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!

Strategic, Flex, and Index Portfolio Performance Through 2014-08-31

Here are the latest performance #s.  The Vanguard and Fidelity strategic portfolios have been taken out, replaced by similar portfolios comprised of index mutual funds available at Schwab and free of sales loads and transaction fees.  Schwab is the custodian I use for most of my clients' accounts, and I am now showing the actual Index-based portfolios that I would offer to clients who want to use low-cost index funds.

In the most recent 1-year period, the Index fund-based models have performed best.  Over the 3-, 5-, and 10-year periods, though, the Strategic models have performed best.  The Flex models remain an excellent way to "stay invested, even if we expect or are in rough markets", and they would have fared significantly better in the market crash of 2008.

I do not favor market-timing--I prefer we remain invested using Nobel Prize-winning portfolio theory.  Some points to consider:

• Index fund-based models will have the lowest internal costs (and my advisory fee remains the same) and each should most closely track the blended benchmark assigned to it.
• Strategic models should deviate more from the benchmarks, but they have demonstrated the ability to significantly outperform over the longer time periods, and most Strategic models have done so without performing significantly worse in down markets.
• Flex models show better performance in down markets, but they tend to lag their benchmarks in strong upward-moving markets.
• Most of my clients should be using Strategic models now.  In some cases, due to risk tolerance or sensitivity to mutual funds' internal expenses, the Flex or Index models are more suitable.

US and Foreign Indexes		3 mo	1 yr	3 yr	5 yr	10 yr	2008
Stock Markets (50-40-10)		2.4%	21.2%	15.1%	12.4%	8.2%	-39.7%
S&P 500		4.7%	25.3%	20.6%	16.9%	8.4%	-37.0%
MSCI EAFE		-1.2%	16.4%	11.4%	8.2%	7.0%	-43.4%
US OE Diversified Emg Mkts		5.5%	19.2%	4.2%	7.5%	11.2%	-54.4%
Barclays Agg Bond--US		0.9%	5.7%	2.9%	4.5%	4.7%	5.2%
Barclays Agg Bond--Global		0.4%	6.2%	1.3%	3.7%	4.8%	4.8%
Aggressive		1.6%	19.0%	14.5%	11.6%	7.5%	-36.3%
90 Flex V		1.5%	14.0%	10.3%	11.3%		-19.1%
90 Strategic II		1.5%	16.4%	15.8%	15.0%	10.2%	-34.0%
90 Schwab index		2.0%	18.4%	15.3%	12.9%	8.2%	-35.2%
Moderately Aggressive		1.5%	17.5%	13.1%	10.9%	7.4%	-32.0%
80 Flex V		1.5%	13.5%	9.9%	11.0%		-16.9%
80 Strategic II		1.5%	15.3%	14.7%	14.0%	9.8%	-30.2%
80 Schwab index		2.0%	17.0%	14.0%	12.1%	7.7%	-32.1%
Moderate		1.3%	14.3%	10.2%	9.2%	6.8%	-23.1%
60 Flex V		1.5%	12.6%	9.4%	10.8%		-13.1%
60 Strategic II		1.5%	13.4%	12.3%	12.3%	9.0%	-24.2%
60 Schwab index		1.9%	14.4%	11.4%	10.4%	6.8%	-25.6%
Moderately Conservative		1.0%	11.1%	7.3%	7.4%	6.2%	-13.3%
40 Flex V		1.5%	12.0%	9.4%	10.9%		-13.1%
40 Strategic II		1.1%	10.2%	9.2%	9.6%	7.6%	-16.8%
40 Schwab index		1.6%	11.4%	8.5%	8.4%	5.7%	-18.8%
Conservative		0.8%	8.0%	4.5%	5.6%	5.4%	-2.5%
20 Flex V		1.5%	11.0%	8.6%	10.4%		-5.2%
20 Strategic II		0.9%	7.5%	6.3%	7.2%	6.2%	-9.1%
20 Schwab index		1.2%	8.3%	5.5%	6.2%	4.5%	-11.7%
Asset Allocation		USA	x-USA	Bond	Cash	Other
20 Flex V		14%	5%	48%	30%	4%
20 Strategic II		11%	6%	52%	28%	3%
40 Flex V		28%	10%	31%	26%	5%
40 Strategic II		22%	12%	40%	22%	3%
60 Flex V		34%	16%	21%	24%	6%
60 Strategic II		35%	18%	27%	17%	3%
80 Flex V		44%	20%	8%	21%	7%
80 Strategic II		45%	25%	14%	14%	3%
90 Flex V		51%	22%	1%	19%	7%
90 Strategic II		50%	29%	8%	11%	3%
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 designed and managed by Potomac Wealth Strategies, LLC.  These models show track records of better returns, lower volatility, or both--or, in the case of the Index models, closest possible tracking--compared to their benchmarks and popular 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 July 2014

