Money Managers Live

What is your investment risk tolerance?

Written by Dave Young, President of Paragon Wealth Management

Other than selecting a good investment strategy, the single most important issue affecting your investment success is your ability to properly select your risk tolerance.

Simply put, your risk tolerance is the amount of stress you experience when you account declines. How long can you walk the "stock market tight rope" without falling off?

In other words, how do you feel if your account declines five percent? How about 10 percent? What about 20 percent? If you invest too aggressively for your risk tolerance, then at some level of decline you may reach a breaking point.

If your risk tolerance is set too low, you won't generate the returns you should. If it is set too high, should market conditions become difficult, you will likely close your account and miss out on superior long-term returns.

Risk tolerance needs to be set at the right level for each individual investor. Couples should each take the test individually, and then combine the results to identify what both individuals will be comfortable with.

Determining your risk tolerance can be difficult. Click this link- risk tolerance questionnaire to complete a short questionnaire that will help you identify yours. Once you have completed the questionnaire, one Paragon's wealth managers will go over the results with you.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.   

Staying Focused

Written by Nathan White, Chief Investment Officer

photo by Rene Ehrhardt

Right now our investment models are favoring areas such as emerging markets and resource-based sectors. Emerging markets are showing good relative strength and are improving based upon confidence that the global economic situation is improving.

Areas such as Brazil and China are benefiting from the commodity demand theme as their middle classes continue to grow. These areas were also less exposed to the credit crisis.

Improving economic prospects along with the increased global demand for commodities directly benefits resource-based sectors of the economy. We have been allocating towards these areas, and now that we are in the summer doldrums we will look for further opportunities to average into these areas on any pullbacks.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.   

Seeds of recovery unfolding

Written by Dave Young, President of Paragon Wealth Management

photo by Tico

As a follow up to the Seeds Of Recovery? as seen in Paragon's 1st Quarter 2009 Print Newsletter, in which we made the case to take positions into areas that move the best after a bear market bottom, I wanted to show you how this current recovery is unfolding.

As we predicted back in March these areas include asset classes such as small and mid cap, sectors including technology, consumer discretionary, industrial and emerging markets such as Brazil and China. Shown here with their actual returns between March 9th and June 15th, are the sectors we slated to have the most potential.

Financial - Up 94.1%

Industrial - Up 49.9%

Materials - Up 48.7%

Consumer Discretionary - Up 45.9%

Technology - Up 43.3%

By comparison, a traditional portfolio would include all sectors, such as those below. As you can see, it does not make a lot of sense to hold those sectors that historically do poorly after a bear market. During the same time period their returns are as follows:

Utilities - Up 22.1%

Consumer Staples - Up 18.2%

Telecom - Up 17%

Health Care - Up 13.9%

Investing in the sectors that historically perform the best after a bear market has produced exceptional results so far. We believe that this is an opportunity that comes along two or three times in an investor's lifetime and that there is much further potential out performance to be achieved as this cycle progresses.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.    

American Finances

Written by Nathan White, Paragon Chief Investment Officer

photo by agilitynut

There is currently a lot of talk about what the implications will be for all of the government involvement in the economy. To help put things into perspective I thought it would be good to take a look at the current condition of the country's finances. I am not a doom and gloomer, but I think it is always helpful to know the facts in order to put things into perspective.

• $56.4 Trillion - Current Liabilities and Unfunded Promises of the Unites States Government

            This equates to $483,000 for every American household!

• $11 Trillion - Current National Debt

            50% held by foreign countries and the other half held by the public

• $1.7 Trillion - Projected 2009 Budget Deficit

            The largest as a share of GDP since World War II

In order to service all of these liabilities the government will have to take more from the private sector which means slower economic growth than there otherwise would have been. 

It does not mean that we wont grow (which is why I'm not a doom and gloomer!) but just that the growth will come at a slower pace on average.

Avoid Large Losses: Part II

Written by Dave Young, President of Paragon Wealth Management

 

photo by tatoodjj

It is constantly proclaimed in the media that we are experiencing the worst economy since the great depression. I agree that the economy is bad and the investment markets have been terrible. However, to compare this downturn with the great depression is like comparing the Vietnam War with World War II. Both were horrible wars, but when you look at the actual statistics, there is no comparison between the two.

