Small Business is the Heart of the American Economy

The Small Business Administration (SBA) cites 10 reasons why small businesses are "the heart of the
American economy."

1. Small businesses make up more than 99.7% of all employers.
2. Small businesses create more than 50% of the nonfarm private gross domestic
product (GDP).
3. Small patenting firms produce 13 to 14 times more patents per employee than
large patenting firms.
4. The 22.9 million small businesses in the United States are located in virtually
every neighborhood.
5. Small businesses employ about 50% of all private sector workers.
6. Home-based businesses account for 53% of all small businesses.
7. Small businesses make up 97% of exporters and produce 29% of all export value.
8. Small businesses with employees start-up at a rate of over 500,000 per year.
9. Four years after start-up, half of all small businesses with employees remain open.
10. Small businesses create 75% of the net new jobs in our economy.

Financial Priorities Checklist

Here is a list of items to consider when organizing your personal financial matters, in order of priority that applies to most people.  If you want to know more, please contact me.

--Gary Partoyan

• Life Insurance
• Term—create necessary nest egg for your survivors if you die too soon
• Permanent (optional)—to ensure additional buy-up despite health; to maintain coverage throughout lifetime

• Disability Insurance
• Long-term
• Short-term
• Pay for it yourself and have the income benefit tax-free (this is the better choice), or have employer pay for it and have income benefit taxed

• Cash-flow Positive Monthly Budget

• Debt
• Mortgage, car, and student loans are usually okay
• Revolving credit card debt, personal loans, home equity lines of credit, etc., are usually not okay—get rid of them

• Emergency Reserves Fund
• 3 to 12 months of necessary living expenses, in case of income interruption, etc.
• Keep liquid in money markets or the bank, or low-risk investments with easy liquidity

• Retirement Investments (order of funding priority)

1)     Employer-sponsored Retirement Plan—contribute the minimum necessary to get the maximum matching contribution from employer

2)     Roth IRA, if eligible

3)     Employer-sponsored Retirement Plan—top-off up to the IRS maximum allowable contribution

4)     Traditional IRA

5)     (If you still have more to invest for retirement after 401k and IRA contributions) Variable Universal Life Ins and Variable and/or Fixed Annuities for tax-advantaged savings

• Secondary Investment and Savings Priorities
• Education
• Early-retirement
• Private schools
• Charity
• Luxury items
• Investment speculation

• Other Considerations
• Use a professional to file your taxes!
• Use a patient and flexible but expert lawyer to prepare your estate planning documents, which should probably include:
• Pour-over Will
• Revocable Living Trust
• Irrevocable and Marital A-B trusts, if estate taxes are part of your picture
• Durable (financial) Power-of-Attorney
• Advance Medical Directive (in VA, this combines Healthcare Power of Atty and Living Will)
• Childcare provisions

Flex Portfolio Performance Through February 2012

US and Foreign Stocks	1 mo	3 mo	YTD	1 yr	2 yr	3 yr	5 yr	10 yr
S&P 500	4.3%	10.0%	8.9%	5.0%	13.3%	25.3%	1.5%	4.1%
MSCI EAFE	5.7%	10.2%	11.3%	-7.5%	5.3%	19.6%	-3.0%	6.2%
Barclays Aggregate Bond--US	0.0%	2.0%	0.9%	8.4%	6.6%	7.5%	6.4%	5.7%
Barclays Aggregate Bond--Global	-0.1%	2.3%	1.6%	6.5%	6.2%	8.6%	6.6%	7.4%
Moderately Aggressive Benchmark	4.0%	8.5%	8.3%	0.8%	9.2%	19.7%	1.1%	5.8%
80 Flex III	2.2%	5.1%	6.5%	1.9%	9.2%
80 Flex II	2.6%	6.0%	7.7%	4.5%	10.5%	19.0%	8.3%	11.3%
80 Fidelity	3.8%	8.0%	8.3%	0.0%	9.0%	20.0%	1.0%	5.8%
Moderate Benchmark	2.9%	6.7%	6.3%	2.8%	8.7%	16.6%	2.7%	6.2%
60 Flex III	2.0%	5.3%	6.2%	2.8%	8.7%
60 Flex II	2.3%	6.0%	7.1%	4.7%	9.6%	17.1%	8.6%	10.7%
60 Fidelity	2.8%	6.3%	6.4%	1.7%	8.2%	16.5%	2.2%	5.7%
Moderately Conservative Benchmark	1.8%	5.0%	4.4%	4.7%	8.1%	13.4%	4.2%	6.4%
40 Flex III	1.8%	5.6%	5.8%	3.6%	8.1%
40 Flex II	2.0%	6.0%	6.4%	4.9%	8.7%	15.2%	8.8%	10.1%
40 Fidelity	1.9%	4.8%	4.5%	3.7%	7.6%	13.3%	3.4%	5.6%
Asset Allocation	Cash	Stock	Bond	Other
80 Flex II	23%	54%	12%	11%
60 Flex II	30%	41%	21%	9%
40 Flex II	37%	27%	29%	7%

