Market Decline Perspective From Gary P and Bill O'Grady

Good morning.  The U.S. stock market has declined significantly this week, reacting to several factors.  I believe the markets must "correct" occasionally (dropping 10% or so from recent highs), and it's been a long time since that has happened (~mid-2011).  This may be the time for it, and we could be a good deal of the way through it already.

Still, I recommend long-term investors remain invested and diversified.

Trying to time the market is risky and the results are usually not successful.  There is Nobel Prize-winning research supporting the "asset allocation" methodology I employ for most of my clients' long-term money (retirement, college savings).

As is often the case, Bill O'Grady of Confluence Investment Management offers a brief and helpful view of current conditions:  http://confluenceinvestment.com/assets/docs/2015/daily_Aug_21_2015.pdf

If you have any questions, please contact me.  Thank you, and happy Friday!

--Gary

P.S.--Are you prepared for financial emergencies?  Let's make sure we're evaluating your cash reserves, your Disability Insurance, your Life Insurance, and your estate plan.  I don't sell insurance and I don't draft legal documents, but I will coach you on how to make sure you buy the right product and have the right documents in place.  No charge--it's part of the value I want to add to the investment advice already being provided.

Garo Linck Partoyan

Potomac Wealth Strategies, LLC

(703) 746-8195 direct

Visit us online for helpful ideas and information!

Portfolio Model Performance through June 2015

US and Foreign Indexes		3 mo	1 yr	3 yr	5 yr	10 yr	2008
Stock Markets (50-40-10)		0.3%	1.1%	13.5%	12.9%	6.8%	-39.7%
S&P 500		0.3%	7.4%	17.3%	17.3%	7.9%	-37.0%
MSCI EAFE		0.6%	-4.2%	12.0%	9.5%	5.1%	-43.4%
US OE Diversified Emg Mkts		0.7%	-6.7%	3.8%	3.5%	7.3%	-54.4%
Barclays Agg Bond--US		-1.7%	1.9%	1.8%	3.4%	4.4%	5.2%
Barclays Agg Bond--Global		-1.2%	-7.1%	-0.8%	2.1%	3.5%	4.8%
Ibbotson Aggressive		0.2%	3.2%	14.2%	13.7%	6.9%	-35.5%
Aggressive		0.4%	1.3%	13.2%	12.3%	6.4%	-36.3%
95 Flex V		-1.4%	-0.7%	10.0%	10.1%		-19.1%
95 Strategic II		-0.5%	2.2%	15.1%	14.8%	9.3%	-35.9%
95 Schwab index		0.5%	2.7%	15.1%	14.3%	7.3%	-37.2%
WealthFront 9		0.5%	-0.1%	10.9%	11.0%		-38.0%
Ibbotson Moderately Aggressive		-0.1%	2.7%	11.8%	11.9%	6.6%	-28.5%
Moderately Aggressive		0.1%	0.8%	11.7%	11.3%	6.3%	-32.0%
80 Flex V		-1.2%	-0.6%	9.5%	9.7%		-16.9%
80 Strategic II		-0.7%	1.3%	12.6%	12.5%	8.6%	-30.0%
80 Schwab index		0.1%	2.6%	12.6%	12.3%	6.7%	-32.1%
Ibbotson Moderate		-0.3%	2.4%	9.4%	10.0%	6.1%	-21.2%
Moderate		-0.3%	0.0%	8.7%	9.2%	5.8%	-23.1%
60 Flex V		-0.8%	-0.3%	8.7%	9.1%		-13.1%
60 Strategic II		-0.8%	0.9%	10.2%	10.6%	7.9%	-23.9%
60 Schwab index		-0.3%	2.7%	9.9%	10.2%	6.0%	-25.6%
Goldman Sachs Income Builder		-0.7%	-0.9%	9.3%	10.6%	6.4%	-23.3%
American Funds Balanced Port		-0.5%	3.1%	10.9%	11.3%	6.8%	-28.2%
Moderately Conservative		-0.6%	-0.8%	5.8%	7.0%	5.3%	-13.3%
40 Flex V		-0.6%	0.0%	8.2%	8.9%		-13.3%
40 Strategic II		-0.7%	1.4%	9.4%	9.5%	7.5%	-17.7%
40 Schwab Index		-0.8%	2.5%	7.2%	7.9%	5.1%	-18.8%
Conservative		-1.0%	-1.6%	2.9%	4.7%	4.6%	-2.5%
20 Flex V		-0.2%	0.3%	7.2%	8.0%		-5.2%
20 Strategic II		-0.8%	0.9%	6.9%	7.3%	6.5%	-10.5%
20 Schwab index		-1.2%	2.0%	4.3%	5.4%	4.0%	-11.7%
NOTE 1:  Past performance is no guarantee of specific future results.  This data is presented by Potomac Wealth Strategies, LLC.  This data is from Morningstar and should be accurate, but it has not been independently verified.
NOTE 2:  "Flex", "Strategic", and "Index" models are crafted/run by Potomac Wealth Strategies.  They show history of better returns, lower volatility, or both--or, with the Index models, closer tracking--vs benchmarks and competitors.
NOTE 3:  "XX Schwab index" models are low-cost portfolios.  They are comprised of index funds available free of transaction charges to my clients at Schwab.  This is what many might recommend due to low-costs and portfolio efficiency.
NOTE 4:  Nothing on this blog post represents investment advice to any individual or organization.  If the information hereon is of interest to you, please contact me at Garo.Partoyan@PotomacWealthStrategies.com for a consultation.

