investors often perceive Treasuries as less risky than other kinds of debt, so they tend to have lower
yields. Treasuries are auctioned off on a regular basis with varying maturity dates—usually between 1
month and 30 years. The interest rate fluctuates based on a variety of factors, including the supply and
demand at each auction.

14 800-568-5082
Here are some other common types of government bonds:

• Municipal bonds are debt issued by state and local entities. The interest on these bonds is usually
paid free of federal income tax and potentially state and local taxes, depending on the bond and your
circumstance. Because municipal bonds aren’t taxed federally, they usually have lower interest rates
than Treasuries. They also could be more risky because state and local governments aren’t as solvent
as the federal government.

• iBonds have gotten a lot of attention amid higher inflation periods. The interest rate changes twice
a year and adjusts to the Consumer Price Index (CPI) plus a fixed rate set by the government. Unlike
other bonds, investors don’t receive interest payments. Instead, the bonds increase by the percentage
value of the semi-annually calculated rate. Investors are only able to purchase $10,000 per year per
person. Investors are prohibited from redeeming within one year of purchase. A penalty of three
months’ interest is taken if redeemed within five years.

• Treasury Inflation-Protected Securities or TIPS are bonds issued by the federal government
that can also offer protection against inflation. TIPS have a fixed interest rate determined by an
auction. However, the principal—the original cost of the bond—goes up with inflation and down
with deflation. As a result, the payments you receive also fluctuate. The US Treasury limits purchases
to $10 million when bought directly from the government at auction, but investors can exceed that
limit by purchasing TIPS on the secondary market.

Corporate Bonds

Corporate bonds are debt issued by companies. These bonds tend to have higher yields than government
debt because the perceived risk of default is higher.

High-Yield Bonds

Sometimes known as “junk bonds,” these generally have the lowest credit ratings. Companies usually get
low ratings because they have a higher risk of default, whether that’s due to already-high debt loads or
a material change in their business operations. These bonds tend to offer the highest yield compared to
government and corporate bonds.

15
WHAT ARE THE RISKS ASSOCIATED WITH BONDS?
Interest Rate Risk

The value of your bonds can decline if interest rates rise.

Default Risk

Even though bond holders get paid sooner than stock holders, they can still absorb heavy losses if a
company defaults on its loan obligations.

Credit Risk

Some debt is inherently more risky. One way the market assesses comparative risk is by looking at
“credit spreads”—the interest rate difference between what two issuers pay on debt with comparable
terms. A classic example is contrasting what the US government pays on a 30-year bond with what a US
corporation pays on a bond over the same period. As previously mentioned, corporate debt is generally
perceived as riskier than government-issued debt, so corporate debt yields tend to be higher. Like interest
rates, this credit spread can fluctuate. Spreads can widen in periods of distress, which hurts the value of
the bond if you hold the riskier asset.

Liquidity Risk

While bonds are generally a highly liquid asset class, specific individual bonds can be more difficult
to trade because there is a smaller secondary market for them. Bond funds offer investors more
diversification and liquidity over individual issuances, which can help mitigate this risk.

Prepayment Risk

If debt gets paid off earlier than the original maturity date, it can put investors into the unexpected
situation of having to find a replacement investment for those funds. If this happens, investors are repaid
their principal in full, but forfeit future interest payments. Investors may be adversely impacted if the
prevailing interest rate environment is lower than when the pre-paid debt was originally issued.

Opportunity Cost

Bonds have lower long-term return potential than stocks. If your portfolio requires higher long-term
growth, then bonds can you leave you short-handed. Your asset allocation should be derived from a
thorough examination of your goals, cash-flow needs and investment time horizon.

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FISHER INVESTMENTS’ VIEW ON BONDS
We believe bonds can play a crucial role in an investor’s portfolio—depending on their investing goals
and needs. Primarily, we see bonds as a useful method of dampening stock market volatility. In some
circumstances, having a higher allocation to bonds may be a prudent strategy. For example, investors
who are drawing a higher percentage of funds from their investments or those who are prone to
emotional decision-making amid stock market swings may need a healthy portion of their portfolio in
bonds. Conversely, an investor who doesn’t rely on their portfolio for many day-to-day expenses or is
simply looking to leave assets to heirs may not require any bond exposure.