US and Foreign Indexes		3 mo	1 yr	3 yr	5 yr	10 yr	2008
Stock Markets (50-40-10)		1.8%	16.1%	12.4%	13.1%	7.6%	-40.2%
S&P 500		3.0%	16.9%	16.8%	16.8%	8.0%	-37.0%
MSCI EAFE		0.6%	15.1%	8.0%	9.4%	7.1%	-43.4%
US OE Diversified Emg Mrkts		6.5%	13.0%	0.3%	7.0%	11.3%	-54.4%
Barclays Agg Bond--US		0.9%	4.0%	3.0%	4.5%	4.8%	5.2%
Barclays Agg Bond--Global		0.4%	5.1%	1.6%	4.0%	5.0%	4.8%
Aggressive		1.7%	14.6%	11.4%	12.1%	7.4%	-36.3%
90 Flex V		0.8%	9.9%	8.5%	11.3%		-19.1%
90 Strategic II		0.8%	11.2%	12.6%	15.5%	10.0%	-34.0%
Fidelity 90		1.6%	14.2%	12.2%	13.2%	7.8%	-35.2%
Moderately Aggressive		1.6%	13.5%	10.4%	11.4%	7.3%	-32.0%
80 Flex V		1.0%	9.6%	8.1%	11.0%		-16.9%
80 Strategic II		0.9%	10.5%	11.8%	14.4%	9.6%	-30.2%
Fidelity 80		1.2%	12.7%	10.3%	11.3%	7.3%	-32.0%
Moderate		1.3%	11.0%	8.4%	9.6%	6.8%	-23.1%
60 Flex V		1.3%	9.1%	8.0%	10.9%		-13.1%
60 Strategic II		1.1%	9.3%	10.1%	12.6%	8.9%	-24.2%
Vanguard 60		1.9%	9.3%	9.1%	10.3%	6.6%	-23.8%
Moderately Conservative		1.0%	8.5%	6.3%	7.7%	6.2%	-13.3%
40 Flex V		1.6%	8.7%	8.1%	10.9%		-13.1%
40 Strategic II		1.0%	7.3%	7.7%	9.9%	7.5%	-16.8%
Vanguard 40		1.5%	6.8%	6.6%	8.0%	5.9%	-15.1%
Conservative		0.8%	6.0%	4.2%	5.7%	5.5%	-2.5%
20 Flex V		1.9%	8.2%	7.6%	10.4%		-5.2%
20 Strategic II		0.9%	5.4%	5.4%	7.4%	6.3%	-9.1%
Vanguard 20		1.3%	5.2%	4.9%	6.6%	5.6%	-0.7%
Asset Allocation		USA	x-USA	Bond	Cash	Other
20 Flex V		14%	5%	48%	29%	4%
40 Flex V		28%	10%	31%	26%	5%
60 Flex V		34%	15%	21%	24%	6%
80 Flex V		44%	20%	8%	21%	7%
90 Flex V		51%	22%	1%	18%	7%
20 Strategic II		11%	6%	52%	27%	3%
40 Strategic II		22%	12%	40%	22%	3%
60 Strategic II		35%	18%	27%	17%	3%
80 Strategic II		45%	25%	14%	14%	3%
90 Strategic II		50%	29%	8%	11%	3%
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" and "Strategic" portfolios are designed and managed by Potomac Wealth Strategies, LLC.  These models show track records of better returns, lower volatility, or both, compared to their benchmarks and popular competitors.
NOTE 3:  "Vanguard 80" and "Fidelity 80" are low-cost Moderately Aggressive portfolios.  They are comprised of index funds from Vanguard or Fidelity.  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 us at Garo.Partoyan@PotomacWealthStrategies.com for a consultation.

