Category Archives: Building Wealth

Market Update & How Wealth Is Created

Posted January 29, 2016 by paragon. tags:Tags: ,
golden nest egg_opt

Written by Dave Young, President & Founder of Paragon Wealth Management

Market Summary

While the stock market made significant advances in 2013 and 2014, last year felt more like a repeat of 2011 when the market went nowhere. In 2015, the S&P 500 experienced its first 10% decline in four years.

There were some winning sectors with technology, health care and consumer stocks posting modest gains. On the other hand, commodity, mining and energy stocks were a train wreck. Large stocks beat smaller companies and U.S. stocks beat out international ones. This year’s gains were focused in a minority of stocks.

No asset class posted double digit gains. In the past 28 years, that has only happened one other time (in 2001).

China and Greece continued to create financial drama. Emerging markets had a terrible year. Generally speaking, most stocks and sectors were in decline. In 2015, if you broke even as an investor, it would be considered a success.

Paragon Portfolios

Managed Income portfolio spent its time avoiding trouble. Many of the conservative asset classes it invests in ran into difficulty. Managed Income declined -2.8% for the year. This is its first negative year since 2008.

While we are never happy with a negative year, we were pleased it was able to avoid much of the downside experienced by the underlying asset classes it invests in. It was playing defense all year long.

Managed Income’s return from October 2001 to December 2015 is 5.14% compounded, which equates to a total return of 101.7% net of fees. (Please click here for disclosures.)

Top Flight portfolio had a good year considering positive returns were hard to come by — and those returns were in a relatively narrow group of stocks. Top Flight gained 3.71% for the year versus 1.41% for the S&P 500. Top Flight’s compound annual return from January 1998 through December 2015 is 11.7% versus 6.26% for the S&P 500. Top Flight’s total return for that period is 613.4% versus 194.0% for the S&P 500.

Paragon Private Strategies Fund’s recent audit showed an internal rate of return of 14.3% for the period from March 20, 2013 through Dec. 31, 2014. Our relatively conservative private equity fund has performed well in this difficult environment. We are planning to open a second fund in 2016. Please contact us if you are interested in exploring this investment option and for required investor qualifications.

How Wealth is Created

Making money is difficult. After a difficult year like 2015, it is important to go back to basics, evaluate your situation and make sure you are on the right path.

As financial advisors, we provide a variety of financial services like retirement, estate and business planning. However, our focus has always been on managing investments. Why? At the end of the day, if you aren’t effectively building wealth over time, most aspects of your financial plan won’t matter.

So it begs the question. What is the best way to invest? How can you invest to meet your retirement goals?

Step one. Invest in things that increase in value. Currently, money markets, CDs, bonds and fixed annuities are not likely to gain much value. Interest rates are at historic lows, and those investments are tied directly to those low interest rates. After inflation and taxes, most of these investments are actually taking you backward.

In order to build wealth, you have to invest in things that appreciate over time. With interest rates this low, only stocks, real estate and direct business investments meet the criteria.

Step two. Enhance your return by buying when prices are low and things are cheap. Conversely, you should be reducing exposure when prices are high. Is this easy? Absolutely not. It is completely counterintuitive and requires you to ignore your natural “fight or flight” inclination.

This is why we have been holding so much cash for the past eight months. Our models showed that the upside was limited — there was too much risk for the potential reward.

Let me explain by highlighting a study published last year by DALBAR, one of the nation’s leading financial research firms.

The study found that over a 20-year period ending Dec. 31, 2014, the average equity-stock-fund investor posted an average annual return of 5.19%, which compares unfavorably to the average annual return for the S&P 500 Index of 9.85%.

Going back 30 years, DALBAR paints an even gloomier picture, with the average equity-stock-fund investor earning 3.79% annually versus the S&P 500’s average annual gain of 11.06%.

The reason most investors significantly underperform over time is because they constantly follow their emotions, which consistently puts them in the wrong place at the wrong time.

