Today is a day to remember to be ever vigilant to preserve liberty. Remember all who fought and died in war and especially those who were in the Pacific when Pearl Harbor was attacked.
Moment of silence and reflection please.
A recent study by Professor Craig Israelsen shows the value of diversification and not chasing after the returns of recent winners.
In the study Israelsen looked at twelve asset classes of investments over the last fifteen years. The top performing categories were identified.
The results were, if you invested only in the top performing asset class from the past year, you would achieve an annual return of 2.17%.
If you would remain equal weighted each year in all twelve asset classes you would have achieved an annual return of 7.95%.
It pays to stay diversified and not chase prior winners!
The 10 year Treasury Yield index trended up last week. 5.18%
The US Dollar index trended down last week. -.48%
The CRB Commodities index trended up last week. 1.34%
I will update broad representative benchmarks each week to give a clear picture showing what is happening in various financial markets.The broad asset classes are: Cash, Fixed Income, US Stocks, Global Stocks, Alternative Strategies, Hard Assets, and Real Estate.
These benchmarks are in no way a recommended investment portfolio or investment recommendations.
This is for information purposes only.
Portfolio design must be considered in consultation with your personal financial advisor based on an overall analysis of your overall financial picture.
Past performance is no guarantee of future return.
Note: less than one year returns are from www.stockcharts.com and represent values at the Friday Market close 12/06/2013.
One Year and Three year numbers are end of the previous month's numbers as reported by the individual providers 11/30/2013.
1. Cash as represented by the SPDR 1 to 3 month Treasury Bill Exchange Traded Fund BIL
One Week +.04
One Month +.01
One Year -.07
Three Year -.05
2. Fixed Income as represented by iShares US Aggregate Bond Exchange Traded Fund AGG
One Week -.57
One Month -.54
One Year - 1.74
Three Year + 2.91
3. US Stocks as represented by SPDR S and P 500 Exchange Traded Fund SPY
One Week -.03
One Month + 2.13
One Year + 30.01
Three Year +17.51
4. Global Stocks as represented by SPDR ACWI ex US Exchange Traded Fund CWI
One Week -1.35
One Month -.91
One Year + 17.87
Three Year + 7.17
5. Hard Assets as represented by Van Eck Hard Asset Producers Exchange Traded Fund HAP
One Week -.38
One Month -1.7
One Year + 6.99
Three Year + 3.36
Alternative Strategies are various and distinct. No one investment product or strategy can appropriately benchmark alternative strategies. The above is a broad representation of a diverse number of strategies.
An investment portfolio may gain risk reduction and return enhancement from strategies such as absolute return, market neutral, tactical global macro, trend following or counter trend strategies, merger arbitrage and private equity.
6. Alternative Strategies as represented by Natixis ASG Global Alternatives Mutual Fund GAFAX note: only used as a broad representative of alternative strategies.
The one year and three year returns are reported as of the end of the previous month by the provider 9/30/2013.
One week -.76
One Month +1.64
One Year +14.99
Three Year + 5.63
7. Real Estate as represented by the NCREIF Index an index reporting on a national level the total returns, on average, of non-traded commercial real estate. Below are three years of reported returns.
The NCREIF Index is aggregated and reported quarterly and is a total return broad representation including rents and appraisal of non-traded Real Estate.
2010 3rd qtr + 3.86 4th qtr + 4.62
2011 1st qtr. +3.36 2nd qtr + 3.94 3rd qtr + 3.30 4th qtr + 2.96
2012 1st qtr + 2.59 2nd qtr + 2.68 3rd qtr + 2.34 4th qtr + 2.54
2013 1st qtr + 2.57 2nd qtr +2.87 3rd qtr + 2.59
Risk reduction in portfolios may prove prudent over the next several months, however the traditional safe haven of short term treasury bills offers very little return.
The Federal Reserve chairman has effectively stated that they are driving investors to risk assets, a tactic some believe could create a new asset bubble.
One does not want to be in the bubble when it bursts.
Why pay so much attention to risk?
It has been demonstrated in many ways that there is significantly more impact on your ending value by eliminating large draw downs in your investment portfolio, more than beating the stock market in average annualized return.
Beating the stock market is more exciting, however average annualized return can be very misleading.
For instance, if your investments go down twenty five percent, you would need to have a thirty three percent positive return to recover. Down thirty five percent you need to go up fifty four percent to get back to even. Fifty percent down you need a one hundred percent return to go back to square one.
In fact, if you are planning for a seven percent annual return as a goal and your investments go down thirty percent, you need over eighteen percent over the next five years to get back on track.
Risk management is essential.
Avoiding large losses is critical!
In order to reduce risk we implement many strategies that are designed specifically for the needs of each investor.
Ways to reduce risk and, over time, enhance future expected return include; tail risk managed strategies and lowered volatility strategies.
Tail risk managed strategies may include establishing targeted return and beta strategies, triggers that allow for getting out of the way of building risk, and managing risk within sleeve of strategies or asset categories.
Low volatility strategies may include hedging assets, tactical allocation strategies, risk budgeting, risk parity and smart beta strategies.
Many investors take the wrong approach looking primarily at recent return and average percentage rates. Overall risk measures and managing downside risk play an increasing role in end results.
Investors instead should be focused on managing Dynamic Beta exposure, evaluation Active Share, Sharpe ratios, Treynor ratios, Sortino ratios and Alpha.
The above is for informational purposes only and not an offer or recommendation to buy or sell.
Each represent a broad asset class that Marrs Wealth Management diversifies across in many varying products and managers.