While investing in bonds can limit short-term volatility, bonds have also historically had lower returns
relative to stocks. As Exhibit 3 shows, corporate bonds have had better returns than government and
municipal bonds over time—but all are materially lower than stock returns.

-
12%

10.3%
10%
9.2%

8%

6.0% 5.9%
6% 5.6%
5.1%

4.1%
4%
2.9%

2%

0%
Domestic Non - US US AAA Gold, in Natl. Assoc. of US 10 - year US Muni Inflation,
Stocks, Stocks, Corp Bonds, USD Realtors, Treasury Bonds, US CPI
S&P 500 MSCI EAFE >20 - year (Jan 1974 – Median (Jan 1926 – >10 - year (Jan 1926 –
(Jan 1926 – (Jan 1971 – maturity Dec 2021) Price of Single Dec 2021) maturity Dec 2021)
Dec 2021) Dec 2021) (Jan 1926 – Family Home (Jan 1926 –
Dec 2021) (Feb 1968 – Dec 2021)
Dec 2021)

Source: Global Financial Data, FactSet, as of 2/18/2022.

17
Fixed Income: Money Market Funds and CDs
WHAT ARE MONEY MARKET FUNDS?
Money market funds invest in short-term securities—usually with maturities of less than one year—that
generally provide a higher return than savings accounts. The types of securities and maturities vary from
fund to fund, but money market funds usually carry very little risk of default.

WHAT ARE CERTIFICATES OF DEPOSIT?

Certificates of Deposits are slightly different from money market instruments because they can have
terms that last longer than one year. A CD “locks up” your cash for a specific period of time and pays
interest to the purchaser. The interest rate is usually quoted in annual terms. So, for example, if you
bought a 6-month CD that pays 1%, your actual interest earned would be 0.5%. Depending on the CD
and financial institution offering it, there are usually penalties for withdrawing your money prior to
maturity.

WHY USE MONEY MARKET FUNDS OR CDs?

Investors should use these instruments when they are looking for very short-term returns. For example,
pretend you know you are going to need $20,000 for a home renovation project in three months. You
can get slightly better returns than what you would get in a savings account by purchasing a three-month
CD, and you don’t have to take the risk your cash will fall in value.

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WHAT ARE THE RISKS OF MONEY MARKET FUNDS OR CDs?
There aren’t as many explicit risks associated with these instruments, which is why returns are so low
relative to other types of investments. While money market funds aren’t technically insured against loss
by the FDIC, the risk of default is very low. However, it’s important to read the fine print, as the fees for
money market funds can eat into your return.

The implicit risks are much higher. It’s smart to keep anywhere from three months, to a couple years’
worth of expenses in cash/cash equivalents, depending on your comfort level. But having larger sums
tied up in low-return investments can leave your cash subject to the insidious impacts of inflation. If
your money isn’t keeping up with inflation, your purchasing power is declining.

FISHER INVESTMENTS’ VIEW ON MONEY MARKET FUNDS AND CDs

CD and money market fund returns are paltry when compared to other asset classes. As such, we
don’t believe they are very useful as investment vehicles. In our opinion, these instruments are most
appropriate when you are preparing for a known expense within a short, pre-defined period.

19
FUNDS
Funds are investment products that pool investor money together for a specific purpose. There are many
types of funds that invest in a variety of asset classes, take different management approaches and have
varying fee structures. Funds are usually a good option for investors with smaller amounts to invest
because they can offer needed diversification—and management in some cases—without having to
purchase a lot of different securities. However, those services come at a cost that can affect the return,
and these investments can typically be traded easily, which allow them to be used for purposes other
than those for which they may have been intended. In this section, we explore the main different types
of funds, how they compare and what investors should use them for.

