Some Thoughts on One of Life

Posted January 31, 2008 by admin. tags:Tags: , , , , , , , , , ,

Written by Dave Young, President

For people who invest (and even people who don’t), taxes have always been a hot topic. Unfair taxation caused many of our forefathers to abandon England and start their own country—and eventually hold a certain famous tea party in Boston Harbor.

Fortunately, we don’t have to resort to such drastic measures today, but taxes are still an emotional issue. Just look at what you’re up against: You work hard to earn a paycheck. But before you ever see the check, you give a portion of it to pay state and federal income taxes. Then you pay social security and Medicare. After you deposit the rest in your bank account, you still have to pay sales tax on anything you buy. Then, you’ve got property taxes, taxes on your cars, taxes on gasoline, and the list goes on and on. Finally, when you die, you get taxed on whatever is still left of your estate. In other words, you get taxed when you earn it, spend it, and ultimately die with it.

We’ve all participated in more than a few heated debates about who should pay more taxes and who should pay less. The only agreement I’ve ever heard regarding taxes is that someone else should pay them. With all of the rhetoric and emotions surrounding taxes, I decided to find out who really pays the most taxes. Here’s what I found out:

The Top 1% of income earners pay 34 % of all taxes
The top 10% of income earners pay 66 % of all taxes
The bottom 50% of income earners pay 3 % of all taxes

Studies by the Tax Foundation show that about 136 million income tax returns were filed in April. Of these, about 43 million families will show no tax payable. Since another 15 million families file no returns at all, about 58 million Americans will pay zero tax.

This means that 40 percent of all Americans pay zero taxes.

I found this interesting, because many popular media outlets love to preach about how the rich are not paying their fair share of the taxes in this country. There has also been a great deal of discussion about how recent tax cuts are unfair, because they benefit the rich. The reality is that they do benefit the rich, but that is only because the so-called rich (anyone with a middle-class income or better) already pay the bulk of all of the taxes.

This write-up from Growth Stock Outlook reprinted in The Chartist service was an interesting presentation. I hope you find it entertaining.

Let’s put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this. The first four men — the poorest — would pay nothing: the fifth would pay $1; the sixth would pay $3; the seventh $7; the eighth $12; the ninth $18. The tenth man — the richest — would pay $59. That’s what they decided to do.

The 10 men ate dinner in the restaurant every day and seemed quite happy with the arrangement — until one day, the owner threw them a curve. “Since you are all such good customers,“ he said, “I’m going to reduce the cost of your daily meal by $20.” So now dinner for the 10 only cost $80. The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six — the paying customers?

How could they divvy up the $20 windfall so that everyone would get his ‘fair share’? The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would end up being “paid” to eat their meal. So the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59.

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20, “ declared the sixth man. He pointed to the tenth. “But he got $7!” “Yeah, that’s right, “ exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got seven times more than me! “ “That ‘s true!” shouted the seventh man. “Why should he get $7 back when I got only $2?” The wealthy get all of the breaks! “

“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!” The nine men surrounded the tenth and beat him up. The next night he didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They were $52 short!

It’s an interesting story that provides food for thought. The one positive takeaway from this article is that if you are paying too much in taxes, then you must be doing something right.

Why Investors Should NOT Listen to Market Forecasts

Posted January 24, 2008 by admin. tags:Tags: , , , , ,
Stock Market Cartoon

Posted by Dave Young, President

A few weeks ago I wrote a post called, “Market Forecasting:  Investors Beware.” I talked about how economists and stock market gurus seem to be consistently wrong, and I provided numerous examples to make this point. In the January 14, 2008 edition of By the Numbers from Direxion Funds, they published a report showing how the forecasters did last year. The year 2007 appears to be a different year, but the same story. One thing the forecasters can claim is consistency because they are consistently WRONG!

* The average prediction made on January 1, 2007 by 58 Wall Street forecasters for the yield on the 10-year Treasury note as of year-end 2007 was 4.88%, an increase of +0.17% over its 4.17% level from December 31, 2006. Instead the actual December 31, 2007 yield did not rise from a year earlier, but fell to 4.02% (source:  BusinessWeek).

* 82% of money managers believed in late December 2006 that long-term interest rates in the US would be “unchanged or higher 12 months later.” The yield on the 30-year Treasury bond was not “flat to higher” but rather declined from 4.81% to 4.45% during calendar year 2007 (source:  Merrill Lynch).