Strategic and Flex Model Performance Through May 2015

US and Foreign Indexes		3 mo	1 yr	3 yr	5 yr	10 yr	2008
Stock Markets (50-40-10)		1.4%	5.4%	16.5%	12.6%	7.2%	-39.7%
S&P 500		0.6%	11.7%	19.5%	16.4%	8.0%	-37.0%
MSCI EAFE		2.0%	-0.6%	15.5%	9.8%	5.5%	-43.4%
US OE Diversified Emg Mkts		1.3%	-2.1%	5.9%	3.9%	7.8%	-54.4%
Barclays Agg Bond--US		-0.1%	3.0%	2.2%	3.8%	4.5%	5.2%
Barclays Agg Bond--Global		-1.7%	-6.0%	-0.5%	2.5%	3.5%	4.8%
Ibbotson Aggressive		0.9%	7.0%	16.7%	13.4%	7.2%	-35.5%
Aggressive		1.2%	5.0%	15.9%	12.2%	6.7%	-36.3%
95 Flex V		-0.4%	3.0%	12.1%	10.0%	9.0%	-19.1%
95 Strategic II		0.2%	5.5%	17.2%	14.2%	9.6%	-35.9%
95 Schwab index		1.5%	6.9%	17.6%	13.6%	7.6%	-37.2%
WealthFront 9		0.9%	4.0%	13.3%	10.7%	7.5%	-38.0%
Ibbotson Moderately Aggressive		0.7%	6.0%	13.8%	11.8%	6.8%	-28.5%
Moderately Aggressive		0.9%	4.2%	14.1%	11.3%	6.6%	-32.0%
80 Flex V		-0.2%	2.9%	11.5%	9.7%	8.9%	-16.9%
80 Strategic II		0.1%	4.2%	14.5%	12.2%	8.8%	-30.0%
80 Schwab index		1.2%	6.2%	14.8%	11.9%	7.0%	-32.1%
Ibbotson Moderate		0.5%	5.1%	11.0%	9.9%	6.3%	-21.2%
Moderate		0.4%	2.8%	10.5%	9.3%	6.1%	-23.1%
60 Flex V		0.2%	2.7%	10.6%	9.2%	8.9%	-13.1%
60 Strategic II		0.0%	3.5%	11.7%	10.5%	8.2%	-23.9%
60 Schwab index		0.8%	5.7%	11.6%	10.0%	6.2%	-25.6%
Goldman Sachs Income Builder		0.8%	2.9%	11.0%	10.5%	6.6%	-23.3%
American Funds Balanced Port		0.5%	6.0%	12.8%	11.3%	7.1%	-28.2%
Moderately Conservative		0.0%	1.3%	7.1%	7.2%	5.4%	-13.3%
40 Flex V		0.3%	2.6%	10.0%	9.0%	8.9%	-13.3%
40 Strategic II		0.0%	3.8%	10.8%	9.5%	7.7%	-17.7%
40 Schwab Index		0.5%	4.8%	8.3%	7.9%	5.3%	-18.8%
Conservative		-0.4%	-0.1%	3.6%	5.1%	4.7%	-2.5%
20 Flex V		0.8%	2.4%	8.8%	8.3%	8.6%	-5.2%
20 Strategic II		-0.2%	2.9%	8.1%	7.4%	6.7%	-10.5%
20 Schwab index		0.2%	3.7%	5.1%	5.7%	4.2%	-11.7%
NOTE 1:  Past performance is no guarantee of specific future results.  This data is presented by Potomac Wealth Strategies, LLC.  This data is from Morningstar and should be accurate, but it has not been independently verified.
NOTE 2:  "Flex", "Strategic", and "Index" models are crafted/run by Potomac Wealth Strategies.  They show history of better returns, lower volatility, or both--or, with the Index models, closer tracking--vs benchmarks and competitors.
NOTE 3:  "XX Schwab index" models are low-cost portfolios.  They are comprised of index funds available free of transaction charges to my clients at Schwab.  This is what many might recommend due to low-costs and portfolio efficiency.
NOTE 4:  Nothing on this blog post represents investment advice to any individual or organization.  If the information hereon is of interest to you, please contact me at Garo.Partoyan@PotomacWealthStrategies.com for a consultation.