Strategic and Flex Portfolio Performance Through June 2014

US and Foreign Indexes		3 mo	1 yr	3 yr	5 yr	10 yr	2008
Stock Markets (50-40-10)		4.9%	23.0%	11.2%	14.9%	7.8%	-39.7%
S&P 500		5.2%	24.6%	16.6%	18.8%	7.8%	-37.0%
MSCI EAFE		4.1%	23.6%	8.1%	11.8%	6.9%	-43.4%
iShares MSCI Emerging Markets		6.6%	13.8%	-0.9%	8.1%	11.2%	-50.0%
Barclays Agg Bond--US		2.0%	4.4%	3.7%	4.9%	4.9%	5.2%
Barclays Agg Bond--Global		2.5%	7.4%	2.6%	4.6%	5.1%	4.8%
Aggressive		4.3%	21.9%	11.4%	14.1%	7.2%	-36.3%
90 Flex V		2.4%	16.5%	9.3%	13.1%		-19.1%
90 Strategic II		3.2%	19.5%	13.0%	18.0%	10.0%	-34.0%
Fidelity 90		4.2%	21.9%	11.2%	14.3%	7.4%	-35.7%
Moderately Aggressive		4.1%	20.1%	10.6%	13.2%	7.2%	-32.0%
80 Flex V		2.4%	15.5%	8.9%	12.7%		-16.9%
80 Strategic II		3.1%	17.9%	12.2%	16.7%	9.6%	-30.2%
Fidelity 80		3.9%	19.8%	10.4%	13.3%	7.2%	-32.0%
Moderate		3.6%	16.1%	8.7%	11.0%	6.7%	-23.1%
60 Flex V		2.5%	13.7%	8.6%	12.3%		-13.1%
60 Strategic II		3.0%	15.0%	10.5%	14.5%	8.9%	-24.2%
Vanguard 60		3.4%	12.7%	9.6%	11.4%	6.6%	-23.8%
Moderately Conservative		3.0%	12.2%	6.8%	8.8%	6.2%	-13.3%
40 Flex V		2.7%	12.2%	8.6%	12.2%		-13.1%
40 Strategic II		2.6%	11.3%	8.1%	11.2%	7.6%	-16.8%
Vanguard 40		2.8%	9.1%	7.3%	8.9%	6.0%	-15.1%
Conservative		2.5%	8.4%	4.9%	6.5%	5.6%	-2.5%
20 Flex V		2.8%	10.1%	8.0%	11.5%		-5.2%
20 Strategic II		2.2%	7.9%	5.8%	8.4%	6.3%	-9.1%
Vanguard 20		2.4%	6.5%	5.7%	7.3%	5.7%	-5.6%
Asset Allocation		USA	x-USA	Bond	Cash	Other
20 Flex V		14%	6%	48%	29%	3%
20 Strategic II		11%	6%	53%	27%	3%
40 Flex V		28%	12%	32%	26%	3%
40 Strategic II		22%	12%	40%	22%	3%
60 Flex V		34%	17%	22%	23%	4%
60 Strategic II		35%	18%	27%	17%	3%
80 Flex V		44%	23%	8%	20%	5%
80 Strategic II		45%	25%	13%	14%	3%
90 Flex V		50%	26%	1%	18%	5%
90 Strategic II		50%	29%	8%	11%	3%
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" and "Strategic" portfolios are designed and managed by Potomac Wealth Strategies, LLC.  These models show track records of better returns, lower volatility, or both, compared to their benchmarks and popular competitors.
NOTE 3:  "Vanguard 80" and "Fidelity 80" are low-cost Moderately Aggressive portfolios.  They are comprised of index funds from Vanguard or Fidelity.  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 us at Garo.Partoyan@PotomacWealthStrategies.com for a consultation.