Rather than buying low and selling high, they do the opposite.

Step three. Reduce investment costs where possible. There is so much “junk” — i.e. prepackaged financial products sold to the retail investor. These products are sold by banks, brokerages and independent financial planners. They’re pitched at really nice dinner seminars. The excessive internal costs of these products make it difficult for the investor to gain the benefit of their underlying investment. With many of these products, it can take years, if ever, to overcome the internal costs.

Step four. Be patient — and this is the most important step. Stocks, real estate and direct business investments take time to play out. If you buy a quality stock or a property today, for a decent price, odds are that 10 years from now it will be worth significantly more than it is today. It will likely be worth much more than if you had invested that same money in a conservative investment.

The downside — and the part that trips up most investors — is that the investments that go up the most typically fluctuate the most. And that instability causes investors to bail out at the worst possible time and lose money.

This is why we recommend diversifying your portfolio with some conservative, albeit relatively unexciting investments. Each of our clients has an investment portfolio built to their specific goals and individual risk comfort level. While this is not necessarily the way to maximize returns, it is the way to maximize your return. We know if we can keep you invested for the long term, we can significantly increase your odds of meeting your goals and building wealth.

The concept is simple; the execution is difficult. But that’s why we’re here. We are committed to helping you reach your goals. Please call if you need help or have any concerns.

Disclaimer 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.

Why Use An Active Manager?

Posted January 28, 2015 by paragon. tags:Tags: , , ,
Senior investment officers

Because certain indexes have performed well over the past few years, those who promote passive investing are recommending that you follow the current fad and just buy index funds. Passive investing can be useful if it is done right. However, it can be dangerous done blindly. Passive strategies are fully exposed to the whims of the market and can expose investors to significant declines and risks. With this approach you must be aware that you will likely go through a 50% decline at some point.

Making money is difficult. Keeping your money is even harder. There seems to be ten ways to lose money for every one way there is to make it. To complicate things further, managing investments is counterintuitive. Research repeatedly shows that most people invest when they shouldn’t and don’t invest when they should. According to studies by Dalbar, for the 30 year period ending December 2013 the average stock market investor earned only 3.69% compounded versus 11.11% compounded for the broad stock market. Underperformance of 7.42% annually for 30 years is a huge penalty for the “average” investor to pay.

The bottom line is that if you do not have the time, resources, and expertise to manage your money then you are walking into a minefield. Over the years I have seen countless people lose their entire savings to bad investment decisions. Whether it be through leveraged real estate, misguided business ventures, poorly structured annuities, bad stock choices, expensive life insurance, loans to relatives, or even offshore investments, the end result is always the same. They lose their savings and what was once a good situation turns into a bad one.

Your success has brought you money. That money can be a blessing or a curse. If you manage it properly then it can help you simplify and enjoy your life by allowing you to do whatever is most important to you. If you don’t make good money decisions then it can bring you more grief than good.

Everywhere you turn there are different voices telling you how to invest. Financial news channels, magazines, insurance companies, infomercials, self-proclaimed experts, etc. There is no shortage of free advice. The problem is that most free advice is worth about what it costs.

Paragon has been guiding investors for 28 years. We have experienced, survived and thrived in some of the most difficult markets in U.S. history. Those very difficult markets include the Crash of 1987, the Asian Crisis of 1998, the Tech Collapse of 2000 and the Financial Crisis of 2008. We have steadily grown in the face of adversity.

Our clients are our friends. We are their guide. Our money is invested right alongside theirs. Most clients initially choose Paragon because of our stellar investment performance. However, as time goes on they realize that our highest value is actually protecting them from their inexperience and stopping them from making bad investments. It is our mission to help you make the right decisions and find financial peace.

Written by Dave Young, President & Founder of Paragon Wealth Management

Disclaimer
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.

Should I Invest Now?