Funds: Mutual Funds

WHAT ARE MUTUAL FUNDS?
Mutual funds are pooled investment vehicles with professional fund management. Investors purchase
shares of the fund and that money is aggregated and invested in the fund strategy. Funds can range
across asset classes. Regulations usually require the underlying strategy to align with the name of the
mutual fund. For example, you can’t have a mutual fund named “US Large Cap”—where one would
expect investments in large US corporations—and then have the assets invested in foreign bonds.
Mutual funds aren’t traded intraday. So investors will receive the closing price at the end of the trading
day for any redeemed shares.

Here are a few types of common mutual funds:

• Stock mutual funds invest in certain-sized companies, sectors, geographies, styles, etc.

• Bond mutual funds invest in different types of debt, including corporate, government, high yield,
municipal, etc.

• Balanced funds usually invest in a mix of stocks or bonds.

• Index funds attempt to track a specific underlying index (S&P 500, Dow Jones, etc.)

• Specialty funds may invest in other asset classes, like real estate and commodities or have a specific
mandate like socially responsible investing.

• Fund-of-funds is a fund that invests in a collection of mutual funds.

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CLOSED VS. OPEN FUNDS
There are two main types of mutual funds—closed ended and open ended. Closed-ended funds issue a
limited number of shares whereas open-ended funds can issue and retire shares as dictated by investor
demand.

A term commonly associated with mutual funds is net asset value (NAV). The NAV reflects the
aggregate value of the underlying investments. For example, if the value of the underlying stocks in an
equity mutual fund rises by 1% in a day, the NAV rises by 1%. However, mutual fund prices don’t always
reflect the NAV. Particularly in the case of closed-ended funds (finite shares), the price of the fund can
deviate from the NAV. If demand for a fund is high, it can trade at a premium to NAV, and if there is
very low demand, it can trade at a discount.

Be careful, though: Past performance does not indicate future results. Investors might justify paying a
premium for a high-performing fund, but the reasons for good performance may change as the market
changes. Similarly, an underperforming fund may not stay underperforming forever.

WHAT ARE THE BENEFITS OF MUTUAL FUNDS?

Mutual funds are a great way for investors to achieve diversification. Most investors are introduced to
mutual funds through employer-sponsored retirement plans like 401(k)s. Depending on the company,
employees may only have a handful of investing options to choose from, and these are usually mutual
funds. They are best utilized for smaller investment sums where diversification through individual
securities isn’t possible or is too expensive.

WHAT ARE THE DRAWBACKS OF USING MUTUAL FUNDS?

Mutual funds can have a number of drawbacks investors should know about:

High costs: While fees have come down over time, mutual funds are generally still
expensive relative to other options out there, such as exchange-traded funds (ETFs),
which we discuss in the next section.

Layered fees: Mutual funds often have various fees meant to incentivize money
managers to recommend proprietary funds. Sometimes this results in an upfront fee
for investment, penalties for not holding the fund for a minimum period of time and
commissions paid to brokers to cover sales advertising (12b-1 fees). It’s important to read
the fine print to understand what the total costs are.

21
 Over-diversification: Some investors take the approach of investing in a variety of
mutual funds. While this can make sense from an asset allocation perspective, an
investor can also become too diversified. For example, equity mutual funds sometimes
invest in thousands of companies. Imagine having multiple funds like that in your
portfolio. Even investing $100,000 in multiple funds with thousands of companies
dramatically reduces the impact a single company can have on overall returns.

No cohesive strategy: Mutual fund managers don’t work together. You can have one
mutual fund manager who dislikes a certain company and decides to sell, while another
manager may be buying that same company.

Funds: Exchange-Traded Funds (ETFs)

WHAT ARE ETFs?
Exchange-traded funds are pooled investment vehicles with similarities to mutual funds, but they can
be traded intraday, like stocks. ETFs started as a passive tool to track an underlying index such as the
S&P 500 or the Nasdaq Composite. ETF adoption has since grown dramatically and there is now a
wider range of options—including actively managed ETFs and ETFs that track a variety of asset classes
from stocks and bonds to cryptocurrencies. Like mutual funds, actively managed ETFs typically carry
a higher cost of management relative to passively managed ETFs. However, ETF fees are still typically
lower than those of mutual funds.

