Friday, December 14, 2012

Year-End Mutual Fund Distributions--Fear Not the Price Drop!




Good morning.  Most of my clients are in some mutual funds that appear to have dropped in value suddenly, but fear not.  The share prices have been reduced in exchange for cash (or more shares in the case of the cash being reinvested).  The value of our investments did not drop from this--it's all just fine.

This is a normal activity for many mutual funds at this time of year.  The cash is a distribution of "long-term capital gains", "short-term capital gains", and/or "dividends"--not the usual monthly or quarterly kind, but special annual distributions.  Such are made per regulations that require mutual funds to make some distributions directly to clients instead of incorporating them into the Net Asset Value (share price) of the mutual fund.  Yes, it is a little tricky to explain, but I am happy to provide more detail if you want.  But it is normal, expected, and does not represent an unusual reduction in value of our investments.

Example:  In one account I reveiwed, the First Eagle Overseas Fund dropped NAV from 22.83 at market close on 12/12 to 21.66 at close on 12/13.  That's a 5.1% drop in share price, BUT the value of the fund's investments did not drop by 5.1%.  How?  Well, on 12/12 the account received three chunks of cash (long-term cap gains, short-term cap gains, and some dividends) totalling $747, and that was reinvested into 32.7 shares at $22.83 (closing price on 12/12).  So, prior to the special distribution, there was $14,616 in that position and after the distribution/reinvestment it was $14,576…  the $40 decline (about 0.2% of the value) is attributable to the slight market decline that particular day.

Please contact me with any questions, of course.  Thank you, and make it a great Friday!

--Gary

NOTE:  I offer a special "Thank You" to a certain client for reminding me that this should be explained to everyone!

Tuesday, December 11, 2012

Flex Portfolio Performance Through November 2012

With the creation of the new Flex IV portfolios, most clients will be moved out of Flex II and Flex III portfolios.  The Flex portfolios are designed to provide nimble tactical management even while my clients and I aim to keep the strategic allocation in place during various market conditions.

Strategic:  diversified portfolios consistent with Nobel Prize-winning methodology to optimize the balance between risk and reward; best to maintain the portfolio in targeted strategy, so we remain invested fully in the mutual funds comprising the Flex portfolios.

Tactical:  what, if anything, should be done within the portfolios under various market conditions; we leave this up to the managers of each fund in the Flex portfolios.

The Flex portfolios continue to demonstrate excellent risk-management while participating very well in the markets in the near-term; they show significant out-performance in the intermediate- and long-term periods.

Below are the through-November performance numbers for the key Flex portfolios and their index fund-comprised low-cost alternatives:


US and Foreign Indexes 1 mo 3 mo YTD 1 yr 2 yr 3 yr 5 yr 10 yr
Stock Markets (50-40-10) 1.4% 3.7% 13.9% 13.9% 7.0% 6.8% -1.7% 7.4%
S&P 500 0.6% 1.3% 15.0% 16.1% 11.9% 11.3% 1.3% 6.4%
MSCI EAFE 2.4% 6.3% 13.6% 12.5% 3.8% 2.9% -4.8% 7.4%
Barclays Agg Bond--US 0.2% 0.5% 4.4% 5.5% 5.5% 5.7% 6.0% 5.4%
Barclays Agg Bond--Global 0.0% 1.1% 4.7% 5.4% 5.8% 4.0% 5.5% 6.4%









Moderately Aggressive 1.2% 3.1% 11.8% 12.1% 7.1% 6.2% -0.7% 6.4%
80 Flex IV 0.9% 2.6% 9.9% 8.7% 6.6% 7.9% 6.1% 10.0%
80 Flex III 1.0% 2.0% 9.2% 7.7% 5.3% 6.6%

80 Fidelity 1.3% 3.2% 11.9% 11.5% 6.7% 6.4% -0.7% 6.4%









Moderate 1.0% 2.5% 9.6% 10.0% 6.5% 5.6% 0.6% 6.1%
60 Flex IV 1.0% 3.1% 11.3% 10.2% 6.9% 8.2% 6.6% 10.1%
60 Flex III 1.0% 2.3% 9.7% 8.8% 5.5% 6.7%

60 Fidelity 1.0% 2.4% 9.5% 9.5% 5.8% 5.7% 0.3% 5.8%









Moderately Conservative 0.8% 1.8% 7.4% 8.0% 6.1% 5.1% 2.0% 5.9%
40 Flex IV 1.0% 3.3% 12.0% 11.6% 7.3% 8.6% 7.4% 9.7%
40 Fidelity 0.7% 1.7% 7.5% 7.8% 5.4% 5.3% 1.8% 5.3%









Asset Allocation Cash Stock Bond Other



80 Flex IV 25% 44% 21% 10%



60 Flex IV 22% 39% 30% 9%



40 Flex IV 24% 26% 43% 7%



Friday, November 16, 2012

Flex Portfolio Performance Through October 2012

With the U.S. stock market doing relatively well for most of this year, short-term performance of Flex portfolios had been lagging thanks to their significant diversification.  The stock market has declined recently, though, and the Flex portfolios have been helpful in that time, with the short-term performance gap closing considerably.

