Category Archives: Bonds

MPG Core Tactical 60/40: April 2014 Performance Update

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MW-BB798_sm6040_20130422180557_MDDear Mr. Market:

Unless you’ve never picked up a financial magazine or read the business section of any newspaper, you have undoubtedly heard of the old investment adage “Sell in May and go away”. Many financial “experts” and journalists do their best to paint the summer months as those that are primed to underperform. Does history always repeat itself in exactly the same way? Nope. It’s not hard to find investors who sold last spring (or even the one prior) in anticipation of a nasty summer and they are still in cash or underweight equities. If you’re in that boat and don’t trust the stock market, you may sleep better at night for now but in the interim you’ve lost opportunity cost and missed another bull market.

The flip side to this is that bearish investors will eventually be right! The S&P 500 has not had a correction of -10% or more since October 3, 2011. Like many investors out there we firmly believe a correction of -10% to -20% is coming this year but we don’t think it will be the start of a bear market. The challenge behind all of this, however, is that the longer we go without a healthy correction the deeper and more severe the inevitable sell-off will be. Continue reading →

What’s the Asset Allocation of your Investing Freeway?

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Dear Mr. Market:

Nobody likes traffic but it’s without question a part of our daily lives. Being stuck behind a long line of cars and seeing nothing but red taillights is even more aggravating when you are short on time and need to be somewhere soon. Many of us try to do whatever we can to avoid traffic; whether it be leaving earlier, taking side streets, carpooling, or relying on tools like GPS apps that show us the best routes to take. What does this have to do with investing? Everything…

If you haven’t yet learned or heard why the freeway is perhaps the most important analogy for the success of your portfolio…you need to commit this article to memory. Your local freeway can teach you why 90% of your portfolio’s performance is dependent on what lanes you choose to drive in and only 10% on how fast your car is.

Take for example, Interstate 405 in Los Angeles…which happens to be the busiest stretch of highway there is in the nation. Let’s say you need to get from Long Beach to LA in what normally takes about 30 minutes. You hop in your car and hit the fast lane and seem to be making great time averaging 65 mph. No sooner than about 10 minutes into your drive your lane comes to a screeching halt. After about almost a mile of grinding away at five mph you decide to switch into the lane to your right which is now flowing much faster. Almost within seconds of doing this, the lane you were just in passes you by! Your 30 minute trip to LA will now take you at least an hour and possibly more at this pace.

This simple but nightmarish traffic scenario happens daily to over 400,000 drivers along the 405 but it also absolutely ruins millions of portfolio every year! Pretend each lane of the freeway represents an asset class. (ex: Large Caps, Small Caps, International, and Bonds) On any given year one “lane” (or asset class) will lead the markets but the likelihood of it doing so the next is rare and if you look at historical returns there is no discernible pattern. CLICK HERE to review how asset classes have performed each year from 1994 to 2013:

One of the better examples of this is Emerging Markets in the early 2000’s.

The BRIC’s (Brazil, Russia, India, and China) were all the rage from 2003 until 2007. Hardly any investors had the courage to step in until late 2007 because they were still licking their wounds from the “dot com” crash. Many people hid in cash or gravitated to Bonds which turned in a +10.26% year in 2002.

Over the next four years Bonds Continue reading →

How did your Portfolio do in January of 2014?

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Dear Mr. Market:

Apparently you’re kicking off February much like you wrapped up January; in correction mode.

A stock market correction is actually not a bad thing and in this case it’s actually a MUCH needed one. If you’re anything close to being a long-term investor you should be hoping for at least a 10% haircut at some point before 2014 wraps up. Without a breather or some form of consolidation this market has no chance to build a base and move to higher levels by year-end.