WHAT ARE THE BENEFITS OF ETFs?

ETFs give investors diversified investment exposure, typically at a lower cost than mutual funds, making
them attractive vehicles for long-term investors. For example, building out an individual bond portfolio
can be difficult as individual bonds don’t have as much liquidity as individual stocks do. So using a bond
ETF, which trades intraday, can improve liquidity.

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WHAT ARE THE RISKS OF ETFs?
While fees are typically lower than mutual funds, ETFs carry many of the same risks such as the
potential for over-diversification and lack of a cohesive strategy when multiple ETFs are used in
conjunction with one another. The ETF market has also evolved, and there are some ETFs that provide
risky positioning. For example, some ETFs offer leveraged returns that can provide double or even triple
the returns—and losses—of an underlying index. Unsuspecting investors may not be aware of the risks
these investments pose or the volatility associated with them. As always, it’s important to understand
what you are investing in and what risks could affect your investment.

FISHER INVESTMENTS’ VIEW ON MUTUAL FUNDS AND ETF s

Mutual funds and ETFs have an important purpose in the investing world, providing diversification
for portfolios of any size. However, we believe high net worth investors can build a well-diversified,
more efficient portfolio using individual stocks. By doing so, investors can avoid over-diversifying
their portfolios, streamline their approach and have more transparency on their strategy and fees.
Additionally, while many of these types of funds are designed to be held long term, some investors trade
them actively. Several independent research reports suggest investors who commonly switch between
strategies tend to underperform markets. Exhibit 4 illustrates one such study, conducted by DALBAR.
This study expands beyond just mutual funds and ETFs, but shows the pitfalls an investor can face when
regularly making short-term-focused investment decisions. We see investors do this with funds all too
often.

23
 -
Hypothetical Growth of $1 Million Invested 25 Years, 12/31/1996 – 12/31/2021

$11,000,000
$10,254,368
$10,000,000

$9,000,000

$8,000,000

$7,000,000
$6,086,837
$6,000,000

$5,000,000

$4,000,000
$3,064,524
$3,000,000

$2,000,000
$1,321,154
$1,000,000

$0
US Equities Average Equity US Bonds Average Bond
Fund Investors Fund Investors

Equities Bonds

Source: DALBAR, as of 4/5/2022. Quantitive Analysis of Investor Behavior based on an initial investment if $1 million, US
stocks and bonds are represented by the S&P 500 and Barclays US Aggregate Treasury Bond Index, respectively, 12/31/1996
– 12/31/2021. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest
directly in any index. Average stock investor and average bond investor returns calculated as the change in assets after excluding
sales, redemptions and exchanges. This method of calculation captures realized and gains, dividends, interest, trading costs, sales
charges, fees and other applicable costs.

We do believe ETFs, in particular, can be part of a tailored portfolio, and Fisher Investments uses
ETFs for several purposes for clients. For example, we believe bond ETFs are very useful in providing
diversification and, perhaps more importantly, liquidity in an asset class where you can’t always
obtain these qualities easily. Additionally, ETFs can be used for smaller account sizes or as temporary
replacements when tax-loss harvesting—selling securities at a loss to capture the future tax benefit and
potentially reinvesting in what was originally sold as regulations allow. Overall, these instruments can
be useful tools in an investor’s toolkit, but we think high net worth investors should weigh the risks of
solely relying on them relative to a more strategic approach.

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Funds: Real Estate Investment Trusts (REITs)
WHAT ARE REITs?
While not technically a type of fund, Real Estate Investment Trusts pool investor assets together,
allowing them to get diversified exposure to a variety of real estate assets. Most types of REITs are traded
on public exchanges, similar to other types of funds, but some are private and come with additional
liquidity risks. To qualify as a REIT, an entity must meet a number of regulatory requirements. A few of
these requirements include:

• REITs must invest at least 75% of their assets into real estate.

