Casull Financial Advisory - RIA (Registered Investment Advisor) Member of Finra & SIPC
An example of our portfolio strategy for clients Tuesday Oct 4 2016
The BOND or Fixed Income Allocation:
Take your investment account statement and look at that pie chart representing your current allocations, the portion allocated to BONDS/Fixed Income specifically. This allocation is allegedly the SAFE portion of the allocation, and although my firm uses bonds too, I hesitate calling them safe....
Prior to the 2008-09 economic crisis, bonds yielded (yield & safety are what bonds are all about) approximately 2% annually. Going into 2009 bond fund values went down about 16%, and since have yielded approximately 1.7% annually. The standard fee Advisors charge is 1.5% annually, although several trade publications are encouraging Financial Advisors, that due to the shortage of experienced Financial Advisors, fees could be going up to 2.0+% in the near future. Now if the BOND allocation portion of your total portfolio is yielding 1.7%, and the Advisor is charging 1.5%, you're only making .25% per YEAR on this portion! Is this really safe in the true context of the word "SAFE"? Remember that allocation also got hit 16% during the downturn. And yes, the bonds recovered quickly, but so did the equity market.
I also use a bond allocation, but in a strong market most of the allocation is in equities, and when the market hits highs, I take a block of the equity position and put into bonds, thus locking in that portions gains. If the market goes higher, I add more to the bond allocation. And when the market takes a 10% downturn, I take half of that bond allocation and buy back into equities. If the market goes down further, I will take more of the bond allocation into equities. This strategy turbo charges the account performance as the market comes back up, and lessens the account losses during downturns.
Keep in mind, no one can predict the TIMING of when the highs and lows will occur. When certain indicators start to flag, TRULY experienced analysts NOT salespeople, will implement changes based upon this information. If you're driving and a Deer jumps out in front of you, don't you try to avoid it if possible?
When I meet with prospective clients I see the poor performance of their accounts. In every instance I see accounts that were placed in an allocation at the start, maybe a feeble attempt at 'rebalancing' occurred, but for the most part, any management of the assets was tasked to mutual funds.