If you had a fairly well balanced and allocated portfolio in 2013 you probably looked at your statements and saw that bonds were not just dead weight but rather a huge drag on performance. Not only did the overall bond market lose at least -2% for the year, the proverbial “writing on the wall” was being etched in permanent ink ; bonds had zero upside and only risk associated with them. If rates are to rise, as so many speculate they will, we could see bonds sting investors worse than any other time in history. Bottom line: That’s scary stuff for anyone in the typical 60 / 40 model…

The place to be in 2013 was stocks, but let’s be honest… Did you really trust them to keep going higher and higher? Did a +32% return for the S&P 500 feel “real” to you? Most people we talk to still don’t trust stocks but they ironically weren’t invested in them as much as they would’ve liked. Those that couldn’t resist a record breaking stock market finally cut bait on their bonds. Unfortunately, the reality is that our 5 year stock market party is possibly coming to an end…or at least a healthy pause. Continue reading →

Force your Portfolio to be Disciplined in 2014

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Rebalance Cartoon

Congratulations Mr. Market…you’ve delivered a tremendous year of returns to equity investors!  With the broad equity markets delivering returns over 25% (S&P =29%, DJIA = 25% and the NASDAQ = 37% as of 12/27/2013) investors are now faced with the question of what to do now?  For those investors that were invested in stocks, especially domestic stocks, year-end statements are going to look very impressive but remember that is only on paper. As we step into 2014 what should investors do with their portfolios?

Often investors choose to go with an adage commonly heard in casinos – “Let it ride!” Although the market defied odds and dodged several ominous obstacles, there is no guarantee that it will continue to do so going forward.  Sitting back and doing nothing could very well allow those returns to dwindle away and become nothing but a memory.  It wasn’t that long ago that ‘The Tech Bubble’ hit investors with a strong left uppercut that they never saw coming.  Mr. Market delivered three years of impressive returns (1997 = 33%, 1998 = 28% & 1999 = 21%) only to see it disappear with three consecutive years of negative returns (2000 = -9%, 2001 = -11%, 2002 = -22%) and let’s not forget 2008 (-37%).   How can investors avoid repeating history while also managing the risk and unrealized gains in their portfolio?  Continue reading →

Exclusive Interview with Long Short Opportunity Fund (LSOFX)

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Dear Mr. Market:

You are made up of so many pieces and not all move in the same direction on each day. Some stocks can rise in bear markets and some get clobbered in bull markets. That being said, we have a special treat for you today: The following interview was granted to My Portfolio Guide, LLC from management of the Long Short Opportunity Fund (LSOFX).

My Portfolio Guide, LLC (MPG): First off…thank you for the opportunity to meet and learn more about your investing strategies. Our first question is perhaps best intended to simply set the table for our clients and readers of our newsletter:

Briefly explain why investors in typical advisory relationships should even consider using a hedge fund or alternative strategy as part of their portfolio allocation?

Long Short Advisors (LS): The simple answer is to provide downside protection in an increasingly volatile world where equity markets are near all-time highs and bond yields remain near all-time lows. A typical investor has their money allocated to a traditional blend of 60% long-only equities and 40% long-only short bonds, and has generated a fantastic high single digit return from this allocation over the past thirty years. Unfortunately for these investors, the current state of the bond market dictates that these returns are not repeatable over the next decade.

We believe the bond allocation of a traditional 60/40 blend could tread water at best given the current trajectory of bond yields.

Long-term equity volatility is unlikely to change, making a larger allocation to stocks similarly imprudent, especially at today’s record highs.

Thus, investors need to diversify into alternative strategies that have the ability to benefit not only from continued overall market strength, but also potential market weakness.

MPG: Of all the hedging and alternative investment strategies out there and now available to mainstream investors, what are some of the primary reasons to consider a “long/short” type approach? Continue reading →

How Should your Portfolio be Performing now?

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outside boxDear Mr. Market:

How is my portfolio doing this year? Am I on track for retirement? Why is the market up big but I’m not? What would my portfolio look like if the market tanked again like it did in 2008? I’m in cash right now because I feel stocks have moved too high but I don’t trust bonds because we all know where they’re headed.