• REITs must derive at least 75% of their gross income from rents from real property, interest on
mortgages financing real property or sales of real estate.

• REITs must distribute at least 90% of their taxable income in the form of shareholder dividends.

REITs can invest in a number of different types of real estate assets, ranging from housing and
commercial property to industrial and data centers. Some of the largest publicly traded REITs in the
world own cell phone towers. It’s particularly important for investors to understand these nuances if they
decide to invest in REITs because returns will vary depending on what is happening in the individual
markets the REIT is investing in.

WHAT ARE SOME OF THE BENEFITS OF REITs?

The main benefit of REITs is that they allow investors to get diversified exposure to real estate without
the cost and liquidity issues of investing in real property. Additionally, investors can get exposure to
types of real estate they may not be able to otherwise. For example, most individual investors can’t afford
to buy an office building or a warehouse, but they can invest in one through a REIT.

REITs also tend to have higher dividend yields than the average stock. This is partially because dividends
from REITs avoid “double taxation.” Because REITs are required to distribute almost all of their taxable
income, they typically pay very little in income tax. Compare this to a dividend from a regular company.
The company has to pay taxes on its earnings and then decides to pay dividends from the leftover cash.
Investors then also have to pay taxes on the dividends they receive. While we would caution against only
looking at dividends when considering an investment, the higher dividend may be attractive to income-
seeking investors.

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WHAT ARE SOME RISKS OF REITs?
Historically, REITs have been sensitive to changes in interest rates. When rates increase, it tends to
negatively impact REIT prices. Additionally, an investor usually needs to do quite a bit of research on
the REIT to understand the underlying assets it holds. There can be large differences in performance
between types of REITs. Cell phone tower REITs behave very differently than data center REITs, for
example. Real estate also represents a small portion of the global stock universe. Considering many
retirees already count their home as one of their biggest assets, investing in REITs can lead to an over-
concentration in real estate trends.

FISHER INVESTMENTS’ VIEW ON REITs

REITs make up a small portion of the overall equity market, but can be appropriate investments
depending on your outlook on the economy, the industry the REIT operates in and the interest rate
environment, among other factors. Like any investment, we recommend evaluating your selection of
a REIT carefully. REITs come in many different forms and have a wide variety of fees and areas of
expertise. Some REITs are also known as “non-traded REITs,” which lack liquidity and can sometimes
trap an investor’s funds for lengthy periods while the REIT attempts to sell its assets—the underlying
real estate—before allowing fund withdrawals. If a REIT is publicly traded and in a broad benchmark
like the S&P 500, this represents lower liquidity risk.

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CURRENCIES
Unlike an appreciating asset like an equity—which represents ownership of a company and entitles
investors to a share of the company’s current and future profits—currencies fluctuate solely on supply
and demand relative to each other. The technicalities of what can cause supply and demand changes for
currencies are highly complex—and wide-ranging, depending on the currency in question.

In today’s world, you can break currency investing into two different types: fiat and digital. Fiat
currencies simply represent the currencies many are familiar with—the US dollar, the British pound, the
Japanese yen, etc.—while digital currencies are typically cryptocurrencies or tokens. In this section, we
explore both and detail what we think you should know when it comes to investing in currencies.

Currencies: Fiat Currencies

HOW DO YOU INVEST IN FIAT CURRENCIES?
Investors can purchase currencies on foreign exchange markets (“forex”), but, similar to commodities,
individual investors are much more likely to get exposure via investment products like mutual funds
or ETFs. Currency markets are traded 24 hours a day and enable the exchange of different countries’
currencies.

WHAT ARE THE BENEFITS OF CURRENCY TRADING?

Depending on your circumstances, there can be some benefits to trading currencies. For example, if
you spend a significant amount of time outside the country, it can make sense to maintain assets in
corresponding currencies. By maintaining multiple currency accounts, you can better mitigate short-
term swings that might affect your spending power. Multinational companies trade currencies regularly
to cover their expenses in the countries where they operate.