For long-term investors, I believe the Flex portfolios remain the best way to both implement long-term strategy and maintain short-term flexibility.  Put another way, the ability provided by the Flex portfolios to have a strategic asset allocation that can make tactical adjustments is beneficial to investors.

NOTE:  Flex portfolio data shown on this blog is for the models, not for any specific client accounts, and such data is in no way a prediction or promise of any specific future performance or trends.

Here is the data through October 31, 2012:


US and Foreign Stocks 1 mo 3 mo YTD 1 yr 2 yr 3 yr 5 yr 10 yr
Stock Markets (50-40-10) -0.7% 4.6% 12.6% 9.6% 5.4% 8.1% -2.4% 8.1%
S&P 500 -1.9% 3.0% 14.3% 15.2% 11.6% 13.2% 0.4% 6.9%
MSCI EAFE 0.8% 6.6% 11.0% 4.6% 0.2% 2.8% -5.8% 7.7%
Barclays Agg Bond--US 0.2% 0.4% 4.2% 5.3% 5.1% 6.1% 6.4% 5.4%
Barclays Agg Bond--Global -0.1% 2.0% 4.7% 3.5% 3.8% 4.8% 5.9% 6.5%









Moderately Aggressive -0.4% 4.0% 10.9% 8.8% 5.7% 7.7% -0.6% 7.3%
80 Flex II -0.6% 3.7% 9.3% 6.4% 6.1% 8.8% 5.9% 11.0%
80 Flex IV -0.6% 3.6% 9.2% 6.8% 6.3% 9.1% 6.3% 10.7%
80 Flex III -0.9% 2.8% 8.4% 6.2% 5.1% 8.1%

80 Fidelity -0.3% 4.2% 11.0% 9.2% 5.6% 7.9% -0.7% 7.3%









Moderate -0.4% 3.1% 9.1% 7.6% 5.5% 7.2% 1.2% 7.1%
60 Flex II -0.3% 3.4% 9.7% 7.1% 5.9% 8.5% 6.6% 10.4%
60 Flex IV -0.3% 3.9% 10.5% 8.2% 6.7% 9.4% 6.9% 10.9%
60 Flex III -0.5% 2.7% 9.0% 6.9% 5.2% 8.0% 5.5% 9.5%
60 Fidelity -0.2% 3.2% 9.1% 7.9% 5.3% 7.3% 0.9% 6.8%









Moderately Conservative -0.3% 2.3% 7.2% 6.3% 5.2% 6.7% 3.0% 6.7%
40 Flex II 0.0% 3.2% 10.0% 7.8% 5.8% 8.2% 7.3% 9.9%
40 Flex IV 0.0% 3.8% 11.2% 9.4% 6.9% 9.5% 7.7%
40 Flex III -0.1% 2.7% 9.5% 7.7% 5.3% 7.9%

40 Fidelity -0.1% 2.2% 7.4% 6.8% 5.2% 6.8% 2.6% 6.3%









Asset Allocation Cash Stock Bond Other



80 Flex II 22% 52% 15% 11%



80 Flex IV 26% 45% 20% 9%



60 Flex II 26% 39% 27% 8%



60 Flex IV 23% 39% 30% 8%



40 Flex II 30% 26% 38% 6%



40 Flex IV 25% 26% 43% 6%



Saturday, October 13, 2012

Flex Portfolio Performance Through September 2012

Here are the performance data for the most commonly-used Flex portfolios in my practice.

The data is for the portfolio models, NOT for any actual client accounts.  Past performance is not a promise of specific future results.  But I use these data to get a sense of how well the Flex portfolios have performed in various time-periods.

My commitment to my clients is that the portfolios I use for them demonstrate consistent cost-justification of my advisory fee compared to the customized benchmark assigned to each Flex portfolio model.  Specifically, I aim to have each Flex portfolio show 10-, 5- and 3-year average annual returns that are outperform their benchmark by 1.25 percentage point (the fee I charge for most clients).

So far, so good.  (Clients:  YOUR specific results likely will differ based on a variety of factors.  Please contact me with any questions.)