These are some common and very typical questions many investors are asking themselves this year. If any one of these questions applies to you or feels familiar, don’t think you’re alone! One common thread among all these questions or concerns is benchmarking. What exactly is a benchmark and which one is appropriate for you?

Far too often investors compare themselves to other investors, strategies or benchmarks that are completely unrealistic.  Investors need to take the time to truly understand who they are and what their goals are before they compare themselves to anyone or anything!   Let’s put this in perspective…. Let’s say you decided you wanted to start swimming to get in shape.  Would you expect to get in the pool and swim times comparable to Michael Phelps (winner of 22 Olympic medals) within a couple of weeks?  Of course not… that would be ludicrous and clearly not the right athlete to try and compare yourself to!  As crazy as this sounds many investors have similar expectations with their investment portfolio. Continue reading →

2013: The Year of Stock Market Headline Horrors

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New-York-Post-Headless-bo-006Dear Mr. Market:

2013 has truly been a year of political headlines and deadlines. We’ve been yanked around with market threatening troubles ranging from the fiscal cliff, to sequestration, to the government shutdown, to the debt ceiling etc.

All the while the market continues to defy odds which further exasperates any rationally thinking mind.

The irony of recent headlines and the overall market environment is that it’s easy to make a convincing case that they’ll either go down this last quarter of 2013 or that they’ll finish strong and continue their banner-like year. Depending on who you follow, you’ll end up being bullish, bearish, or completely confused! This article will be short and sweet but at the end of it all you’ll know exactly where we stand and what we believe most investors should be doing.  Continue reading →

Looking Under the Hood of your Company Retirement Plan

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Dear Mr. Market:

401k under the hoodIf you ask any hard working American what their goal is the answer will usually have something to do with retirement.  While this common goal should be attainable through focus and discipline the market has certainly thrown its fair share of setbacks at investors.  For most Americans their home is their largest asset, and second is their retirement plan (401(k), 403(b), Simple IRA, SEP IRA, etc).  You have a limited amount of control over the value of your home but how can you manage and monitor your retirement plan to help make your retirement goals a reality?  In this article we will take a step back to the basics and look at factors that will have a profound impact on the performance of your retirement accounts and what you can do to control them.

Last fall legislation was passed requiring 401(k) providers to completely disclose their entire fee structure to participants. Investors will now be able to see what fees are associated with the various funds in the plan and what they are paying to participate in their employer’s retirement plan. According to CNN Money, a working couple will see nearly a third of their investment reduced by these fees over their careers– that amounts to nearly $155,000!! Schwab reported that nearly 30% of investors had absolutely no idea that they paid any fees for their retirement plan. Continue reading →

Should Bonds still be part of your Portfolio?

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Dear Mr. Market –

BondsWe are only a little over half way through this year yet you have already taken investors on a very interesting ride.  From posting impressive results through the first half of the year and then allowing volatility to enter the market through various headlines and worldwide economic news you’ve certainly kept us all on our toes.

As investors look at their portfolios and their performance results we have seen one alarming statistic over the last month and half.  In June alone individual investors took over $80 billion dollars out of their bond positions!  Investors moved out of their fixed income positions quickly due to rising interest rates and to chase the impressive returns that the equity markets have been posting.  Bonds are often treated as the ugly stepchild of investing but we find that they are typically not truly understood by the majority of investors.  Lets take a moment to get a better understanding on the basics of fixed income investing and more importantly how and why they have a place in your portfolio.

 Bonds/Fixed Income 101:

In their most basic form bonds are essentially a promise to repay money, with interest, on a certain date in the future.  Think of them as an IOU where the borrower is obligated to pay the lender (the investor) a specified amount of money at regular intervals and then to repay the principal amount at the bonds maturity date.  There are several different types of bonds available in today’s market, the following bullet points will focus on the most common ones: Continue reading →