* 56 economists who were surveyed in mid-January 2007 predicted that the average price of oil would be $58 a barrel in the 4th quarter 2007, down $3 a barrel from its $61.05 price of 12/31/06. However the price of oil did not fall but rather rose +57% during 2007, closing last year at $95.98 a barrel (source:  USA Today).

* The S&P 500 was up +9.2% YTD (total return) through Friday July 20, 2007, closing at 1534. The headline in Barron’s over that weekend stated “It’s Still Time to Buy” forecasting an additional +6% rise to 1625 by December 31, 2007. Instead the stock index fell 4.3% to finish 2007 at 1468. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source:  Barron’s).

* As of Labor Day Monday last year (Sept. 3, 2007), there were just four months remaining in the calendar year. The S&P 500 had closed the previous week at 1474. Barron’s asked eighty equity strategists to predict where the S&P 500 would finish the calendar year. Seven of the eight saw a rising stock market by year-end with one prognosticator foreseeing a December 31, 2007 value of 1700. The S&P 500 actually finished the year at 1468. (source:  Barron’s).

Also, from a long term historical perspective here is some more interesting “market forecast” trivia. This is also courtesy of Direxion’s “By the Numbers” publication.

* On the morning of October 19, 1987, the trading day that ultimately resulted in the largest one-day percentage loss in the history of the S&P 500, the Wall Street Journal ran a front-page article with the subtitle “Some Stay Bullish, Believing Downturn is Temporary.” The S&P 500 fell 20.5% that day (source:  Wall Street Journal).

* On August 13, 1979, BusinessWeek ran a cover story titled “The Death of Equities.” The S&P 500 closed at 107 on August 13, 1979. The S&P 500 closed calendar year 2007 at 1468 (source:  BusinessWeek). Apparently equities didn’t die…

* At the close of business on Wednesday October 9, 2002, the S&P 500 bottomed at 777 before beginning a bull market run that gained +101% to peak at 1565 on October 9, 2007, exactly five years to the day after the bear market bottom. The headline in the business section of USA Today on Thursday morning October 10, 2002 was “Where’s the Bottom, No End in Sight” (source:  USA Today).

The moral of the story is that forecasts make interesting conversation and trivia. Just don’t use them to try to make money.

Salt Lake Tribune Article: Investment jitters? Here’s how to survive the market rollercoaster

Posted January 23, 2008 by admin. tags:Tags: , ,
The Salt Lake Tribune Logo



Written by Tribune Staff and Wire Services

January 23, 2008

Wall Street struggled to steady itself Tuesday, with the Dow climbing back from a 465-point plunge to a loss of 128.11 after the Fed announced an unprecedented interest-rate cut. Many worried investors are expected to switch from equities into bonds or cash, but experts warn against such panic moves.

How do I avoid panicking?

“Short-term traders might have reason to panic. People who have a long-term perspective know markets go through cycles. But it’s hard not to be afraid when the markets are so volatile.” –Sterling Jenson, Wells Fargo Capital Management

“Markets go up and down. Keep in mind that emotion is a big part of financial markets. Sometimes you have to swallow and sit tight.” –Jeff Thredgold, Zions Bancorp

“The best way is to have a strategy in place. The way the markets works, this is guaranteed to happen again. The essence is don’t get sucked into acting on the emotion of the moment.” –David Young, Paragon Wealth Management

How concerned should I be about the stocks-based portfolio in my 401(k)?

“There always should be a healthy level of acknowledgment of the risk when you are involved in stocks. But I think people in their 401(k)s should remember that over the long term stocks do provide the best return, as long as they continue adding money and dollar-cost averaging.” –Jenson

“We do this every 10 years. We did it with the crash of 1987. We did it with the Asian financial crisis of 1997. Ten years from now we’ll do it again. Investing in 401(k)s is by definition long-term investing. We may go lower for a while, but I think a year from now we’ll talk about stocks that are higher.” –Thredgold

“If you’ve got a short time frame, less than three years, you probably should be concerned because you need the money in the near future to live on. But if you have a longer time frame, then I don’t think you should be concerned at all because over three to five years things work out.” –Young

Can the country spend its way out of this downturn, as the economic stimulus packages proposed by President Bush and others would suggest?

“I think [the Fed’s] rate cut will be far more stimulative than the spending package in restoring confidence and helping us to avert a recession.” –Jenson

“We will get some kind of stimulus. Given what the Fed did today, it’s probably going to be larger than $150 billion. Even at $150 billion, it’s just 1 percent of Gross Domestick Product. It can provide some temporary boost in the economy [but] excesses that have built up over the last five years, you don’t solve in three or four months.” –Thredgold

What are the safest investment havens, short term and long term?

“If you want to be truly safe, you are going to be in short-term U.S. treasuries. Or you are going to be in bank CDs that are insured or in money market funds where you have a guarantted principal value. Long term, if you are into stocks or real estate, you are always subject to principal fluctuation, so there really are no long-term safe havens.” –Jenson

Short term would be any FDIC-insured bank deposit. Long term requires a two-year Treasury note. Bank CDs. If you can find something in the 3 to 4.5 percent range over the next two or three years, that would look pretty good.” –Thredgold

“The safest short terma re 90-day Treasury bills. As far as long term, I’m not sure there is such a thing.” –Young

Is ther any way to know whether this contraction in the economy will be mild and short or deep and long?

“At this point it’s anybody’s guess. Most economists are putting a 50-50 percent probabilty that we are going into a recession that could last over the course of the next year. Our best guess is that we will not go into a recession at this point. We could have a quarter or two of muted economic growth, but then we see strengthening of the economy going into 2009.” –Jenson

“There is not. It’s a crap shoot right now.” –Thredgold

“There is probably no way to know. My guess is that it’s short. So far this recession is basically something that we’ve talked ourselves into at this point. The economic numbers don’t justify a recession.” –Young


Posted January 22, 2008 by admin. tags:Tags: , , , , , , , , ,

Written by Dave Young, President

Once an investor has accumulated capital and implemented a good investment strategy, then the final and most important piece of the puzzle is patience.

In 2006, Top Flight had an off year versus the S&P 500. Historically Managed Income and Top Flight haven’t underperformed very often. However, when they have, that hasn’t been a good time to change strategies. For example:

*  In 1999 Top Flight earned 3% less than the S&P 500, but then the following year it gained 71% more than the S&P 500.

*  In 2002 Top Flight had its worst year ever, losing 13.6%, and the next year it gained 50.3%.

*  In 2002 Managed Income underperformed its benchmark, the Lehman Bond Index. The following year it gained 25.4% more than the Lehman Bond Index.

*  In 2006 Top Flight had an off year earning 5.9% versus 15.8% for the S&P 500. The following year (2007) Top Flight earned 16.9% tripling the S&P 500 (see our track record for full disclosures).

Past performance is not a guarantee of future results, and there are no guarantees in this business. According to our track record, every time we have underperformed, our performance has exceeded the benchmark the following year, quite significantly in most cases.

Copyright 2008 Paragon Wealth Management

The Year 2007 in Review

Posted January 17, 2008 by admin. tags:Tags: , , , , , , , , , , ,
Happy New Year

Written by:  Dave Young, President

Once again, we are at the beginning of a new year. Each year seems to pass by quicker than the previous. In 2007, the markets started strong with a lot of optimism. The optimism disappeared when the market dropped in March, because the Dow lost about 700 points and found itself just above Dow 12,000.

Just as everyone was beginning to question their optimism, the market rallied off of the March lows, and by April reached Dow 13,000 for the first time. By mid-January the Dow was knocking on Dow 14,000. Everyone was euphoric, and according to our sentiment models, most investors thought the market would continue its upward climb.

As usual, once everyone is in agreement about where the market is going, it goes in the opposite direction. The sub prime debt problems became a serious issue in July and August, and the market sold off once again. This time the Dow fell again, but hit higher lows than the March sell off. The Dow sunk to 12,7000.

This is when things became interesting. The media was in full swing with their pitch that the market is “always” horrible in September and October. Clients called us and wanted to be taken out of the market because of the recent sell off and all of the doom and gloom in the press.

Not surprisingly, the market performed the way it usually does in order to make the majority of investors wrong. In what are traditionally the worst two months of the year, September and October, the market instead rallied. During the historically worst months to invest, the market put together its strongest rally of the year peaking back at just under Dow 14,200.

The credit fears and worries about the strength of the economy pushing the market down came back again, and the Dow finished the year at 13,264.

The broadly watched, large cap DJIA gained 8.7% for the year. The S&P 500, which is also more representative of the large cap U.S. market, gained 5.5%. The Russell 2000 which represents 2000 small cap stocks lost – 1.6%. Finally, the Value Line Geometric Index, which is the broadest based index and represents 1,626 stocks, declined -3.8%. Overall, depending on where you were invested, it was a marginal year for many investors.

