Wurz Financial Services - Retirement Planning and Investment Management

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Portfolio Management

How do I take advantage of growth in the stock market and protect my portfolio from the next prolonged bear market?

You want to remain aggressive and stay invested in the markets, but if you're retired or approaching retirement, you can't risk another devastating bear market like the 2008 financial crisis. You need to maximize the growth of your investments so you can fund your retirement spending and protect your portfolio from protracted declines. How do you accomplish both?

Traditional portfolio management, based on Modern Portfolio Theory, suggests investors should simply "buy and hold." This approach relies on diversification and a fixed percentage of bonds in a portfolio to reduce risk.

This approach has been relied on by advisors around the country for years and has been a fairly good approach since about 1980 when the bond bull market began. But we feel this approach is not best for individuals within 5-10 years of retirement or who are already retired.

Here's why:

1. Stocks and bonds are not always non-correlated. Most people believe that when stocks go down, bonds will go up and provide protection. But history has shown this is not always the case. In fact, much of the time stocks and bonds are positively correlated--meaning they move in the same direction.(1)

2. Diversification does a poor job of reducing risk in extreme market events. Diversification assumes that you can reduce risk by spreading your investments among many different asset classes. And most of the time this works pretty well. But during extreme market downturns, like the financial crisis of 2008, risk assets tend to become strongly correlated and move together.

3. Buy-and-hold relies on having LONG time frames and ignores the potential volatility of the market. Investors near retirement don't have decades to invest. They need to be aware of what can happen in the markets. Extreme events are more common than we like to believe. From 1900 to 2014, the best 1 year period of the S&P 500 was +121.1%. Not bad! However, the worst 1 year period in the market was -63.7%. Extended the time frame to 5 years doesn't help much. The best 5 year period for the S&P 500 was +34.1% annualized return. The worst 5 year period was -17% annualized. Combining stocks and bonds doesn't help much either. The worst 5 year period for a 60/40 portfolio was -7.9% annualized return. Investors who are near retirement cannot afford to average -7.9% for 5 years. That kind of negative return would devastate any retirement plan.(1) 

Surely, there's a better way!

There is.

We believe a dynamic and flexible approach

that can adapt to market conditions is a more prudent approach for retirees. 

To help our investors maximize the probability of meeting their goals and reduce the risk of not achieving them, we've developed five different investment strategies, which we blend together to create an overall portfolio for a client. 

 

Our Strategies

 

1. Adaptive Bonds Strategy - The primary focus of this strategy is preserving principal and to accomplish this objective, the strategy invests solely in fixed income. Even though we've spent a good deal of time above bashing bonds, having bonds in a portfolio can reduce overall volatility and may be appropriate for some investors. However, we don't just buy and hold the entire bond market. We use technical analysis to identify those sectors of the bond market that exhibit the strongest positive trends. We then use statistical analysis to combine these assets in a way that produces the lowest recent historic volatility.

2. Adaptive Equity Strategy - The goal of this strategy is to achieve growth, while attempting to minimize volatility and draw-down risk. This strategy may invest in any asset classes, equities or bonds. We will use technical analysis to identify those assets that exhibit the strongest positive trends. Similar to the adaptive bonds strategy, we will use statistical analysis to combine these assets in a way that produces the minimum recent historic volatility. By doing this, the strategy will be sensitive to volatility in the markets. When volatility increases, the strategy will reduce equity exposure and vice versa.  

3. Dynamic Momentum Strategy - The goal of this strategy is to maximize growth during bull markets and minimize exposure to bear markets. Like the adaptive equity strategy, this strategy may invest in any asset class, equities or bonds. We will use technical analysis to identify those assets that exhibit the strongest positive trends. Unlike the adaptive equity strategy, we are not concerned with volatility in this strategy and will simply invest in the strongest trending asset classes regardless of volatility, seeking to maximize growth.  

4. Focused Sector Strategy - The market is composed of various sectors, subsectors and industries. During any given year,
these sectors may perform differently from the market at large. Some sectors outperform the market and some sectors
underperform the market. In years the market's performance is poor or even negative, there may still be specific sectors that are profitable. Unlike a traditional stocks and bonds portfolio, this strategy seeks to take advantage of growth trends under the surface of the market. 

5. Leveraged Long / Short Strategy - The goal of this strategy is to maximize growth in all market conditions using leveraged or inverse funds. This strategy relies on three indicators to identify the overall trend of the market: bull-bear indicator (measured over a period of months to years), quarterly indicator (measured quarterly) and a short term indicator (measured over weeks to months). When all three of our indicators are positive, this strategy will invest in a leveraged fund or ETF to magnify the returns of the market. When the indicators are mixed, this strategy will invest in bonds or cash. When the indicators are all negative, this strategy will short the market using inverse funds or ETFs. Use of leveraged or inverse funds is not for all investors and may entail greater risk. 

 

Fees and Minimums:

Our portfolio management service includes ongoing retirement planning through our MoneGuidePro program and covered by a single annual fee, calculated as a percentage of assets invested. For multiple accounts in one household, we aggregate accounts together to determine the fee level.

  • 1.1% for households under $100,000
  • 1.0% for households greater than $100,000 and less than $1,000,000
  • 0.9% for households greater than $1,000,000 and less than $5,000,000
  • 0.7% for households greater than $5,000,000 and less than $10,000,000
  • 0.5% for households greater than $10,000,000

 

Want to learn more? We would love the opportunity to discuss our strategies in more depth with you. Call us at 888-510-2362 or use the link below to send us a message.

Contact Us

 

 

 

 

(1) Adam Butler, Michael Philbrick, Rodrigo Gordillo, Adaptive Asset Allocation (Hoboken, NJ: John Wiley & Sons, 2016).

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