Spreadsheets Can Destroy Your Investment Portfolio

Spreadsheets Can Destroy Your Investment Portfolio - by Larry Unterbrink, Dir. of Research

  A lot of portfolio back tests (and their resulting charts) are just silly. Any
moron can go into a spreadsheet to find what worked best in the past
(especially when cherry picking dates). But it takes some real thinking to
work out a strategy that can deal with future unknown risks.

  You can't optimize for returns going forward because you don't know what those returns will be. So anyone designing a portfolio based only on what worked best in the past is making a major tactical error with their investments. A mistake that could destroy a retirement plan.

  What I liked most about our "Forever" Portfolio is that it eliminates most risk. As a lifelong entrepreneur, I really believe that after 50 years of trading and investing, I understand the nature of the unknown and investing RISK. It's not about going into a spreadsheet, hand
picking some dates and blend of assets to see what did best, and then going out and
buying those investments. If investing were that easy we'd all be filthy rich!

  Rather, back-testing can really only show you what DIDN'T work well in
the past, so you can avoid repeating those mistakes, or at least be aware of
those risks. Back-testing can never prove something will work best going
forward. Also, back-testing will never show you extraordinary events, such
as civil unrest, unprecedented government intervention in the markets, inflation, etc.
These risks need to have some diversification applied as well and the
Forever Portfolio actually considers these risks that spreadsheet-only
portfolios do not.

  This is why I find it so absurd when some analyst or pundit claims that an
asset like gold is "worthless" in an investing portfolio because of some
biased spreadsheet work they did. I wonder if these people have ever gotten
far enough away from their spreadsheets to see how the world markets
really work?

  I have travelled to over 79 countries evaluating markets and
searching for investments and I can tell you that economies can move
quickly from good to bad and governments do stupid things all the time.

  Having some portfolio insurance like gold around is a really splendid idea.
YES, the Forever Portfolio holds gold, silver and diversifies with other
assets likes stocks (mainly ETFs) , bonds and cash. But what in history
suggests this is not a good idea? Show me the flaw!

  It doesn't matter what your chart is showed working best over a particular time period. The fact is that concentrating your bets is dangerous, and sometimes your stocks and bonds don't
payout on your timetable. This is just how life works. I am finding out more each day after
almost 80 years. Diversifying a little bit is prudent.

Using Charts Intelligently

  Investing charts are one tool investors have, but I think they need to be
used within their limits. Charts can't predict the future, but maybe they can
guide you away from notably bad ideas. Likewise, they can also be useful to
test out theories for big flaws you might have missed. Even then, they need
to be used with some judgement about the unpredictable future and the idea
that history has many ugly details buried within it that aren't simply
explained in a chart of spreadsheet data. When looking at investing charts,
just keep in mind that pretty colors and compelling growth patterns may not
be enough to prevent disaster if you don't use the data intelligently.

Give us a call if your would like a review of your investments and plans.
Larry Unterbrink, Director of Research
Stetson Wealth Management
Fort Lauderdale, FL
(954) 719-1151

Market Linked CD's

                                                                                     

Certificates of Deposit are paying interest at an all-time low! All except one: the Market Linked Certificate of Deposit.

Stetson Wealth Management is now offering Market Linked CDs to our clients. These CDs are issued by some of the world’s largest banks, are FDIC insured, and principle protected. The interest they pay is variable, often with a minimum guaranteed rate.

If you have CDs coming up for renewal, you owe it to yourself to check out Market Linked CDs.

To learn more about how you can keep the safety of a traditional CD while getting some upside market potential, please take a couple of minutes to watch this brief presentation by clicking the link below.
Thank You. ~Barry Unterbrink, (954) 719-1151

http://adisusa.net/Video/Consumer%20Direct.wmv
Here are the stocks for the JP Morgan Market-Linked CD for February.

Partying Like it's 1999

“…I’m gonna party like it’s 1999.” Music rock star Prince’s lyrics

 The stock market is again the talk of the town, evinced by the top billing news story on your network and cable news channels this week, along with the constant scrolling factoids across the financial channels CNBC and Bloomberg TV. It’s hip-hip-hooray that the stock market is approaching the all-time high set back in 2007; just above 14,000 on the Dow.

  Noticeably absent from the news and discussions, is that the NASDAQ stock market average is still 2000 points below its high set in March, 2000 - thirteen long years; it remains 40% below the 5,000 level posted at the painful end of the “dot-com” craze. So, if you had $100,000 on your statement then, you now have about $60,000; that’s not nice.  Negative news is often ignored by the media when a better story exists. Is this time ‘different” than the recent tops in prices in 2000, 2007? Those two near 50% declines were soul-searching. We have no crystal ball predictor on premises, but do advocate risk reduction strategies for our clients' money. So how can we learn something useful here?

  First off, be skeptical. I didn’t say negative or pessimistic. Just weigh the facts with your money against that. Admit that you are not perfect; not in your life, finances, relationships, etc. Nobody sells all out at the top, and then buys in at the bottom. Many had big money and big gains in 2000 because they took large positions and risks in stocks during a spiral, out of control, greed-fed market.   

  Second, realize that you don’t invest solely in a stock market index like the S&P 500 stocks, or the Dow Jones Industrial stocks, or NASDAQ stock index and hold the same investments year after year, so your "results may vary".  You could, but it’s not feasible and you may have limited options in your 401k or retirement plans, or maybe you think it is boring. Many times you won’t know what you actually own if you’re invested in stock mutual funds (hint: stock mutual funds normally hold some bonds and cash too).
 

 Once you ‘stray away” from the popular stock market index investing strategy with any of your money, you’re kind of back in the “wild west”, subject to different dangers – and opportunities – depending on your “bets” in this or that stock, bond or mutual fund. There often isn’t enough time to do the homework involved in this – that’s why money managers and mutual funds exist.

Third, it is critical to know what and how much you own - on a broad basis. Have the basic allocation of stocks/bonds/cash that comprise your investments in your head and written down. Almost 90% of your investment returns are due to the allocation of your money; not the individual securities. Don't assume that things will take care of themselves.

 You probably have the information at hand now from the December and year-end statements filling your mailbox the past couple weeks. It’s a good time to review them, putting the numbers down on paper or in a spreadsheet. Ask if I can help you set this up for you or review your statements/performance. No doubt, improvements can be recommended.

  I’ll soon be unveiling some new management programs that we’ve developed over the past year or so that should benefit you. They are low-cost, using a combination of index funds, bonds and alternative assets, metals, foodstuffs, etc., that have proven to reduce volatility, provide some income, and grow your money.

Be well and safe,
~Barry
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