Strategic and Flex Portfolio Performance Through April 2015

US and Foreign Indexes		3 mo	1 yr	3 yr	5 yr	10 yr	2008
Stock Mkts (50us 40for 10em)		6.9%	7.3%	13.0%	10.4%	7.3%	-39.7%
S&P 500 (100usa)		0.6%	11.8%	19.7%	16.5%	8.1%	-37.0%
Ibbotson Aggressive		5.6%	8.5%	13.7%	11.4%	7.3%	-35.5%
Aggressive		6.1%	6.6%	12.7%	10.1%	6.8%	-36.3%
95 Flex V		2.7%	4.2%	9.8%	8.4%		-19.1%
95 Strategic II		5.5%	7.1%	14.2%	12.5%	9.8%	-35.9%
95 Schwab index		6.2%	7.5%	14.1%	11.3%	7.8%	-37.2%
WealthFront 9		6.3%	6.2%	10.4%	8.9%		-38.0%
Ibbotson Moderately Aggressive		4.3%	7.5%	11.6%	10.2%	7.0%	-28.5%
Moderately Aggressive		5.3%	5.9%	11.4%	9.5%	6.7%	-32.0%
80 Flex V		2.6%	4.0%	9.3%	8.1%		-16.9%
80 Strategic II		4.6%	5.8%	12.0%	10.7%	9.0%	-30.0%
80 Schwab index		5.0%	7.0%	12.0%	10.1%	7.2%	-32.1%
Ibbotson Moderate		3.2%	6.5%	9.4%	8.8%	6.5%	-21.2%
Moderate		3.7%	4.5%	8.7%	8.0%	6.2%	-23.1%
60 Flex V		2.5%	4.0%	8.7%	8.0%		-13.1%
60 Flex IV		1.9%	2.7%	6.7%	7.2%		-13.0%
60 Strategic II		3.5%	5.1%	10.0%	9.3%	8.3%	-23.9%
60 Schwab index		3.4%	6.6%	9.7%	8.8%	6.4%	-25.6%
Ibbotson Moderately Conservative		1.9%	5.1%	6.8%	7.1%	5.8%	-12.4%
Moderately Conservative		2.1%	3.1%	6.0%	6.5%	5.6%	-10.4%
40 Flex V		2.3%	4.0%	8.4%	7.9%		-13.3%
40 Strategic II		3.0%	5.3%	9.4%	8.5%	7.9%	-17.7%
40 Schwab Index		2.0%	5.9%	7.3%	7.2%	5.5%	-18.8%
Ibbotson Conservative		0.4%	3.2%	3.8%	5.0%	4.9%	-1.4%
Conservative		0.5%	1.6%	3.4%	4.8%	4.8%	-2.5%
20 Flex V		2.1%	3.8%	7.1%	7.4%		-5.2%
20 Strategic II		1.9%	4.1%	7.2%	6.7%	6.8%	-10.5%
20 Schwab index		0.6%	5.0%	4.7%	5.4%	4.3%	-11.7%
NOTE 1:  Past performance is no guarantee of specific future results.  This data is presented by Potomac Wealth Strategies, LLC.  This data is from Morningstar and should be accurate, but it has not been independently verified.
NOTE 2:  "Flex", "Strategic", and "Index" models are crafted/run by Potomac Wealth Strategies.  They show history of better returns, lower volatility, or both--or, with the Index models, closer tracking--vs benchmarks and competitors.
NOTE 3:  "XX Schwab index" models are low-cost portfolios.  They are comprised of index funds available free of transaction charges to my clients at Schwab.  This is what many might recommend due to low-costs and portfolio efficiency.
NOTE 4:  Nothing on this blog post represents investment advice to any individual or organization.  If the information hereon is of interest to you, please contact me at Garo.Partoyan@PotomacWealthStrategies.com for a consultation.

