What is Asset Allocation?

"Asset Allocation" is the embodiment of and guidance offered by some Nobel Prize-winning portfolio construction/management research:

·        Asset Allocation is how we most prudently aim for either the best gains at a set level of risk or the least amount of risk for a targeted level of gains.

o   Aggressive investors are about 95% stocks and 5% bonds/cash

o   Moderately Aggressive = 80/20

o   Moderate = 60/40

o   Moderately  Conservative = 40/60

o   Conservative = 20/80

o   Most working folks our age and time-horizon are Moderate to Aggressive; most retirees are Conservative.

·        Asset Allocation spreads out our investments across the strategic asset classes and sub-classes thereof:

o   Stocks (large, medium, or small companies... growing companies or well-established money-makers...  USA, developed-market foreign, developing markets...)

o   Bonds (corporate, government, domestic or foreign, high-quality/low-interest or low-quality/high-interest, and so forth)

o   Commodities

o   Cash

o   How much into each determines portfolio.  Generally, high volatility is riskier and low volatility is safer, and more risk is correlated with better returns while less risk usually means lower returns.  A typical retiree needs to be safer, and professional with 20+ years to retirement can probably afford to take more risk.

·        How to implement Asset Allocation

o   For my clients, I use mutual fund portfolios of my own design, allocated according to the strategic asset allocation guidance of trusted sources (usually it's Ibbotson's work that's now owned by Morningstar).  Specifically, I offer clients my Strategic, Schwab Index, and Flex portfolio models.  Each has a different take on how to implement Asset Allocation.  Strategic III models are my preferred portfolios now.

§  Over time, we'll shift from Aggressive on down to Conservative--the closer you get to retirement, the more conservative.  Usually about every 5-10 years we'll downshift by re-allocating the portfolio.

§  I use best-of-breed mutual funds to populate each part of the Asset Allocation of each model.

o   "Target Date" funds do it all for you ongoing.  You could put everything into a target date fund and leave it there forever, and employer-sponsored retirement plans often offer such and even put you into them automatically.

§  You're in a "The 2045 fund can be used forever by anyone expecting to retire around Year 2045.

§  But they usually use only their own in-house products.  Your Nationwide Destination 2045 fund at work uses only Nationwide products.  The results have been very good lately, but not as good over the long-term.

o   "Allocation Funds" are like Target Date funds in they are total portfolios in one fund, but they don't change over time--an Aggressive allocation fund remain so, so you'd exit that one and move into a Moderate or Conservative fund as you get closer to the retirement year.

Garo Linck Partoyan

Potomac Wealth Strategies, LLC

Portfolio Model Performance Through January 2017

US and Foreign Indexes		3 mo	1 yr	2 yr	3 yr	5 yr	10 yr	2008
Stock Markets (72-21-7)		6.6%	18.4%	6.9%	8.0%	11.3%	5.3%	-41.0%
S&P 500		7.2%	17.5%	6.9%	8.5%	11.7%	4.7%	-38.5%
Dow Jones Industrial Avg		9.5%	20.6%	7.6%	8.2%	9.5%	4.6%	-33.8%
MSCI EAFE		4.0%	8.9%	-1.4%	-2.0%	3.1%	-1.9%	-45.1%
MSCI EM		0.5%	22.5%	-2.8%	-1.0%	-2.3%	0.1%	-54.5%
Barclays Agg Bond--US		-2.0%	1.5%	0.6%	2.6%	2.1%	4.4%	5.2%
Citi WGBI nonUSD (foreign bonds)		-5.2%	2.2%	-0.5%	-2.2%	-2.0%	2.9%	10.1%
Aggressive (90% stocks-10% bonds)		6.1%	16.2%	3.8%	4.4%	7.2%	3.4%	-36.0%
95 Strategic III		5.7%	17.3%	6.3%	7.5%	10.5%	7.6%	-30.9%
95 Schwab index		7.4%	18.3%	6.6%	7.0%	10.8%	5.6%	-34.3%
95 Strategic USA II		8.2%	20.4%	8.2%	9.4%	12.9%	9.6%	-25.8%
Confluence Value Opportunities								-22.3%
Confluence Equity Income								-18.9%
WealthFront 9		5.0%	18.2%	4.4%	5.1%	7.3%	4.3%	-38.1%
American Funds Port Ser Growth		6.1%	18.7%	6.8%	7.1%	11.5%	6.1%	-40.8%
American Funds Port Ser Global Growth		4.5%	15.5%	4.2%	4.7%	9.7%	5.4%	-40.5%
Moderately Aggressive (75-25)		4.9%	13.9%	3.3%	3.9%	6.3%	3.6%	-31.0%
80 Flex IV		2.9%	11.6%	2.4%	2.8%	5.5%
80 Flex V		3.8%	10.2%	2.2%	3.0%	6.7%		-16.9%
80 Strategic II		6.3%	18.6%	5.4%	5.5%	9.5%	6.8%	-31.1%
80 Strategic III		4.9%	15.7%	5.8%	7.0%	9.7%	7.4%	-27.7%
80 USA tilt		6.9%	18.2%	5.7%	5.9%	9.4%	6.5%	-28.5%
80 Schwab index 2017		5.9%	14.8%	5.5%	5.9%	9.1%	5.2%	-29.3%
Money 75		5.9%	18.7%	6.0%	6.3%	9.2%	5.9%	-32.7%
American Funds Port Ser Gr+Inc		4.4%	14.7%	5.0%	6.3%	9.5%	5.3%	-30.8%
Moderate (60-40)		3.8%	11.8%	2.9%	3.6%	5.4%	3.7%	25.6%
60 Flex V		3.5%	10.0%	2.8%	3.4%	6.9%		-13.1%
60 Strategic III		3.8%	13.2%	4.8%	6.0%	8.1%	6.8%	-23.3%
60 Schwab index 2017		4.6%	11.7%	4.5%	4.9%	7.5%	4.7%	-23.8%
American Funds Port Ser Balanced		3.1%	11.4%	4.4%	5.5%	8.3%	5.3%	-28.4%
Moderately Conservative (40-60)		2.2%	8.5%	2.4%	2.6%	4.1%	3.7%	-17.4%
40 Strategic III		2.6%	10.8%	3.9%	4.8%	6.5%	6.5%	-16.8%
40 Schwab Index 2017		2.9%	7.7%	3.0%	3.3%	5.1%	4.0%	-16.2%
Goldman Sachs Income Builder		2.9%	12.8%	3.4%	3.8%	7.1%	5.3%	-23.3%
Conservative (20-80)		0.5%	5.5%	1.5%	1.8%	2.4%	3.5%	-8.4%
20 Strategic III		0.8%	7.3%	2.6%	3.3%	3.9%	4.6%	-9.3%
20 Schwab index 2017		1.2%	4.0%	1.9%	2.4%	3.4%	3.3%	-9.2%
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.