Flex Portfolio Performance Through January 2012

Here is how the most popular Flex portfolios have performed and are allocated:

US and Foreign Stocks	1 mo	3 mo	YTD	1 yr	2 yr	3 yr	5 yr	10 yr
S&P 500	4.5%	5.3%	4.5%	4.2%	12.8%	19.2%	0.3%	3.5%
MSCI EAFE	5.3%	-0.8%	5.3%	-9.6%	2.1%	13.4%	-3.9%	5.8%
Barclays Aggregate Bond--US	0.4%	2.2%	0.4%	10.3%	7.2%	5.1%	6.9%	5.7%
Barclays Aggregate Bond--Global	1.7%	0.6%	1.7%	7.2%	6.3%	7.8%	7.0%	7.4%
Moderately Aggressive Benchmark	4.1%	2.1%	4.1%	-0.4%	7.6%	14.7%	0.3%	5.4%
80 Flex III	4.2%	2.0%	4.2%	3.0%	8.7%
80 Flex II	5.0%	2.2%	5.0%	4.5%	9.7%	16.4%	7.8%	11.2%
80 Fidelity	4.4%	2.7%	4.4%	-0.9%	7.8%	15.1%	0.2%	5.3%
Moderate Benchmark	3.4%	1.9%	3.4%	2.0%	7.6%	12.8%	2.2%	5.9%
60 Flex III	4.1%	2.1%	4.1%	3.5%	8.3%
60 Flex II	4.7%	2.2%	4.7%	4.6%	9.0%	14.7%	8.1%	10.7%
60 Fidelity	3.5%	2.3%	3.5%	1.1%	7.3%	12.9%	1.7%	5.4%
Moderately Conservative Benchmark	2.6%	1.8%	2.6%	4.4%	7.5%	10.8%	4.0%	6.2%
40 Flex III	3.9%	2.2%	3.9%	3.9%	7.8%
40 Flex II	4.4%	2.3%	4.4%	4.7%	8.3%	13.1%	8.5%	10.1%
40 Fidelity	2.6%	2.1%	2.6%	3.4%	7.0%	10.9%	3.1%	5.5%
Asset Allocation	Cash	Stock	Bond	Other
80 Flex II	23%	54%	12%	11%
60 Flex II	30%	40%	21%	9%
40 Flex II	37%	27%	29%	7%

Flex Portfolio Performance Through December 2011

The broad market for U.S. stocks closed +2% for the year, despite all the volatility and anxiety.  Much of the anxiety came from overseas--Europe's debt and potential banking crises, natural and industrial catastrophe in Japan, uprising in the Middle East--and the broad market for non-U.S. developed market stocks was down -12% for the year.

The Flex portfolios, being globally diversified, took some hits and lagged the U.S. stock market, but they performed pretty closely to their benchmarks.  And their 2-yr and longer track records are quite favorable relative to their benchmarks.  In addition to favoring the "Flex portfolio" concept, I am pleased overall with the performance of these portfolios.

Most of my clients should continue to use a Flex portfolio for their core holdings.

Here are the performance #s through December 2011:

US and Foreign Stocks	1 month	3 month	YTD	2 year	3 year	5 year	10 year
S&P 500	1.0%	11.8%	2.1%	8.4%	14.0%	-0.3%	2.9%
MSCI EAFE	-1.0%	3.3%	-12.1%	-2.7%	7.7%	-4.7%	4.7%
Moderately Aggressive Benchmark	0.2%	6.2%	-2.5%	3.9%	10.1%	-0.3%	4.7%
80 Flex III	-1.3%	2.8%	-2.9%	4.7%	n/a	n/a	n/a
80 Flex II	-1.6%	4.2%	-0.5%	6.4%	12.9%	6.9%	10.7%
80 Fidelity	-0.3%	6.5%	-3.3%	3.8%	10.1%	-0.4%	4.6%
Moderate Benchmark	0.4%	4.8%	0.1%	4.8%	9.0%	1.6%	5.3%
60 Flex III	-0.7%	2.5%	-1.9%	4.9%	n/a	n/a	n/a
60 Flex II	-1.0%	3.5%	-0.1%	6.1%	11.9%	7.3%	10.2%
60 Fidelity	-0.1%	5.1%	-0.9%	4.4%	9.2%	1.1%	4.8%
Moderately Conservative Benchmark	0.5%	3.2%	2.7%	5.6%	7.8%	3.5%	5.8%
40 Flex III	-0.2%	2.2%	-1.0%	5.1%	n/a	n/a	n/a
40 Flex II	-0.4%	2.9%	0.2%	2.9%	10.8%	7.6%	9.7%
40 Fidelity	0.3%	3.7%	1.8%	5.2%	8.3%	2.8%	5.1%

