With the market hitting new highs, this is another question that is regularly asked. When you look at the market over the long term it provides a different perspective. Currently, the broad stock market is back to where it was almost 13 years ago. In August of 2000 the S&P 500 hit a level of 1517. Then after seven years of ups and downs, in October 2007, the S&P 500 finally hit 1549. Then five and a half years after that, the S&P 500 hit 1514 again. The bottom line is that it has taken almost 13 years for the S&P 500 to get back to the level it was at in August 2000!
Stock prices are driven by their earnings. Earnings have increased over 300% since 2000 while stock prices haven't moved much. In my opinion, it appears that stocks are still a good value even though we are hitting new highs.
Managing Money is Difficult
Managing money is difficult. When you try to protect against downside exposure, often it hurts your upside return. Likewise, if you are too aggressive, then your account can be decimated in an extreme bear markets like we experienced in 2002 and 2008.
By way of example, some of the brightest and most talented money managers are hired by the large University Endowment Funds. The endowment funds for Harvard, Yale, Princeton, Stanford, Columbia and Notre Dame manage about 100 Billion Dollars.
Many of the high profile University endowment funds incurred significant losses in 2008. It is human nature to be more defensive after getting beat up. So how did these top managers adjust to their investments 2012 as the stock market hit new highs?
In 2012, the combined average return for these six endowments was only 2.63%.
The bottom line is that even for these top tier managers, with every resource and option imaginable, managing money is difficult.
Paragon Investment Portfolios
We have recently added some new portfolios to our menu of investments. Below is a brief description of each. Our investment process is to help you determine your risk comfort level then allocate your funds to an appropriate mix of the portfolios.
- Managed Bond Portfolio: This is a custom bond portfolio. Treasury, Corporate or Municipal Bonds can be managed. At this time we do not recommend this portfolio because the amount of risk taken in most bonds versus the potential reward is not prudent.
- Managed Income: This is our flagship, active, conservative portfolio created in 2001. It can invest in all types of bonds, convertible stocks, preferred stocks, utilities, real estate, alternative funds and cash. This portfolio has performed well in this difficult low rate environment because of its flexibility to move between and avoid various conservative asset classes.
- Paragon Private Strategies: This new diversified portfolio invests in private equity. It takes a conservative approach and provides consistent income by investing in income producing assets. It is only available to accredited investors.
- Core Portfolio: This concentrated portfolio focuses on two or three market areas that are at the top of our model rankings. This portfolio can be adjusted to any risk comfort level and is a relatively low cost alternative.
- Index Portfolio: This passive index portfolio is invested across a diversified mix of small cap, mid cap, large cap, value and growth strategies within the U.S. market. It is designed to be a low cost alternative that will track the U.S. market but provides no downside protection.
- Top Flight: This is our flagship active diversified growth portfolio and has been actively traded since 1998. It combines several of Paragon's best quantitative models. Those models include core, seasonality, relative strength and allocation models. This portfolio seeks to generate superior long term risk adjusted returns.
As always, we appreciate your trust in us and the opportunity to be your advisor. Please contact us if you have any questions or need assistance.