New Year Message + Reminders from Gary Partoyan

Happy New Year!  I hope your holidays were lovely and your 2017 is off to a great start.

A few things:

1.      It was a good year for many investment categories.  Our globally diversified StrategicIII model portfolios performed very well, beating their benchmarks in 2016 by more than enough to cost-justify my advisory fees.  In fact, the Strategic III models have shown that kind of outperformance in the 2-, 3-, 5-, and 10-yr time periods also.  This is how most of us should be investing.

2.      Attached is my Financial Priorities checklist.  Use this to help us make sure we are covering the bases that are most important for you.

a.      Notice that there are five priorities before we even save for retirement.

b.      Contact me to go over this with you.

3.      Do you have your InvestmentPlan?  Let us get a good look at whether or not you are on track to meet your goals.  Important and helpful, and no extra charge!

4.      Reminder that my firm is a Registered Investment Advisor (RIA) and I am the Representative of my RIA.  To each client, my firm and I have a fiduciary obligation.  I must act in each client's best interests.  Of note:

a.      As an "advisor" rather than a "broker", I am already subject to the standard of the Department of Labor's upcoming "fiduciary rule".

                                                    i.     The rule is aimed at bringing other financial services firms/employees up to that standard.

b.      As a fee-only RIA firm/representative, I am paid only by my clients and receive no other compensation--no commissions, no revenue-sharing, no referral fees.

                                                    i.     This helps eliminate conflicts of interest and put the advisor and the client on the same side of the table.

Please contact me with any questions or requests.  Thank you!

--Gary

Garo Linck Partoyan

Potomac Wealth Strategies, LLC

(703) 746-8195 phone

(855) 347-9483 fax

Visit us online for helpful ideas and information!

Investment/Financial Planning--Reminder!

For all my clients, I invest the money they have in accounts under my advice/management.  I also provide investment/financial planning services, and it's included in my investment advisory fee.  But not all my clients make use of that valuable service, so here's a reminder...

Do you know the following?

• how much to save
• which accounts to use
• what investments to make
• whether or not to save for college
• how much insurance for disability, life, and/or long-term care
• what pension and social security income are you going to receive
• should you buy or rent your home
• should you buy or lease your car
• do you really need to save for college
• what to do with inheritance, or proceeds from sale of a business

Let me help you get on top of all of this.  You're paying for investment advice, and I am including overall financial advice so we can be as successful as possible.

Thank you!

--Gary Partoyan

Potomac Wealth Strategies, LLC
1800 Diagonal Rd., Suite 600
Alexandria, Virginia  22314
(703) 746-8195
(855) 347-9483 fax
Garo.Partoyan@PotomacWealthStrategies.com

Portfolio Model Returns Through December 2016

All of the Strategic III models beat their benchmarks by more than enough to cost-justify my advisory fee in CY 2016.  That's a winning year!  And all Strategic III models show 2-, 3-, 5- and 10-yr average annual returns that beat their benchmarks by more than enough to cost-justify.