*   80 Fidelity is a portfolio of very popular and widely-available index funds from Fidelity Investments allocated in a 80% stocks, 20% bonds strategy similar to that of the 80 Flex portfolios, and I want to compare the two; the 80 Fidelity portfolio uses a style-pure, buy-hold-rebalance method, while the 80 Flex portfolio allows for a great deal of tactical adjustments within the 80% stock long-term strategy.

** Not all Flex III funds were available for the full 3-, 5- and 10-year periods, but all Flex II funds were.

Approximate Stock-Bond-Cash-Alternative allocation as of 12/31/11 or most recently provided:
80 Flex III:  33-26-27-14
60 Flex III:  25-32-32-11
40 Flex III:  16-37-38-9

For long-term investors, I firmly believe a well diversified portfolio using "strategic asset allocation" but implemented with global and/or flexible mutual funds is a much better way to invest than trying to "time" the market.

Thank you, and make it a great 2012!

--Gary Partoyan

Potomac Wealth Strategies, LLC
www.PotomacWealthStrategies.com

Flex Portfolio Performance Through November 2011

This continues to be a rough year across the global markets.  Given the volatility of the global stock, bond and commodities markets, and the problems in the global economy, I remain strongly in favor of using a global/flexible portfolio and think my Flex portfolio method is the way to go.

So, how did Flex perform?  Not as well as I would like, for the second month now.  I am considering changes:

• I may replace The Arrow DWA Tactical fund.  It is 1/2 of the "growth-oriented" portion of the Flex III portfolios, and it has been underperforming greatly.  It seems to just miss the boat right now, despite the great track record of the underlying portfolio methodology.  This is likely because it uses an intermediate-term trend-following methodology that really does well over the long-haul but does not react to the kind of short-term volatility we are experiencing now.

• Ivy Asset Strategy is going to stay in the Flex portfolios, despite being on my Watch List lately.  This fund is the only hedge fund-like component, and I want that kind of guts and flexibility in this portfolio series.  It is invested pretty much fully in growth companies in emerging markets that have had a rough time lately; I am eager to see what happens when that market regains its footing.

What to do?  If I reduce the weighting of Arrow DWA Tactical fund, I will either convert Flex III investors into Flex II (Flex III but without Arrow DWA Tactical), or I will bring on another fund I have identified as suitable.

Here are the performance #s through November 2011:

US and Foreign Stocks 1 month 3 month YTD 2 year 3 year 5 year 10 year S&P 500 -0.2% 2.9% 1.0% 8.7% 14.0% -0.2% 2.8% MSCI EAFE -4.9% -5.6% -11.3% -1.5% 10.1% -4.0% 4.8% Moderately Aggressive Benchmark -2.1% -1.1% -2.7% 4.1% 11.4% 0.0% 4.7% 80 Flex III -0.5% -5.3% -1.6% 6.0% n/a n/a n/a 80 Flex II -1.1% -2.4% 1.2% 7.6% 15.4% 7.4% 11.1% 80 Fidelity -1.3% -0.6% -3.0% 4.7% 11.9% 0.0% 4.8% Moderate Benchmark -1.7% -0.9% -0.2% 4.5% 10.3% 1.8% 5.2% 60 Flex III -0.9% -5.0% -1.2% 5.8% n/a n/a n/a 60 Flex II -1.3% -2.8% 0.9% 7.0% 14.1% 7.6% 10.5% 60 Fidelity -1.1% -0.2% -0.9% 4.8% 10.7% 1.4% 4.9% Moderately Conservative Benchmark -1.3% -0.7% 2.2% 4.7% 9.2% 3.4% 5.7% 40 Flex III -1.3% -4.6% -0.8% 5.6% n/a n/a n/a 40 Flex II -1.6% -3.1% 0.6% 6.3% 12.7% 7.7% 9.8% 40 Fidelity -0.8% 0.2% 1.5% 5.1% 9.6% 2.8% 5.1%
*   80 Fidelity is a portfolio of very popular and widely-available index funds from Fidelity Investments allocated in a 80% stocks, 20% bonds strategy similar to that of the 80 Flex portfolios, and I want to compare the two; the 80 Fidelity portfolio uses a style-pure, buy-hold-rebalance method, while the 80 Flex portfolio allows for a great deal of tactical adjustments within the 80% stock long-term strategy. ** Not all Flex III funds were available for the full 10-year period, but all Flex II funds were. The Stock-Bond-Alternatives-Cash allocation percentages are approximately: 80 Flex III:  43-10-18-29 60 Flex III:  32-20-14-34 40 Flex III:  21-29-11-39 I still believe staying the course with a global/flexible portfolio is a lot better than trying to time the market.  Please contact me with your questions or thoughts.  Thank you! --Gary (FYI, my own retirement portfolio remains mostly in 80 Flex III.) Garo Linck Partoyan Financial Advisor Potomac Wealth Strategies, LLC (703) 746-8195 Garo.Partoyan@PotomacWealthStrategies.com www.PotomacWealthStrategies.com