In our booklet, Seven Steps for Building Wealth, the fifth step is "Avoid Large Losses". This post will discuss what that means for investors today, who are investing during this difficult time.

From January 1998 through May 2009 our primary portfolio, "Top Flight", generated a total return of 276% versus only 15% for the S&P 500. Investors often assume that since our returns are high our portfolios must take more risk than normal. Actually the opposite is true. Much of our excess return has been generated by avoiding large losses.

In the most recent market cycle, From January 1, 2007 to May 31, 2009 the S&P 500 lost 31.6% of its value. Most investors have done even worse because of their allocation and the cost associated with their investments. During that same period of time, our actively managed Top Flight portfolio is down only 14.9%.

We are never happy to have negative returns. Our objective is to minimize losses wherever possible.  This bear market has been more difficult for us than any of the previous ones.

To truly compare performance the most important question to ask is "How much of a return is needed by each investment strategy, in order to make back your money and get back to even?"

Calculating percentage returns is different than most investors realize. For example, if you have a 25% loss then you need 33% to get back to even, which is workable.  If you lose 50% of your portfolio, you have to make 100% to get back to even, obviously a much more difficult task.

I'll compare our flagship portfolio, Top Flight, to the S&P 500.  For Top Flight to get back to even and recover its 14.9% loss it only needs to earn 17.5%. For the S&P 500 to recover its 31.6% loss, it will need to earn 46.5% to get back to even. As you can see, the size of the loss has an exponential negative effect on an investor's ability to recover. It will take investors in the broad market (S&P 500) almost three times more effort just to get back to even.

Step number five, Avoid Large Losses, seems pretty straightforward and simple. Actually avoiding losses is much more difficult when investing real money. That is why it is so important that investors follow a disciplined, non-emotional, proven strategy if they hope to succeed over the long term.

Complimentary Webinar: Is your portfolio positioned for recovery?

Join us for a short, 30 minute, complimentary webinar about how to position your portfolio for recovery.

WHEN:  Thursday, June 11

TIME:  12:00-12:30 p.m. MDT

COST:  There is no cost. It is complimentary

WHERE:  Online (at your home or office) 

TOPIC:  How you should position your portfolio for recovery

R.S.V.P.:  Click on this link Paragon Wealth Management to register

CONTACT:  Shannon 800-748-4451 if you have questions or need more information

Wealth Management Tips

Written by Dave Young, President of Paragon Wealth Management

 
photo by mandj98

Investment markets perpetually cause investors to do the wrong things at the wrong time when it comes to wealth management. Most mistakenly follow their emotions and act with their heart rather than their head. Below are examples of conversations I had last week with investors searching for better alternatives.

Comment:  "I'm really nervous about my investments. I've never really paid much attention to them, but I have decided that I need to do something."

Response:  "Don't just do something because you feel the need to act. Make sure your actions are strategic, make sense, and will improve your situation over the long-term. Doing something just to do it is usually a mistake, especially when you are investing.

Comment:  "This really nice man told me about an annuity that guarantees 7%, but if the stock market goes up, I'll get the benefit of that also."

Response:  These annuities are popular right now because they provide the illusion of safety, guarantees and market upside. In other words, they provide the best of all worlds. If they really provided the benefits they claim they would be great products.

If you read the prospectus rather than the sales literature, you will find their terms extremely confusing. Their prospectus is full of disclaimers and requirements that must be met in order for them to work. Most lock up your money with surrender charges that force you to stay in them for 7 to 10 years.

Why would anyone want an investment that forces you to stay invested in it for seven to 10 years? Good investments allow you to come and leave when you want. They stand on their own merits.

Comment:  "I talked to a financial advisor at Vanguard and they told me that I should put my money in their index funds because they have the lower costs and will participate in the market upside if the market goes up."

Response:  "Unlike the annuities mentioned above, their accounts actually should go up if the market goes up, which is positive. The negative side to it is that over the past 10 years, the S&P 500 and most other broad based index funds haven't returned anything to investors. To get a return of "zero" for a really low price doesn't provide much benefit. Look at the investments total net return over time, not just the internal costs.

Comment:  "I'm going to put my money into a CD because it is safe.

Response:  "Don't lock your money up at a fixed rate when interest rates are at multi-year lows. There are much better "safe" options available. Only lock your money up at fixed interest rates when the rates are relatively high.

Bottom line... Always follow a long-term, disciplined investment strategy when you invest.

Introducing our new Director of Client Services

We would like to welcome our new Director of Client Services, Elizabeth Michalek.

Trudy, our former Director of Client Services, will continue to provide administrative and back office support. If you have questions or need assistance, Elizabeth is the one to call. Her responsibilities will include processing client paperwork, generating statements, and responding to all client inquiries.

Elizabeth's background is in the financial services and insurance industries. She has over 8 years of experience in customer relations, business development, and marketing. She has a bachelor's degree from Brigham Young University and holds her Series 7 & 63 securities licenses.

Elizabeth enjoys scrapbooking, cooking & menu planning, being a mom, and exercising.

We are excited to have her as part of our team!

Green Shoots?

Written by Nathan White, Paragon Chief Investment Officer

 
photo by gaetan lee

The term "Green Shoots" has been used a lot lately in the financial press in reference to signs that the economy is or might start showing signs of life.

Financial markets went to the extreme in pricing a worst case scenario during the sell-off leading the March 9th low. There was so much pessimism from investors, economists and analysts with nearly all becoming convinced that the markets would just continue to get worse ad infinitum. It was about as close as you can get to total capitulation.

Once the vast majority had given in to this mindset the market did what it does best -- reverse course.

The subsequent rally was in large part a realization that the world was not going to end. Now to compound the problems for those who missed out on the rally is the appearance that many leading economic indicators have begun to turn.

Is it possible that the recession, which at 17 months is the longest since WWII, could end sooner than most think?

WEBINAR

Is your portfolio positioned for recovery? If not or you aren't sure, you should listen to Paragon's webinar on May 27.

WHEN:  Wednesday, May 27

TIME:  12:30-1:30 p.m. MDT

COST:  There is no cost. It is complimentary

WHERE:  Online (at your home or office) 

TOPIC:  How you should position your portfolio for recovery

R.S.V.P.:  Click on this link Paragon Wealth Management to register

CONTACT:  Shannon 800-748-4451 if you have questions or need more information

Why Financial Advisors have no Confidence in Washington

Written by Dave Young, President of Paragon Wealth Management

 photo by Seansie

Smoke and Mirrors...

Politics and religion are two subjects we try not to discuss on this blog because we realize they are often more emotional than fact based and can be offensive to some of our readers.

Avoiding politics has been difficult this year because it seems that the center of the financial universe has recently moved from Wall Street to Washington. The continuous daily news updates from Washington have had much more impact on our financial markets than ever before.

I find it interesting that while 60% of Americans approve of how Obama is doing, a recently released poll of financial advisors showed that only 36% of them approve of his performance so far. Even worse, 68% said they have no confidence in his ability to "fix" the ailing economy.

Why is there such a difference between the ways that most citizens see the new president versus most financial advisors? In part, I believe, because financial advisors base their perception more on "the numbers" than "the personality".

For example, last week President Obama held a press conference on the U.S. budget that was recently passed by Congress.

The budget was 3.6 trillion dollars.

Since one trillion (1,000,000,000,000) equals one million times one million -- 3.6 trillion is beyond the grasp of most people's understanding. So they ignore it.

As last week's budget press conference, President Obama's entire focus was that he is taking us into a NEW ERA OF RESPONSIBILITY. That is what they have named this massive spending bill. To make his point, he spent the entire press conference focused on the 17 billion dollars he was going to save through his new polices. No mention was made of the 3.6 trillion dollar budget or the 1.2 trillion dollar deficit that it would create.

The 17 billion dollars in savings that was the focus of the press conference is equal to one half of one percent of the entire budget. That would be like buying a car for $100,000 and then getting excited about saving $500. Never mind that the car cost $33,000 more than you had available to pay for it.

This is why financial advisors, (people that work with numbers) don't have a lot of confidence in what the President is doing. What he does compared to what he says just doesn't add up.

Sources:  May 8, 2009 Investment News, and www.whitehouse.gov.