WHAT ARE SOME RISKS OF CURRENCY INVESTMENTS?

Using currencies as an investment is a highly speculative practice. Similar to commodities, currency
prices are impacted by difficult-to-predict supply and demand patterns and tend to ebb and flow relative
to one another over long periods of time. So in order to profit from investing in currencies, you have to
have impeccable timing—a nearly impossible feat.

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FISHER INVESTMENTS’ VIEW ON FIAT CURRENCIES
We believe the optimal strategy for many investors is to maintain a globally diversified portfolio. Being
globally diversified means having exposure to companies that report their profits in different currencies.
Therefore, the value of the dollar relative to other global currencies can sometimes affect the value of
non-USD investments. However, we don’t think investors should seek direct currency exposure as an
effective long-term investment vehicle. Our research suggests that major currencies tend to ebb and flow
relative to one another—not appreciate over time like other asset classes.

Currencies: Cryptocurrencies and Non-fungible

Tokens (NFTs)
WHAT ARE CRYPTOCURRENCIES AND NFTs?
Cryptocurrencies and non-fungible tokens are both digital assets that have gained popularity in
recent years. Proponents of digital assets see them as having similar, if not more, value than physical
alternatives. In the case of cryptocurrencies, there are thousands of “coins” or “tokens” but the biggest
by market capitalization are Bitcoin and Ethereum. NFTs represent ownership of digital assets. This can
be as simple as owning a digital image or as complex as owning a virtual piece of property in a virtual
program.

WHAT ARE THE BENEFITS OF CRYPTOCURRENCIES AND NFTs?

Some see digital assets as tools to replace physical assets altogether. Others see digital assets as good
investments because a small fraction of these assets have experienced tremendous growth. We remain
skeptics for a variety of reasons including overall low adoption rate, substantial price volatility,
unregulated nature, black market affiliation and difficulty to value.

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WHAT ARE THE RISKS OF CRYPTOCURRENCIES AND NFTs?
There are many risks associated with digital assets and we would caution long-term investors to limit
their exposure. In addition to the extreme price volatility digital assets experience, it remains unclear
how something like cryptocurrency could (or would be allowed to) replace a traditional or “fiat”
currency like the dollar. Naturally, proponents would judge our skepticism harshly. But there are too
many unknowns to make us comfortable recommending in something with such variability. There is
no intrinsic value, cash-flow stream to predict or industry to analyze. The price is primarily driven by
speculation—dictated by what the next person is willing to pay.

FISHER INVESTMENTS’ VIEW ON CRYPTOCURRENCIES AND NFTs

As mentioned above, we don’t believe these assets should be a central part of any well-diversified
investment plan. These assets are in their infancy—something proponents of them would have you
believe is a reason to close your eyes and buy. But doing so comes with extraordinary risk and volatility.
Some investors are barely able to stomach the short-term volatility of the stock market. But when
compared to Bitcoin—the largest and most-traded cryptocurrency—stock volatility looks sanguine.
Exhibit 5 shows the number of days the S&P 500 and Bitcoin experience declines of 5% or more. We
simply believe this much volatility isn’t suitable for most investors.

5 500
$80K
14,000 MSCI World Total Return Index Bitcoin Close Price
MSCI World -5%+ Down Day $70K Bitcoin -5%+ Down Day
13,000
MSCI World -5% or more: $60K Bitcoin -5% or more:
12,000
4 days 158 days
$50K
11,000

$40K
10,000

9,000 $30K

8,000 $20K

7,000 $10K

6,000 $0K
2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022

Source: CoinMarketCap, FactSet, as of 3/24/2022. Bitcoin close price, MSCI World Gross Total Return Index, daily,
1/1/2017 – 3/23/2022. Presented in US dollars.

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DERIVATIVES
Derivatives are financial contracts that derive their value from an underlying asset such as an individual
security, a fund or a broad index. Investors typically purchase derivatives to either hedge their exposure
to an underlying asset or to speculate on price movements. These assets are complex and should only be
purchased by investors with a high degree of knowledge about how they work and the associated risks.
While there are many different types of derivatives, we will explore the two most common ones investors
are interested in—options and futures—in this section.