US and Foreign Stocks 1 mo 3 mo YTD 1 yr 2 yr 3 yr 5 yr 10 yr
Stock Markets (50-40-10) 3.1% 6.7% 13.4% 22.0% 7.7% 7.8% -1.7% 8.9%
S&P 500 2.6% 6.4% 16.4% 30.2% 14.8% 13.2% 1.1% 8.0%
MSCI EAFE 3.0% 6.9% 10.1% 13.8% 1.5% 2.1% -5.4% 8.2%
Barclays Agg Bond--US 0.1% 1.6% 4.0% 5.2% 5.2% 6.2% 6.5% 5.3%
Barclays Agg Bond--Global 1.2% 3.3% 4.8% 5.1% 4.5% 5.0% 6.2% 6.5%









Moderately Aggressive 2.3% 5.7% 11.4% 18.3% 7.6% 7.4% -0.1% 7.9%
80 Flex II 2.4% 5.0% 10.0% 14.6% 7.8% 8.7% 6.8% 11.3%
80 Fidelity 2.2% 5.3% 11.3% 18.6% 7.4% 7.4% -0.1% 7.9%
80 Flex III 1.9% 4.3% 9.4% 13.9% 7.0% 8.1%










Moderate 1.9% 4.7% 9.5% 14.8% 7.0% 7.1% 1.8% 7.5%
60 Flex II 2.2% 4.8% 10.0% 13.9% 7.2% 8.4% 7.3% 10.7%
60 Flex IIi 2.4% 5.2% 10.8% 14.7% 8.1% 9.4% 7.6%
60 Fidelity 1.7% 4.3% 9.3% 14.9% 6.7% 6.9% 1.4% 7.2%
60 Flex III 1.8% 4.3% 9.5% 13.3% 6.6% 8.0%










Moderately Conservative 1.4% 3.8% 7.5% 11.2% 6.3% 6.6% 3.4% 7.0%
40 Flex II 2.0% 4.5% 10.0% 13.1% 6.6% 8.1% 7.8% 10.0%
40 Flex IIi 2.3% 5.2% 11.3% 14.4% 8.0% 9.7% 8.3%
40 Fidelity 1.1% 3.3% 7.5% 11.5% 6.1% 6.5% 3.0% 6.5%
40 Flex III 1.7% 4.2% 9.6% 12.8% 6.2% 7.8%










Asset Allocation Cash Stock Bond Other



80 Flex II 20% 54% 16% 10%



60 Flex II 24% 40% 28% 8%



40 Flex II 28% 27% 39% 6%



Wednesday, September 5, 2012

Flex Portfolio Performance Through August 2012

The Flex portfolios continue to outperform their benchmarks in the 3-, 5- and 10-year periods by significant amounts.  This is the objective.  If you are in a portfolio consisting of index funds or exchange-traded funds blended to meet a Moderately Conservative, Moderate, or Moderately Aggressive risk profile, you are very likely underperforming in those important time periods.  Same if you are using "actively managed" funds of the highest quality.  It is important to maintain a long-term strategy consistent with the asset allocations guided by Modern Portfolio Theory--it's how we strike the optimal balance of risk and reward over the long-haul--but I have determined that the use of global and/or flexible mutual funds, that can bring additional diversification and/or tactical adjustments to the portfolio, reduces risk and increases performance.

My commitment to clients is to self-police the Flex strategy.  If I find a trend away from benchmark-beating performance, I will make adjustments.  Thusfar, Flex remains the best way I have found to run a long-term portfolio.

Here are the #s through August of 2012:


US and Foreign Stocks/Bonds 1 mo 3 mo YTD 1 yr 2 yr 3 yr 5 yr 10 yr
Stock Markets (50-40-10) 1.1% 11.0% 9.7% 10.8% 8.3% 8.4% -1.5% 7.7%
S&P 500 1.2% 10.5% 13.4% 22.4% 15.2% 13.7% 1.0% 6.8%
MSCI EAFE 1.3% 12.4% 6.2% 1.6% 2.4% 2.8% -0.5% 7.0%
Barclays Agg Bond--US 0.3% 1.4% 3.8% 5.0% 5.5% 6.5% 6.7% 5.4%
Barclays Agg Bond--Global 1.0% 2.3% 3.5% 1.3% 5.3% 5.4% 6.5% 6.3%









Moderately Aggressive 1.1% 9.4% 8.6% 10.1% 8.2% 8.0% 0.1% 7.0%
80 Flex II 1.4% 6.4% 7.3% 4.5% 7.9% 9.2% 7.1% 10.8%
80 Fidelity 1.0% 9.3% 8.6% 10.5% 7.9% 7.8% 0.0% 7.0%
80 Flex III 1.1% 6.9% 7.3% 3.3% 7.4% 8.7%










Moderate 1.0% 7.3% 7.2% 8.4% 7.7% 7.6% 1.9% 6.9%
60 Flex II 1.1% 6.0% 7.5% 4.6% 7.3% 8.8% 7.6% 10.2%
60 Fidelity 0.8% 7.2% 7.3% 9.0% 7.2% 7.3% 1.5% 6.5%
60 Flex III 0.9% 6.4% 7.5% 3.7% 6.9% 8.5%










