The Essential Frontier | Alternative Investments | GetAlts.com | Rydex

Introducing the Efficient Frontier

The Efficient Frontier represents portfolios that have the greatest potential return for a given level of risk. The classic Efficient Frontier is shaped like a fishhook. It begins at the left end of the curve with a 100% bond portfolio. Equities are added in 10% increments until you reach the right end of the curve, which represents a 100% equities portfolio. This "fishhook" plot line lays out the mix of bonds and equities at each risk point that would most likely have offered the best possible return and lowest risk.

The traditional Efficient Frontier asset mix may not offer sufficient diversification or risk management. One possible solution may be the addition of asset classes that have little or no correlation to equities or fixed income-that is, their movement is not tied to either equities or bonds.

Introducing the Essential Frontier

The Essential Frontier reallocates 20% of the traditional Efficient Frontier portfolio to alternatives and divides it equally among five alternative strategies: real estate, commodities, long/short strategies, absolute return strategies and managed futures strategies.

Efficient Frontier 2003-2009

Equities/Bonds	Return	Standard Deviation
100/0	0.89	14.94
90/10	14.94	13.47
80/20	1.32	12.14
70/30	1.51	11.00
60/40	1.69	10.10
50/50	1.85	9.53
40/60	1.99	9.33
30/70	2.12	9.54
20/80	2.23	10.12
10/90	2.32	11.02
0/100	2.40	12.17

Equities: S&P 500® Total Return, Bonds: Morningstar Long-Term Government Bond Index

Essential Frontier 2003-2009

Equities/Bonds	Return	Standard Deviation
80/0/20	1.76	13.65
72/8/20	2.01	12.46
64/16/20	2.24	11.37
56/24/20	2.46	10.39
48/32/20	2.66	9.56
40/40/20	2.84	8.94
32/48/20	3.02	8.55
24/56/20	3.17	8.44
16/64/20	3.32	8.62
8/72/20	3.44	9.06
0/80/20	3.56	9.74

20% allocation to alternatives: 4% NAREIT Index, 4% S&P GSCITM, 4% Tremont HFI, 4% Tremont Long/Short Equity Index, 4% S&P DTI

The Essential Frontier line shows how this new allocation affects the Efficient Frontier by moving it leftward, resulting in higher returns at some points and lower standard deviation at every data point. The result is a more diversified portfolio that may help even out the ups and downs of the equity and fixed income markets. It's important to note, of course, that these results are hypothetical and not indicative of future performance. As a strategy for diversification and risk management, however, the Essential Frontier concept may be an idea you'll want to consider and discuss with your advisor.

Performance displayed represents past performance, which is no guarantee of future results.

Source: Calculated by Rydex SGI using data from Bloomberg.com and Morningstar Direct. The portfolios are hypothetical examples provided for illustration purposes only. No assumptions should be made that similar asset allocations will be profitable, suitable or perform as indicated above. Allocations and their percentages should change based on an individual investor's needs. The indices used to determine the return and risk figures for the portfolios shown were: equities by S&P 500® Index; bonds by Morningstar Long-Term U.S. Government Bond Index; and alts by equal amounts of NAREIT (National Association of Real Estate Investment Trusts®) Index, S&P GSCI™, Credit Suisse/Tremont Hedge Fund Index, Credit Suisse/Tremont Long/Short Equity Index and S&P DTI. Indices are not available for direct investment. The index returns do not reflect any management fees, transaction costs or expenses. Click here for descriptions of the referenced indices.

Essential Frontier™ is a trademark of Rydex SGI and is protected by copyright.

¹ Standard Deviation: A statistical measure of historical volatility of an investment, usually computed using 36 monthly returns. More generally, a measure of the extent to which numbers are spread around their average. The higher the number, the more volatility is to be expected.

Download a copy of The Essential Frontier™ for more information.

The alternatives strategies and asset classes mentioned are not suitable for all investors. Many alternative strategies use sophisticated and aggressive investment techniques such as leveraging, short selling and derivatives. The more you invest in leveraged instruments, the more the leverage will magnify any gains or losses on those investments. The use of short selling involves increased risks and costs. You risk paying more for a security than you received from its sale. Theoretically, stocks sold short have the risk of unlimited losses. The use of derivatives such as futures, options and swap agreements may expose an investment to additional risks that it would not be subject to if you invested directly in the securities underlying those derivatives. Additionally, certain alternative strategies tied to hard assets such as commodities, currencies and real estate, may be subject to greater volatility as they may be affected by overall market movements, changes in interest rates or factors affecting a particular industry, commodity or currency, -such as droughts, floods, weather, livestock disease, embargos, tariffs and international economic, political and regulatory developments. No investment strategy can guarantee a return in a declining market. Additionally, an investor could lose all or a substantial amount of their investment. For more information about these strategies and their risks please consult your financial advisor.

This material is not intended to be a comprehensive overview of the subject matters discussed. It is intended to be general in nature and should not be construed as investment advice or a recommendation of any specific security or strategy. Before investing in any of the investment products or strategies discussed, consult with your financial advisor to determine if they are appropriate for your objectives, risk tolerance, income level and investing time horizon.

Rydex SGI offers funds with investment strategies similar to those referenced on GetAlts.com.

Read the fund's prospectus and summary prospectus (if available) carefully before investing. It contains the fund's investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888.

Rydex SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global Investors^SM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision.