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Portfolio Analytics Update

While it’s never fun to watch your investments go through declines, our recommendation is to follow the plan that we put in place for you and not let your emotions take over and derail your long term goals.  The reason for this advice is that, on average, 5 years after a market decline of this magnitude, the market has responded by compounding at 9-12% per year.  Additionally, if you miss the 10 best days in a 20 year period because you tried to time the market, your returns would be 67% less than if you just rode it out (despite the volatility)!

While we continue to encourage you to stay the course that doesn’t mean we should do nothing.  You may have noticed a few changes to the portfolio recently.  I wanted to share details on some of the actions we have been taking as a response to market volatility.  Where appropriate we have been doing the following:

  1. First, we took the opportunity to rebalance the portfolios, buying the assets that went up in price (the bonds) and purchasing the assets that have gone down in price, specifically U.S. Core, U.S. Small Cap and REITS.  We took advantage of the market volatility to buy great companies at very discounted prices, allowing for future growth.


  1. Second, we exchanged two International component funds for one Core International fund.  The Core fund allows you to continue participating in the dimensions of the market that we expect to see higher returns over time (small cap and value companies), but also giving you exposure to growth companies in these international regions.  The additional diversification will enable you to participate in all areas of the markets as they eventually recover.


  1. We also exchanged our Emerging Markets Value fund for the Emerging Markets Core Fund for the same reason as above.


We have been studying the historical returns, standard deviation and correlation of the international and emerging markets component and core funds for some time now and we believe the core funds will allow more broad exposure for higher growth potential.  We took the opportunity to incorporate this exchange with the rebalance.


Without getting too technical, the core funds have more underlying holdings in the funds.  You may remember us saying that the fund managers participate in securities lending, which adds to the overall performance of the funds as well.  Having more holdings in the portfolio allows for the potential for more securities lending opportunities and more income from the lending activity. It also cuts down on turnover and trading cost which both add to your bottom line performance.


  1. For Taxable accounts the exchanges allowed us to lock in losses to offset future gains, but still participate in the asset classes and in the market recovery.  This will help lower income taxes. For more information about tax loss harvesting please click here. 


We will continue to monitor your investments on a daily basis scanning for opportunities when they present themselves.


As always, please let me know if you have any questions.