Moderately Conservative 0.9% 5.3% 5.9% 6.6% 7.0% 7.1% 3.6% 6.6%
40 Flex II 0.8% 5.7% 7.7% 4.7% 6.7% 8.4% 8.1% 9.7%
40 Fidelity 0.7% 5.2% 6.1% 7.6% 6.5% 6.9% 3.1% 6.1%
40 Flex III 0.6% 5.9% 7.7% 4.1% 6.4% 8.2%










Asset Allocation Cash Stock Bond Other



80 Flex II 20% 54% 16% 10%



60 Flex II 24% 41% 27% 8%



40 Flex II 29% 27% 38% 6%



Saturday, August 18, 2012

Flex Fund Performance through July 2012

The stock markets have been moving up, albeit on low-volume and despite several major economic and geopolitical risks.  My Flex portfolios have lagged their benchmarks in the past year because of relatively strong stock market performance.  They have pretty much kept pace over the 2-yr period.  They have outperformed in the 3-, 5- and 10-yr periods (massively so in the latter two).

Given the potential for further solvency issues in the Eurozone, China's slowdown, and stubbornly slow growth in the USA, as well as increasing potential for military flare-ups, or even war, in the Middle East, I believe it is important to remain flexible and diversified.  The stock markets will hopefully continue to rise, but a correction (dropping 10% or more), or even another bear market (dropping 20% or more), can happen suddenly.

My Flex portfolios have been much less volatile than standard portfolios and the stock markets.  When we have had pullbacks, corrections, and bear markets, Flex portfolios have protected us relatively--but significantly.  For example, a moderately-aggressive investor using a portfolio of popular index funds from Fidelity during the worst 12-month period of the 2007-9 economic/market crisis would have been down 39%, compared to only down 22% if using 80 Flex II.  Someone using just the S&P 500 (SPY, or the TSP's C-Fund, for example) would have been down 43%.  Despite providing that relative protection, 80 Flex II still delivered better overall results--6.7% average annual gains in the 5-yr period, compared to -0.2% per year for 80 Fidelity and just 1.1% per year for the S&P 500.

Each quarter, I spend a great deal of time evaluating and tweaking my Flex portfolios, as well as designing and testing new ones to possibly replace them.  But the risk-reward balance still appears to be best with the current line-up.

If you want to invest money for the long-term, not have to worry about making adjustments yourself, but also know the portfolio is being tactically adjusted by several professionals working for us, the Flex portfolios are a prudent solution.


US and Foreign Stocks 1 mo 3 mo YTD 1 yr 2 yr 3 yr 5 yr 10 yr
Stock Markets (50-40-10) 1.3% -2.7% 7.7% -1.9% 7.7% 8.8% -1.7% 7.2%
S&P 500 1.4% -0.8% 11.0% 9.1% 14.3% 14.1% 1.1% 6.3%
MSCI EAFE 1.1% -4.2% 4.1% -11.5% 1.8% 3.2% -5.7% 6.2%
Barclays Agg Bond--US 1.4% 2.3% 3.8% 7.3% 5.8% 6.9% 6.9% 5.7%
Barclays Agg Bond--Global 1.2% 0.6% 2.7% 1.8% 5.4% 5.7% 6.5% 6.5%









Moderately Aggressive 1.2% -1.6% 6.7% -0.1% 7.8% 8.4% -0.1% 6.6%
80 Flex II 0.6% -2.0% 5.4% -1.1% 7.8% 9.5% 6.7% 10.9%
80 Fidelity 0.9% -1.9% 6.6% -0.6% 7.4% 8.2% -0.2% 6.6%
80 Flex III 0.7% -1.6% 5.5% -2.0% 7.5% 9.0%










Moderate 1.2% -0.8% 5.8% 1.5% 7.4% 8.0% 1.8% 6.6%
60 Flex II 1.0% -0.9% 6.0% 0.1% 7.3% 9.1% 7.3% 10.4%
60 Fidelity 0.9% -0.9% 5.7% 1.1% 6.8% 7.6% 1.4% 6.3%
60 Flex III 1.0% -0.7% 6.1% -0.6% 7.1% 8.8%










Moderately Conservative 1.2% 0.0% 4.8% 2.9% 7.0% 7.4% 3.6% 6.5%
40 Flex II 1.3% 0.1% 6.6% 1.3% 6.8% 8.7% 7.9% 9.9%
40 Fidelity 1.0% 0.2% 5.0% 3.1% 6.4% 7.2% 3.0% 6.0%
40 Flex III 1.4% 0.3% 6.6% 0.8% 6.6% 8.5%










Asset Allocation Cash Stock Bond Other



80 Flex II 20% 54% 16% 10%



60 Flex II 24% 41% 27% 8%



40 Flex II 29% 27% 38% 6%