Flex and Strategic Portfolio Performance Through April 2014

US and Foreign Indexes		3 mo	1 yr	3 yr	5 yr	10 yr	2008
Stock Markets (50-40-10)		6.9%	15.2%	8.7%	16.0%	7.8%	-40.7%
S&P 500		6.2%	20.4%	13.8%	19.1%	7.7%	-37.0%
MSCI EAFE		6.4%	13.2%	5.6%	13.4%	6.8%	-43.1%
iShares MSCI Emerging Markets		6.6%	-2.4%	-4.4%	9.5%	10.6%	-50.0%
Barclays Agg Bond--US		1.2%	0.0%	3.6%	4.9%	4.8%	5.2%
Barclays Agg Bond--Global		2.5%	1.6%	2.1%	5.2%	5.0%	4.8%
Moderately Aggressive		5.4%	13.4%	8.5%	14.1%	7.1%	-32.0%
80 Flex III		3.1%	7.8%	5.7%	12.2%		-18.3%
80 Flex IV		3.3%	8.1%	6.5%	13.0%	9.9%	-17.5%
80 Strategic		4.6%	13.2%	11.4%	19.5%	10.0%	-33.8%
Fidelity 80		5.1%	13.5%	8.3%	14.2%	7.2%	-32.0%
Russell Growth		4.6%	10.6%	5.5%	13.4%	6.1%	-36.1%
Moderate		4.4%	10.0%	7.1%	11.7%	6.7%	-23.1%
60 Flex III		2.9%	5.6%	5.4%	11.3%		-12.6%
60 Flex IV		2.8%	6.5%	6.0%	12.1%	9.9%	-13.0%
60 Strategic		4.1%	9.6%	9.7%	16.6%	9.3%	-25.7%
Vanguard 60		3.2%	7.4%	8.5%	11.6%	6.5%	-23.8%
Russell Balanced		3.9%	8.0%	5.2%	12.2%	6.0%	-30.0%
Moderately Conservative		3.4%	6.6%	5.7%	9.2%	6.1%	-13.3%
40 Flex IV		2.5%	4.4%	5.9%	11.2%	9.3%	-8.0%
40 Strategic		3.8%	6.5%	8.6%	14.9%	9.0%	-19.8%
Vanguard 40		2.2%	3.6%	6.6%	9.0%	5.9%	-15.1%
Russell Moderate		3.1%	4.5%	4.4%	10.6%	5.3%	-23.5%
Conservative		2.5%	3.3%	4.2%	6.7%	5.5%	-2.5%
20 Flex IV		2.3%	2.3%	5.6%	10.1%	8.5%	-2.9%
Vanguard 20		1.5%	0.6%	5.4%	7.4%	5.5%	-5.6%
Russell Conservative		2.2%	2.0%	3.7%	8.5%	4.5%	-15.5%
Asset Allocation		USA	x-USA	Bond	Cash	Other
80 Flex IV		32%	20%	17%	23%	8%
60 Flex IV		23%	19%	26%	24%	8%
40 Flex IV		15%	12%	39%	28%	5%
20 Flex IV		7%	6%	51%	33%	3%
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" and "Strategic" portfolios are designed and managed by Potomac Wealth Strategies, LLC.  These models show track records of better returns, lower volatility, or both, compared to their benchmarks and popular competitors.
NOTE 3:  "Vanguard 80" and "Fidelity 80" are low-cost Moderately Aggressive portfolios.  They are comprised of index funds from Vanguard or Fidelity.  This is what many might recommend due to low-costs and portfolio efficiency.
NOTE 4:  Russell portfolios are offered by one of the most highly-regarded institutional money managers in the country.  These portfolios handle money for dozens of high net-worth people and famous organizations.
NOTE 5:  Nothing on this blog post represents investment advice to any individual or organization.  If the information hereon is of interest to you, please contact us at Garo.Partoyan@PotomacWealthStrategies.com for a consultation.