Derivatives: Options
WHAT ARE OPTIONS AND HOW DO YOU INVEST IN THEM?
Options are contracts that trade as their own separate securities with specific terms, notably a “strike
price” and an expiration date. The “option” gives the buyer the choice to take action—either to buy or
sell—on an underlying security at a specific price (i.e., the “strike price”) prior to the expiration date. The
two main types of options are:

• Call options: Calls give the buyer the right, but not obligation, to buy an underlying asset at the
strike price. Investors usually purchase call options when they believe the price of the underlying
asset will rise above the strike price. In order to make an intrinsic profit, the underlying asset must
rise past the strike price enough to cover the cost of purchasing the option contract.

• Put options: Puts give the buyer the right, but not obligation, to sell the underlying asset at the
strike price. Investors usually purchase put options when they believe the price of the underlying
asset will fall below the strike price. In order to make an intrinsic profit, the underlying asset must
fall past the strike price enough to cover the cost of purchasing the option contract.

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WHY DO INVESTORS USE OPTIONS AND WHAT ARE THE RISKS?
Investors who purchase options usually do so either to hedge their exposure to an underlying asset—
buying a put option to protect against a potential price decline in a company they own shares in, for
example—or to speculate on near-term price trends. The most the option buyer can lose is the amount
they paid for the contract, which limits the downside risk relative to sellers.

Investors who choose to sell options usually do so because they do not expect the price of the underlying
asset to move beyond the strike price—leaving the option to expire worthless when it hits the expiration
date. If that happens, the seller’s profit is equal to that of the price of the option contract. However, if the
asset moves beyond the strike price—referred to as being “in the money”—then the seller must deliver
the underlying asset in the amount agreed to in the contract. For the sellers of call options in particular,
the potential loss is theoretically unlimited.

Derivatives: Futures
WHAT ARE FUTURES?
Like other types of derivatives, futures are a contract between two parties. Futures are a standardized
agreement to buy or sell an underlying asset at a predetermined price at a specified time in the future.
Futures can cover anything from individual stocks to commodities such as oil, gold, corn and more. As
opposed to options that can expire worthless, futures contracts oblige an exchange of the underlying
asset agreed to in the contract. However, an investor doesn’t pay a separate price for the contract aside
from potential brokerage, exchange or trading fees.

WHY DO INVESTORS USE FUTURES?

Similar to options, futures contracts can help hedge exposure to an underlying asset or speculate on price
movements. Companies with heavy commodity exposure often use futures markets to hedge against the
possibility of a large price swing dramatically impacting their profits. For example, an airline that uses
futures to hedge the price of jet fuel. Or a farmer who uses futures to hedge the price of their crops.

Investors may use futures to hedge against a decline in their portfolio, assuming they are able to
accurately forecast such a period. They can also use futures to speculate on the price movement of
underlying assets, which can add to their returns. However, their returns will suffer if incorrect.

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WHAT ARE THE RISKS WITH FUTURES?
The main risk of futures contracts is being wrong. Investors can sustain heavy losses if the price of the
underlying asset dramatically deviates from the price agreed to in the contract. Futures contracts are
priced on a daily basis and may subject one party to a margin call—a broker requirement to either
deposit more money or sell assets in an investor’s account—if the price moves far enough away from the
agreed price. Margin calls can force investors to take losses in periods of extreme market volatility.

FISHER INVESTMENTS’ VIEW ON OPTIONS AND FUTURES

Options and futures can be useful tools for investors in certain situations, but they are inherently short-
term focused and come with risks. Most individual investors don’t have the know-how to effectively
and safely use options and futures widely in their portfolios. Even the most seasoned professionals don’t
know how markets will behave in the short term—though many claim they do, few have a verifiable
long-term track record of being consistently correct. When it comes to stock market forecasting, for
example, even the best are wrong 30–40% of the time.