This is where we should be, how we should be investing.  Strategic III models combine asset allocation guidance from Morningstar/Ibbotson that is based on Nobel Prize-winning research, and each model is populated by mutual funds I have selected as top-of-category.

You may have read columns that tell you to skip the actively-managed mutual funds and just use low-cost index funds.  If you don't know how to access the outperformers, and if you do know how to allocate your portfolio strategically, then you can save money by do-it-yourself investing.  Otherwise, find an advisor that preaches and practices cost-justification and can explain their rationale/process.  Me, for example.

So, here's how the models and some alternatives have been doing:

US and Foreign Indexes		3 mo	1 yr	2 yr	3 yr	5 yr	10 yr	2008
Stock Markets (72-21-7)		1.8%	7.1%	2.2%	3.5%	9.5%	2.1%	-41.0%
S&P 500		3.3%	9.5%	4.3%	6.6%	12.2%	4.7%	-38.5%
Dow Jones Industrial Avg		7.9%	13.4%	5.3%	6.0%	10.1%	4.7%	-33.8%
MSCI EAFE		-1.0%	-1.9%	-2.6%	-4.2%	3.6%	-2.1%	-45.1%
MSCI EM		-4.6%	8.6%	-5.0%	-4.9%	-1.2%	-0.6%	-54.5%
Barclays Agg Bond--US		-3.0%	2.7%	1.6%	3.0%	2.2%	4.3%	5.2%
Citi WGBI nonUSD (foreign bonds)		-10.8%	1.8%	-1.9%	-2.2%	-1.9%	2.5%	10.1%
Aggressive (90% stocks-10% bonds)		2.3%	8.8%	2.4%	2.9%	7.9%	3.4%	-36.0%
95 Strategic III		1.1%	10.0%	4.1%	5.5%	10.7%	7.5%	-30.9%
95 Schwab index		2.9%	10.0%	4.7%	5.3%	11.5%	5.6%	-34.6%
95 Strategic USA II		3.6%	12.1%	4.8%	7.0%	13.0%	9.4%	-25.8%
Confluence Value Opportunities		3.4%	15.4%	8.7%	15.8%	21.4%	11.2%	-22.3%
Confluence Equity Income		2.8%	18.0%	8.7%	9.6%	14.3%	8.8%	-18.9%
WealthFront 9		0.4%	9.5%	2.2%	2.6%	7.9%	4.1%	-38.1%
American Funds Port Ser Growth		0.3%	7.4%	4.4%	4.9%	12.0%	6.0%	-40.8%
American Funds Port Ser Global Growth		-1.7%	3.7%	2.1%	2.1%	10.1%	5.1%	-40.5%
Moderately Aggressive (75-25)		1.6%	7.9%	2.3%	2.8%	6.9%	3.6%	-31.0%
80 Flex IV		-0.2%	6.3%	0.8%	1.2%	5.9%
80 Flex V		-0.1%	4.4%	0.3%	1.3%	7.0%		-16.9%
80 Strategic II		3.0%	10.2%	3.5%	3.9%	10.1%	6.7%	-31.1%
80 Strategic III		0.6%	9.4%	3.9%	5.3%	10.0%	7.4%	-27.7%
80 USA tilt		3.9%	10.5%	3.7%	4.3%	10.0%	6.5%	-28.5%
80 Schwab index		1.7%	8.0%	4.2%	5.2%	10.3%	5.5%	-30.6%
Money 75		2.1%	10.8%	4.6%	4.9%	9.9%	5.9%	-32.7%
American Funds Port Ser Gr+Inc		-0.4%	8.0%	3.4%	4.6%	9.7%	5.1%	-30.8%
Moderate (60-40)		1.0%	7.1%	2.2%	2.7%	5.9%	3.7%	25.6%
60 Flex V		0.2%	5.0%	1.0%	1.9%	7.2%	6.4%	-13.1%
60 Strategic III		0.2%	8.4%	3.5%	4.8%	8.5%	7.0%	-23.3%
60 Schwab index		0.7%	7.0%	3.4%	4.0%	7.9%	4.6%	-25.6%
American Funds Port Ser Balanced		-0.5%	5.9%	3.2%	4.1%	8.6%	5.1%	-28.3%
Moderately Conservative (40-60)		0.1%	5.4%	1.8%	2.0%	4.4%	3.6%	-17.4%
40 Strategic III		-0.2%	7.5%	3.0%	3.9%	6.9%	6.6%	-16.7%
40 Schwab Index		-0.7%	4.3%	2.9%	4.4%	6.8%	4.7%	-19.7%
Goldman Sachs Income Builder		1.7%	9.3%	2.7%	3.0%	7.5%	5.3%	-23.3%
Conservative (20-80)		-0.9%	4.2%	1.4%	1.6%	2.6%	3.4%	-8.4%
20 Strategic III		-0.7%	6.7%	2.8%	3.3%	4.3%	4.8%	-9.2%
20 Schwab index		-1.6%	2.5%	2.3%	4.2%	5.3%	4.2%	-13.9%
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.