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Issue #104
November 2015
MULTI-ASSET STRATEGYSM
A SUMMARY FOR OUR CLIENTS
ODDS AND ENDS PLUS Q&A
The Markets
In no particular order, the odds and ends plus Q&A for this month’s newsletter are as
follows:
1. An interesting quote from Ron Baron, a top notch mutual fund manager: “Decades
of high oil prices led to a boom in exploration and discovery of new sources of crude
around the world. Therefore, we have great reserves that will be tapped if prices go
up thereby forcing them back down again.” This is a very interesting long term
perspective that I believe could prove accurate. If so, and we have lower oil prices
as far as the eye can see, it is only a matter of time before the public realizes this
and it could lead to accelerated consumer spending. That would help the economy
for years to come. Consumer spending is almost 70% of the total economy.
2. The Dow Jones Industrial Average is currently near 18,000. The economy is a total
of $18 trillion (don’t ask how many zeros that is!). In 2007, the Dow Jones Industrial
Average was 14,000 and the economy was $14 trillion. In 1960, the Dow Jones
Industrial Average was approximately 500 and the economy was about $500 billion.
They always seem to go together in this intersecting ratio.
3. The six reasons I have found that people fail to manage wealth successfully over
the long run:
(1)
(2)
(3)
(4)
(5)
(6)
Failure to develop a sound long-term strategy
Bearing too much or too little risk
Inappropriate asset allocation
Inadequate diversification
Poor investment selection
Failure to control emotions (greed and fear)
Securities offered through Royal Alliance Associates, Inc., member FINRA, SIPC. Advisory services offered through Investment
Advisors Asset Management, LLC, a registered investment advisor. Entities listed are not affiliated with Royal Alliance Associates, Inc.
It is number six that I have experienced to be the most difficult for people.
Unfortunately, I believe it is the one that can be most damaging. I have also found
that some people experience both greed and fear many times. They seem to “ping
pong” themselves back and forth based on external events in the financial markets.
Conversely, if one is truly able to find a stabilizing level between greed and fear,
they seem to have the best start to producing the best results.
4. If the Dow Jones Industrial Average continues to perform as it has over the past
century what will it be in 20 years? Answer: Approximately 70,000 – The power of
compound interest!
5. The Detriments of Portfolio Performance (according to Ibbotson Associates) are as
follows:
a. Asset Allocation 91.5%
b. Security Selection 5.6%
c. Market Timing 1.8%
It is this last part that illustrates the fact that market timing need not be part of any
investment strategy. That’s a good finding because I have found it too difficult to do
and not with any appreciable contribution to success. In fact, over a 65 year period
(1925-1990) one dollar in the S&P 500 Index became $727, yet $1 dollar missing
just 30 of the best months became only $11.
6. Lately, one of the most asked questions of me is “When would you advise investing
in the
World Leaders Model versus the Multi-Asset Strategy Model?”
As hopefully everyone knows, the Multi-Asset Strategy is a risk management
process and consists of 3 portfolios – Conservative, Moderate and Growth. They
are very well diversified as we try to achieve maximum protection during downturns.
The financial crisis of 2007-2009 would be a prime example. The World Leaders
Model is much higher “octane” and tries to maximize returns by being only in up to
20 individual stocks. It has a much higher volatility factor.
This answer to the question is one of customization for each person. It may be, for
instance, that the best mix for someone would be 3 parts Multi-Asset Strategy
Moderate Model to one part World Leaders. For some the best ratio is lower, for
others higher. Age, income and natural risk tolerance play important parts in getting
to the right answer. Therefore, if anyone has questions on this very important topic
whether we have discussed it and implemented it or not, please contact us.
That’s it for now. We want you to know we are following all events closely and doing all we
can to be good long-term stewards of your money. As always, feel free to call us as
needed. We are always delighted to hear from you. All calls will be returned promptly as
you know (usually within 24 hours).
