Wealth Protect Status Update: July 2017
This is the monthly WealthProtect System* status update and includes the probability (Low, Mid, High) of a change in status within the next two months. Below is a commentary on actions taken this month as well as changes in overall asset allocation.
System Commentary
As oil and other energy assets rebounded, our portfolios re-entered into natural resource equities. One of the most frustrating aspects of rules-based trend following systems such as ours is when they give you "whipsaws" by triggering out only to trigger back in. It is frustrating, it sometimes reduces returns a bit, and it makes you wonder if it is all worth it-especially considering how great the plain vanilla US market has been. As a reminder, the purpose of our system is NOT to get 100% of the upside and avoid 100% of the downside (let me know if you find such a system!). Our goal, while not guaranteed, is to get 70-80% of the upside and avoid 70-80% of the downside. The "cost," if you will, is that sometimes the markets will move faster than the system can react, and sometimes there will be "whipsaws" that take you in and out with little to show for it. I have included two charts from our White Paper on this subject to illustrate the potential benefits. You can see in the first chart which covers 30 years that there were times in which this style of investing trails a buy and hold strategy. No strategy is effective 100% of the time. I encourage you to look at the second chart and ask yourself which line you would have preferred if you have been so unfortunate as to invest 100% of your money in the S&P 500 at the end of 1999 (you cannot, however, invest directly in an index)? If you would like a copy of the entire White Paper, please email us at armstrongwealth@lpl.com, and I would be happy to send you a copy.
Chart 4: S&P 500, 12/31/85-12/31/15 This shows the result for the S&P 500.
The Standard & Poor's 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The charts were derived from an Excel spreadsheet designed by Mebane Faber (mebfaber.com). The blue line (B&H) is the results of the index for buy and hold; the red one is for timing (equity curve in Meb Faber's lexicon) and the gray is for timing after fees of 1% annually. The "timing" checks the price of the index at the end of each month and if it is above the 12-month simple moving average, it is long the index for the next month; if it is below the 12-month simple moving average, it is invested in the 10-year Treasury Bond Index for the next month. The charts show the thirty year results of various indices from 12/31/85-12/31/15. This is a time-frame that includes a secular bull market and a secular bear market and several cyclical bull and bear markets within the secular cycles. It includes the crash of 1987, the dot com bubble and bust, the housing bubble, and the Great Recession.
Chart 5: S&P 500, 12/31/99-12/31/15
If we zoom into the 12/31/1999-12/31/2015 period, we can see the potential reduction of massive drawdowns more clearly.
The Standard & Poor's 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Market Commentary
I'll skip my comments on the markets this month as I think this email is already long enough.
*The Armstrong Wealth Management Group WealthProtect System is an investment risk control system designed (but not guaranteed) to limit significant losses in major bear markets (excess of 30% loss from market peak to market trough). It is NOT designed to prevent normal market losses (under 20%). No strategy can assure a profit or protect from a loss. Occasional false signals can reduce returns.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Stock investing involves risk including loss of principal. The prices of small and mid-cap stocks are generally more volatile than large cap stocks. All indices are unmanaged and may not be invested into directly.
International and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
Investing is Real Estate Investment Trusts (REITs) involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.
The fast price swings in commodities will result in significant volatility in an investor's holdings.
All performance referenced is historical and is no guarantee of future results.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.
Diversification does not protect against market risk.
The forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
The Standard & Poor's 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