Paragon Top Flight Portfolio

Our Top Flight Portfolio had an exceptional 2007 returning 16.98% versus 5.5% for its benchmark, the S&P 500 (See track record for full disclosures).

How did Top Flight generate such good returns in a year when the major market indexes were just slightly positive or and even negative?

There were three reasons why we were able to triple the return of the S&P 500 benchmark this year.

1- The change from mutual funds to Exchange Traded Funds (ETF’s) boosted our returns. Because mutual funds are generally broader based, in the past they made it more difficult to “dial in” exactly where our models are pointing, and there is no slippage. Also, the ETF’s allow us to follow our allocation models with exactness because unlike mutual funds, we don’t face early withdrawal fees or penalties.

2- Our Allocation Models signaled opportune times for us to reduce and increase exposure  during  2007. Twice, at opportune times, we reduced exposure from 100% invested to 56% invested. These allocation changes benefited our returns.

3- Our Focus Models pointed us towards the areas of the market that showed the most strength. We experienced additional gains by following our Focus Models recommendations and investing in natural resources, emerging markets, Brazil, Canada, Australia, and Europe. Our limited exposure to the U.S. market was positive for Top Flight.

Top Flight portfolio recently completed 10 years of performance from December 31, 1997 through December 31, 2007. During this period, Top Flight generated a total return, net of all fees, of 417% versus 77.4% for the S&P 500. Its compound annual return is 18.03% versus 5.95% for the S&P 500 (see track record for full disclosures).

In the investment industry, 10 years is significant. Almost anyone can get lucky and have an exceptional year. If you see three years of good performance, investment advisors will start to notice. A five-year track record is even better. To generate 10 years of exceptional performance is even more meaningful.

I have sat on several industry panels where other “experts” have argued that active management doesn’t work. I believe that Top Flight’s 10-year track record indicates otherwise.

Managed Income Portfolio

Managed Income returned 2.24% for the year (see track record for full disclosures). It performed well from a relative standpoint, but not so well from an absolute standpoint. So what does that mean… it sounds like investment mumbo jumbo?

From an absolute standpoint, 2.24% is nothing to get excited about. We could have put our money in a bank CD and done much better if we had known the return in advance. Unfortunately, no one announced last January how the year would unfold.

From a relative standpoint, Managed Income performed exceptionally well. The underlying asset classes that make up Managed Income were a minefield last year. Managed Income invests in real estate, convertibles, preferred stock, high yield bonds, treasury bonds, bank loan funds, dividend income funds, etc. It invests in all of the more conservative asset classes that generate income. Most of those asset classes struggled last year and anything associated with real estate ended the year down about 15 percent.

Relative to previously mentioned investment groups that Managed Income is forced to stay within; we will take 2.24% for last year and be pleased with it. The fact that Managed Income was able to even generate positive returns last year was noteworthy.

Also, keep in mind that Managed Income’s primary objective is to avoid losses. Its secondary objective is to generate the highest returns possible within the investment constraints of avoiding losses. In 2007 it met both of these objectives.

Longer term, since Managed Income’s inception on October 1, 2001, the portfolio has generated a total return of 76.33% doubling the 36.95% earned by its benchmark, the Lehman Bond Index. Its compound annual return is 9.63% versus 5.23% for the Lehman Bond Index.

Copyright 2008 Paragon Wealth Management

The Paragon Experience

Posted January 16, 2008 by admin. tags:Tags: , ,

Part of the Paragon Experience is visiting us in Provo, Utah. Our office is different than the typical money manager's or financial planner's. We have a nine and a half foot grizzly bear, a bobcat, and pictures of the outdoors on every wall. Dave is an avid hunter, and his office makes him feel at home. When you come to visit, it will be an experience you won't forget!

Photos courtesy of Utah Valley Business Q

What is a Fiduciary Advisor?

Posted January 10, 2008 by admin. tags:Tags: , , , , , , , , ,
Cartoon of a Judge

Written by:  Dave Young, President

In simple terms, a Fiduciary Advisor has a legal responsibility to put the client’s needs ahead of his or her own. There are a number of important differences that separate advisors who have fiduciary responsibilities from those that don’t.