We are eagerly looking forward to working with you in the quarters and years ahead and
thank you for all your referrals to date. Also, as always, should the markets dictate an
interim newsletter, we will do so.
Securities offered through Royal Alliance Associates, Inc., member FINRA, SIPC. Advisory services offered through Investment
Advisors Asset Management, LLC, a registered investment advisor. Entities listed are not affiliated with Royal Alliance Associates, Inc.
OUR PHILOSOPHY
Successful investing is a marathon, not a sprint. Sometimes investing is like watching paint dry,
marking time, boring and with not much movement. Sometimes it is chaotic and fear based. Greed
and fear are often present. We are long-term investors. We believe four to five years is the
appropriate time frame to assess risk and reward. At the end of that time, another four to five year
time frame takes place. This keeps happening until one is in the distribution phase of life and needs
to live off their assets. Therefore, of course, it is where we are at the end of the race that counts.
Although no guarantees can be given, our goal with all our clients is to get to the end of the race in
as good a position as possible given their particular life circumstance.
Disclosure Statements
Standard & Poor’s 500
A market capitalization-weighted index of 500 widely held stocks is often used as a proxy for the
stock market. Indexes cannot be invested in directly, are unmanaged and do not incur
management fees, costs and expenses.
Dow Jones Industrial Average
A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including
stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how
shares of the largest U.S. companies are performing.
Risk and Return
The views expressed are not necessarily the opinion of Royal Alliance Associates, Inc. Investing
involves risk, including the potential loss of principal. No investment strategy can guarantee a profit
or protect against loss in periods of declining values. Past performance is no guarantee of future
results.
This newsletter contains general information that is not suitable for everyone. The information
contained herein should not be construed as personalized investment advice. There is no
guarantee that the views and opinions expressed in this newsletter will come to pass. Although the
information has been gathered from sources believed to be reliable, it cannot be guaranteed.
Investors should be aware of additional risks associated with international investing due to factors
such as greater economic and political instability, increased volatility, currency fluctuation, and
differences in auditing and other financial standards and that these risks can be accentuated in
emerging markets.
Important Consumer Disclosure
This newsletter contains general information that is not suitable for everyone. The information
contained herein should not be construed as personalized investment advice. References made
herein to the market indices are for illustrative purposes only. An investor cannot invest directly in
an index. Different types of investments involve varying degrees of risk and there can be no
assurance that any specific investment will be profitable. Certain information contained herein has
been derived from third party sources. Although believed to be reliable, we make no representations
as to the accuracy or completeness of any such information prepared by any unaffiliated third party
incorporated herein, and take no responsibility therefore. Additionally, certain statements that
indicate future possibilities are forward looking statements. Due to known and unknown risks, other
uncertainties and factors, actual results may vary materially from those portrayed in such forward
looking statements. As such, there is no guarantee that the views and opinions expressed in this
newsletter will come to pass. Investing in the stock market involves gains and losses and may not
Securities offered through Royal Alliance Associates, Inc., member FINRA, SIPC. Advisory services offered through Investment
Advisors Asset Management, LLC, a registered investment advisor. Entities listed are not affiliated with Royal Alliance Associates, Inc.
be suitable for all investors. Information presented herein is subject to change without notice and
should not be considered as a solicitation to buy or sell any security.
Investment Advisors Asset Management, LLC (“IAAM:”) is an SEC registered investment adviser
with its principal place of business in the Commonwealth of Pennsylvania. IAAM and its
representatives are in compliance with the current registration and notice filing requirements
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dissemination of general information pertaining to its investment advisory services. Any subsequent,
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for our disclosure statement as set forth on Form ADV from IAAM using the contact information
herein. Please read the disclosure statement carefully before you invest or send money.
Securities offered through Royal Alliance Associates, Inc., member FINRA, SIPC. Advisory services offered through Investment
Advisors Asset Management, LLC, a registered investment advisor. Entities listed are not affiliated with Royal Alliance Associates, Inc.