Index Funds vs Active Management: Cost vs. Cost-Justification

Lots of talk these days about making sure you have low-cost mutual funds.  All things being equal, yes, the lower the internal costs of a fund, the better.  Assuming, that is, you are talking about funds that invest in the same way and get similar returns...

But all funds are not equal and do not all invest the same way.  Some fund managers are better at picking investments, and they get better returns.  You can do better if you choose those benchmark-beating funds.

Think of a football team...  the same playbook and strategy would be more successful most of the time if all-pro players were on the team.  That is what my Strategic portfolios aim to accomplish--the mutual fund versions of a team with "all-pro players" on the field for us.

These "all-pro" funds cost more than the low-cost index funds, but that should not matter if their net performance is better.  If one fund delivers net-of-fees performance of 7.5% per year and another 7.0%, why be concerned about how much each fund charges?

Uncertainty is the only reason--we don't know if the outperformance will continue.  But if we find funds with consistent track-records over several market cycles, we can have confidence that they really are better at investing.

But these funds are hard to find.  80% of actively-managed funds underperform their benchmarks.  How does one know which are in the 20% that outperform?  Can't figure that out for yourself?  I will do it for you for about 1.25% per year.  I know what to look for, and I have the tools--my firm's most expensive overhead cost is the research database with which I hunt for the actively-managed mutual funds that are worthy using.

And even if the cost-justification makes it merely a wash compared to using index funds, you still have me on retainer to help with personal financial strategy and advice:  how much to save, which accounts to use, buy or rent a home, lease or finance a car, what kind of insurance to buy...


There is Nobel Prize-winning research that guides most financial advisors on how to diversify portfolios.  If we're following that asset allocation guidance, then portfolios using benchmark-beating funds should do better most of the time and over the long-haul than those using index funds, even if the latter have lower costs.  The Strategic portfolio models I offer will have beaten strategically similar models comprised of index funds, and over just about every time period.


To summarize, index funds are all pretty much the same, so go for the ones with the lowest cost...  but a well-constructed portfolio of the best actively-managed funds should beat that, and even if you don't know how to do it yourself, an advisor like me can do it in a way that cost-justifies the additional advisory fee.  Value.  Cost-justification.  Good stuff!

I appreciate your time.  Thank you for reading this post.