Non-Fiduciary Advisors

It has been estimated that 90% of the people who fall into the category of financial advisors do not have any sort of fiduciary responsibility. They are also known as stockbrokers, insurance agents, or sales Representatives. They may hold various licenses, but since they are not fiduciaries they are often more interested in selling insurance and investment products than managing your portfolio.

Non-fiduciary advisors are compensated by commissions which are often the equivalent of years worth of management fees. And in the end, if you’re dissatisfied with your service, the only way to get out of the product is to pay a large surrender fee.

Titles for non-fiduciary advisors are unregulated, which means that these advisors don’t need to call themselves brokers or insurance agents, but can adopt titles like:  Advisors, Financial Consultants, or Financial Planners. They are not required to put investor interests head of their own, and as such as more interested in making “suitable” recommendations that involve selling a number of products.

These sales reps have limited disclosure requirements and are not allowed to have account discretion. And most of them receive a large commission upfront on the initial sale, which means they have very little incentive to continue helping the client.

Fiduciary Advisors

It has been estimated that only 15-20% of advisors have fiduciary responsibility, and are usually Registered Investment Advisors (RIA’s) or Investment Advisor Representatives. These advisors are registered with the SEC or the state security division (depending on their size).

These are acknowledged fiduciaries who provide ongoing financial advice and services. Compensation is on a quarter by quarter basis for continued services, and ends if the investor is dissatisfied and chooses to leave.

An advisor with fiduciary responsibilities is held to a higher ethical standard and should have the knowledge to provide sophisticated wealth management services and advice. RIA’s are licensed to provide ongoing financial advice, and fiduciary advisors are required to provide disclosure in their ADV’s.

The investor must always come first. At Paragon Wealth Management, we have a fiduciary responsibility to always put your needs ahead of our own, and live up to all of our responsibilities.

Copyright 2008 Paragon Wealth Management

Money Manager Quintuples S&P 500 Over 10 Years (Press Release)

Posted January 8, 2008 by admin. tags:Tags: , , , ,
2007 4th Quarter Track Record Graph

Written by:  Shannon Golladay, public relations
Paragon’s Top Flight Portfolio’s total return was five times higher than the index

Provo, Utah- Utah wealth management company, Paragon Wealth Management, had more than one thing to celebrate on New Year’s Day when they calculated Paragon’s Top Flight Portfolio’s performance numbers on December 31.

Paragon’s Top Flight Portfolio generated a total return of 417.34% versus 77.42% for the S&P 500 from its inception on December 31, 1997 through December 31, 2007. Its compound annual return is 18.03%, versus 5.95% for the S&P 500. (Visit to see complete track record and full disclosure.)

Dave Young, President of Paragon Wealth Management, and Nathan White CFA, portfolio manager, actively manage Paragon’s Top Flight Portfolio using two distinct sets of quantitative models.

One set measures market sector and style strength over various time frames, which determines where Top Flight’s funds are allocated. This is constantly adjusted depending on where market strength is coming from. The second set of models measures market risk. The portfolio’s long exposure is constantly adjusted depending on how much risk is perceived to be in the market.

“Many growth oriented portfolios simply take a more passive approach rather than actively looking for areas of the market that offer the most potential,” said White. “The success of Paragon’s Top Flight Portfolio is partially due to actively managing the downside risks.”

Paragon’s Top Flight Portfolio was created in late 1997 as the culmination of the best systems and models Paragon had used up to that point. Its investment universe includes the U.S. and International stock markets. This portfolio is suitable for investors able to tolerate exposure to the volatility of the broader stock market. It is actively managed, and will primarily move in and out of selected exchange traded funds (ETFs) based on Paragon’s quantitative models, which can change frequently depending on market conditions.

“We’ve been told that active management doesn’t work,” said Young. “We believe Top Flight’s last 10 years of performance indicates otherwise.”

Paragon’s principal objective of the Top Flight Portfolio is to generate superior absolute returns in rising markets while hedging against downside volatility in falling markets. While there is no guarantee of this goal being achieved, Paragon actively manages towards this objective.

About Paragon Wealth Management

Paragon Wealth Management is a money management firm located in Provo, Utah. With over 20 years of experience as financial advisors, they are dedicated to creating success for their clients. They manage retirement accounts such as IRA rollovers, 401(k) rollovers, pensions and trusts. Paragon has a fiduciary responsibility. Visit for more information.