Flex Portfolio Performance Through October 2011

After a very difficult 3rd quarter, and an especially rough September, for stock markets, they went way up in October.  Since Potomac Wealth Strategies' Flex portfolios are widely diversified, their performance lagged relative to the stock markets.  Given the volatility of the markets, and the problems in the global economy, I am still strongly in favor of using a global/flexible portfolio and think Flex is the way to go.

So, how did Flex perform?  Not as well as I would like, and there are two culprits:  the Arrow DWA Tactical fund has been underperforming, likely because it uses an intermediate-term trend-following methodology that really does well over the long-haul but does not react to the kind of short-term volatility we are experiencing now; and Ivy Asset Strategy (which is much like a hedge fund and is the riskiest fund in the Flex portfolios) has invested fully in growth companies in emerging markets that have had a rough time lately.

What to do?  I am considering reducing the exposure to Arrow DWA Tactical for the Flex III portfolios; Flex II does not use this fund and performed significantly better recently, and about the same over the longer periods.  I am also in touch monthly with the folks at Ivy Funds--Asset Strategy fund has been performing very well lately (up 14.4% just in October, vs. 10.8% for the S&P 500, and up 2.2% vs. 1.9% so far in November), and I am inclined to stick with it because of its track-record and the potential for great returns.

Here are the performance #s:

For October 2011:
S&P 500:   10.8%
80 Fidelity:  8.3%*
80 Flex III:  4.6% 

60 Flex III:  4.2%

40 Flex III:  3.8%

Trailing Three-months (through 10/31):
S&P 500:    -2.5%
80 Fidelity:  -5.2%

80 Flex III:  -6.7%

60 Flex III:  -5.7%

40 Flex III:  -4.6% 

For 2011 YTD (through 10/31):

S&P 500:     1.2%
80 Fidelity:  -1.7%

80 Flex III:  -1.2%

60 Flex III:  0.3%

40 Flex III:  0.5%

For the 2-yr period ending 10/31/11:

SP 500:     12.1% per year

80 Fidelity: 7.3% per year

80 Flex III:  8.5% per year

60 Flex III:  8.1% per year

40 Flex III:  7.7% per year

For the 3-yr period ending 10/31/11**:

SP 500:      11.3% per year

80 Fidelity: 10.4% per year

80 Flex II:  15.2% per year

60 Flex II:  14.2% per year

40 Flex II:  13.19% per year

For the 10-yr period ending 10/31/11**:

SP 500:       3.6% per year

80 Fidelity:  5.3% per year

80 Flex II:  11.5% per year

60 Flex II:  10.8% per year

40 Flex II:  10.1% per year

*   80 Fidelity is a portfolio of very popular and widely-available index funds from Fidelity Investments allocated in a 80% stocks, 20% bonds strategy similar to that of the 80 Flex portfolios, and I want to compare the two; the 80 Fidelity portfolio uses a style-pure, buy-hold-rebalance method, while the 80 Flex portfolio allows for a great deal of tactical adjustments within the 80% stock long-term strategy.

** Not all Flex III funds were available for the full 10-year period, but all Flex II funds were.

The Stock-Bond-Alternatives-Cash allocation percentages are approximately:

80 Flex III:  43-10-18-29
60 Flex III:  32-18-14-36
40 Flex III:  21-26-11-42

I still believe staying the course with a global/flexible portfolio is a lot better than trying to time the market.  Please contact me with your questions or thoughts.  Thank you!

--Gary

(FYI, my own retirement portfolio remains mostly in 80 Flex III.)

Garo Linck Partoyan
Financial Advisor
Potomac Wealth Strategies, LLC
(703) 746-8195
Garo.Partoyan@PotomacWealthStrategies.com
www.PotomacWealthStrategies.com