While hedging against decline may sound appealing—particularly in the midst of market volatility—it
can also lower your near-term returns and the compounding effect of returns over time. As Exhibit
6 shows, daily market movements have historically been a coin flip as to whether they are positive or
negative. Even stretching out to one-year periods, there historically has been a reasonably high chance
of being wrong. As we discussed earlier, limiting market exposure can have a detrimental impact on an
investor’s long-term returns.

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EXHIBIT 6: FREQUENCY OF POSITIVE AND NEGATIVE STOCK RETURNS

PERIOD FREQUENCY OF FREQUENCY OF

SINCE 1928 POSITIVE RETURNS NEGATIVE RETURNS
Daily* 53% 47%
Calendar Month 63% 37%
Calendar Quarter 69% 31%
Calendar Year 74% 26%
Rolling 1 Year 75% 25%
Rolling 5 Year 88% 12%
Rolling 10 Year 94% 6%
Rolling 20 Year 100% 0%
Rolling 25 Year 100% 0%

Source: Global Financial Data, Inc. as of 6/6/2022.

*Daily return data begins on 1/3/1928, and are based on price appreciation only; all other data begins 1/31/1926 and reflects
total return.

In our view, derivatives should only be employed in an investment strategy when there is a high degree
of confidence in what the near-term future holds. At Fisher Investments, we seek to identify periods of
sustained market declines. If successful, it’s possible we would employ the use of options and/or futures
as part of a strategy to limit the decline of investor portfolios. However, we believe it is too risky to do
this with large portions of portfolios and would simply seek a portfolio that mirrors cash-like returns.
Investors don’t need to avoid short-term market declines to reach their goals. Derivatives can be a
tempting tool to ease the pain of market volatility, but participating fully in long-term market returns is
more important.

IN CONCLUSION
Investors today have more ways to invest their money than ever before, but, as you can see, not all
options are created equal. We believe an investor’s portfolio strategy should reflect their unique goals,
cash-flow needs and investment time horizon. No two situations are exactly alike, and you deserve to
have your portfolio tailored to your needs. If you’d like to have a conversation about how we can help
you achieve your investment goals, please contact us.

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FISHER INVESTMENTS CAN HELP YOU MANAGE RISK AND BUILD
A MORE SECURE FINANCIAL FUTURE
Our full-service approach means you’re supported at every step of your financial journey.

PLANNING
Fisher Investments can help you craft an appropriate investment strategy built around your cash-flow needs and
investment goals and objectives. Your strategy should guide all your investment decisions. The market isn’t intuitive—
in fact, many times prudent investing involves doing the opposite of what feels “right.” This is why having a sound
investment strategy—and an adviser who can help you stay disciplined—can help you achieve your longer-term goals.

PORTFOLIO MANAGEMENT
We create a personalized portfolio tailored to your unique situation: your financial goals, wants, needs, health, family
and lifestyle. Led by our founder, Ken Fisher, our Investment Policy Committee—the primary decision-makers for your
portfolio—has 150+ combined years of industry experience.

CLIENT SERVICE
Fisher Investments offers a level of client service that we believe is rare in our industry. Our objective is to help you reach
your goals and keep you informed and comfortable along the way. A big part of this is making sure you understand your
strategy and stick to it. Investing involves emotions, and we seek to help our clients stay disciplined, whether the market
is up or down. Each client has a direct point of contact, called an Investment Counselor. Your Investment Counselor:

• Helps you understand what’s going on in your account and why

• Reviews your investment goals and objectives regularly
• Handles your day-to-day needs quickly and smoothly

START THE CONVERSATION TODAY

A second set of eyes on your financial plan is always a good idea. If you want an experienced financial professional
to review your portfolio and financial goals, we urge you to call us at 800-568-5082 for a complimentary
evaluation.* We can help you create a retirement investing strategy to generate the income you need and achieve
your long-term goals. We look forward to hearing from you.

*For qualified investors with $500,000 or more in investable assets.

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