An investor’s actual returns may vary due to timing of withdrawls, contributions and other factors. Past performance is no guarantee of future results. Before investing, contact Paragon to discuss your investment objectives, risk tolerance and fees. Investments in securities involve the risk of loss. The S & P index is a market-value weighted index comprised of 500 stocks for market size, liquidity, and industry group representation. It is not possible to directly invest in this index.

Copyright 2008 Paragon Wealth Management

Finding the Right Balance Between Risk and Reward

Posted January 3, 2008 by admin. tags:Tags: , , , , , , , ,
Man Surfing

Written by:  Nathan White CFA, Portfolio Manager

Investing is all about the trade-off between risk and return. Higher risk means higher potential returns. Lower risk means lower potential returns. There’s simply no escaping this fundamental fact, although some inexperienced investors work overtime to ignore it.

In my estimation, ignoring the trade-off between risk and return inevitably leads to poor results. I also believe it’s the number one reason people become frustrated with investing and ultimately fail to meet their goals. When new investors evaluate investments, they tend to focus on the potential return and tune out the risk. In many cases, they may not understand where the risk is coming from or what it means. Or perhaps they believe that if they don’t acknowledge the risk, it won’t apply to them. Either way, it’s a big mistake.

Facing risk doesn’t have to be a terrifying ordeal. In fact, evaluating risks versus potential returns is part of the decisions we all make every day—what route to take to work, what house to buy, what profession to pursue, whom to marry, what to have for lunch, and so on. When it comes to investing, understanding where the risks come from is essential. Overly aggressive investing leaves you vulnerable to greater losses, while ultra-conservative investing is also a risky strategy because of the gains you inevitably miss out on.

How much risk you’re willing to take on should be based on several factors, including your personality and stage in life. Those who are risk averse or are in a capital preservation phase of life (such as retirement) often want to stick with conservative savings instruments like CDs, savings accounts, or money market accounts because the risk of losing money is incredibly low. These products serve a useful purpose. However, the trade-off for these products is the low returns they generate. You are not being paid much because you are not risking much.

Let’s assume that you are in retirement and that you always invest in CDs because you like the steady, low-risk returns. Let’s also assume that CDs have averaged about 5% per year. Inflation, the measure of how buying power decreases over time, will effectively reduce your return by 2-3%, leaving you with only 2-3% left to withdraw without reducing the principal. For the vast majority of people, that isn’t much to live on. The trade off for reduced investment risk is an increased likelihood that you will not meet your financial goals.

As I mentioned earlier, the goal of an investment portfolio is to achieve the best possible returns for a certain level of risk. Paragon’s Managed Income portfolio seeks to achieve a lower degree of volatility and risk than our Top Flight portfolio or other more aggressive offerings. To accomplish this, we create different combinations of securities with different historical levels of volatility and return.

The Keys to Building Wealth

Posted January 2, 2008 by admin. tags:Tags: , ,
United States Money


Written by:  Dave Young, President

Once I was asked in an interview with Smart Money magazine about the single most important factor effecting investment success. I told the reporter that committing to and following a sound, long-term investment strategy is the key to success. Sounds simple, right? Yet most investors can’t describe their strategy because they simply don’t have one. Far too many people invest a little here and a little there based on what they’ve read or who they’ve talked to recently. They often bail out of the stock market after it has tanked. Or they buy real estate after they’ve had a great run. Or they invest in the latest hot product being promoted by brokers and financial planners.

Then, of course, there’s the recent “follow the newsletter” trend. Every year, Hulbert Financial Digest ranks the performance of investment newsletters. According to Hulbert, many investors have started basing their investments on the advice found in last year’s top-ranked newsletter. On the surface, it seems like a good idea. You’re following the advice of a proven winner, right? And it feels good to follow a winner.

The only problem is that like most “feel good” decisions in the investment world, it doesn’t work. At all. If you had taken $1,000,000 in 1985 and followed this brilliant strategy every year for the next 21 years, you would have a whopping grand total of $365 today. That’s an average loss of 31.4% per year. The moral of this story should be fairly clear: Twelve-month track records are an absolutely horrible guide to which advisors will perform well over the long term.

So what are the keys to a sound strategy for building wealth? Any successful investment strategy must:

  • Work over different time frames
  • Provide effective diversification—not just diversification for diversification’s sake
  • Work in both bull and bear markets
  • Be disciplined yet flexible and evolving
  • Reduce risk and provide downside protection
  • Have a good long term track record

After you develop a strategy that meets these criteria, it’s all about patience, self control, patience, and more patience.

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