 |
|
Investment Services We try to accomplish our clients' goals by using professional managers to actively manage your portfolio using many different asset classes and different investment strategies. Our advisors: • Do not use benchmark reporting We believe that merely having several types of stocks or mutual funds is not sufficient diversification. Merely hoping that they do as well in the next 15 or 20 years as they have in the last 30 years can be a fool's game. Having many different kinds of stocks or mutual funds may not hack it. To understand that, all one has to do is to look at what happened to the NASDAQ (down 78%); the S & P 500 (down 49%), the DOW (down 38%), and International funds (down 21%) during the first down leg of the great Bear market which started in early 2000 through the 3rd quarter of 2002.* If one averages those returns, the result is a whopping loss of 46.5%. I advise clients that want to take the time to listen that, once you lose 40% or more of your portfolio, assuming historic returns of stocks and inflation, YOU MAY NEVER GET EVEN. There are those who think that, because the NASDAQ is up approximately 95% from the low (as of 7/31/05), they are almost back to even. Those poor souls may not understand the bigger picture.* In actuality, they might still be down. As an example, once you lose 78%, you have to earn 355% just to get back to even. This may never happen. Once again…being spread over all those markets is not really diversification, because they ALL went down. A diversified, NON-CORRELATED portfolio could be a better alternative. The other key is to diversify investment strategies as well as asset classes. We have selected different strategies for different asset types. Complicating the problem for investors is the fact that, according to the July 15, 2003 Dalbar release of "Update to the Quantitative Analysis of Investor Behavior" the average mutual fund investor received, over the past 19 years, only 2.57% annually, even though the S & P 500 earned 12.22%. Presumably, the average investor buys and sells funds at the wrong times. Unfortunately it's difficult for people to learn from their past mistakes. Many of us tend to attribute past success to our skill and bad outcomes to the "luck of the draw". Over-optimism and over-confidence tend to stem from the illusion of control and knowledge. People believe that the accuracy of their forecasts increases with more information. More information is not necessarily better. It is what you do with it, rather than how much you have. The best approach that we have found to successful investing is through true diversification. True diversification can be achieved by investing in many asset classes that are not affected by the same supply and demand pressures that drive their respective prices. That is to say, when one goes up, another goes down, and still another goes sideways. The key to diversification is NON-CORRELATION! No one knows which asset class is going to do well in the future or which will do poorly. Additionally, no single strategy works all the time. With some asset classes it pays to stay with it for a long term (Real Estate), with others (like domestic and international stocks and bonds) we believe it’s best to re-balance the portfolio when needed. This approach does not guarantee a profit but it does protect against major loss. In significant down markets (think 2001 and 2002, 1973 and 1974, 1929 and so on) our approach may be a good alternative to help avoid major loss. THE ANSWER IS TO DIVERSIFY AMONG MANY DIFFERENT NON-CORRELATED ASSET CLASSES AND USE A DIFFERENT STRATEGY FOR EACH. Following this advice may not do as well as being fully invested in the stock market during a raging Bull Market, although it will provide acceptable returns, but it may also over-perform during Bear Markets. Most will make money during a Bull market. Bear market conditions can prove to be more challenging. Of course, we can accommodate those individuals who desire a more aggressive portfolio, as well as those who desire a more conservative portfolio. To repeat for emphasis, our best recommendation is a diversified (NON-CORRELATED) investment portfolio, with a different strategy for each asset class. *Market percentages taken from FASTTRACK Investments and Graphics. The Nasdaq is an index of smaller stocks. The DOW is an index of 30 stocks that are capitalization-weighted. Individuals cannot invest directly in either the DOW or Nasdaq indexes.
* Securities offered through Sorrento Pacific Financial, LLC Member FINRA / SIPC |
|