Posted August 19, 2014 by admin. tags:Tags: , , , ,
Financial advisor talking with clients

Written by, Dave Young, President & Founder of Paragon Wealth Management

We are regularly asked this question. Investors don’t know what to do. They are concerned. Many seem to always be in the wrong place at the wrong time. They missed out on the gains of the past five years and are now concerned they may be investing at the top of the market.

It seems like the risk pendulum swings from one extreme to another. In the 1990’s investors did not take enough risk and missed out on amazing returns. By 2000 and 2008 investors finally began to believe that markets only go up. They became aggressive just in time to be devastated by 50% losses and years of bad returns. By 2009, many investors had thrown in the towel. Those investors then missed out on the big gains of the past five years.

In order to build wealth you must invest for the long term. Stocks and real estate are the two most reliable investments for most investors to build wealth over time. Over the long term they appreciate in value much more than bonds or bank savings options.

In the short term stocks and real estate fluctuate in value and scare many investors away. Putting money into stocks or real estate for less than five years does not usually work out.

I believe there are four principles that must be followed to build significant wealth over time. Sound investing is not a single decision. It is a process.

1st – You must invest using an investment strategy that has been proven to work over time.

2nd – Your strategy should provide you with exposure to the stock and real estate markets.

3rd – Your risk tolerance (investment comfort level) should be set properly so that you are not forced out of your investments at the wrong time.

4th – You must invest for the long term thereby giving yourself the ability benefit from the ups and downs of market cycles.

Please call us if you have any questions or would like to make any changes to your accounts.

Disclaimer
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.

Follow A Sound, Long Term Strategy

Posted August 7, 2013 by admin. tags:
A long term strategy green hills

Building wealth is difficult.  Some might say impossible. The numbers prove this with the wealthiest twenty percent of investors controlling ninety percent of all investable assets.

There will always be turmoil, uncertainty and volatility within the investment markets. The only way to eliminate those factors would be to move to another planet.

While building wealth is not easy – it is possible.  To build wealth we cannot worry about the things which we cannot control.
We have no control over what the FED is going to do next, whether or not Europe is going to send our economy into a recession or if politicians are ever going to do anything worthwhile.  Most of what we see on the nightly news or read online or in the newspaper falls into the “uncontrollable” category. The media provides us with plenty to worry about but nothing of value to help guide our investment decisions.

Successful investors focus on what they can control.  They control their spending patterns and make sure they spend less than they earn. They avoid unnecessary debt.  They structure their investments so they will not incur overwhelming losses.   They follow a sound, long term strategy and stick with it.  Ultimately they are very, very patient.

Investors are effectively making a calculated bet on the future.  They don’t know if their investments will be higher or lower next week, next month or even next year.  However, what they do know is that if they stick with our strategy over the next five, ten or twenty years – their investments will be higher, likely significantly, than they are today.

Step One is to define your goals and objectives.  Decide what you want to accomplish.  What does success look like over the next ten to twenty years?

Step Two is to define how much risk you are comfortable with.  You must decide in advance how much you are willing to potentially lose over the short term in order to accomplish your long term goals.

Step Three is to select the strategy you are going to follow.  Emotional investing is a recipe for failure.  Investing is difficult because it is counter-intuitive.

Usually, doing what “feels good” doesn’t work.  That is why you must have a defined strategy and systematic investment process.

Some people believe that buying and holding an index such as the S&P 500 is a good strategy. It’s advocates say that it is simple and inexpensive – which it is.  However most investors cannot stand losing 50% of the value of their account like S&P 500 investors did during 2002 and 2009.  When they incur a devastating 50% loss most investors sell out and lock in their losses because they can no longer stand the pain.  Most investors don’t realize that if they have a 50% loss they have to earn 100% just to get back to even.

Buy and hold is purely and offensive strategy.  It completely ignores the defensive, protective elements of risk management that are critical to long term success.  It is only one half of a complete investment strategy.  It is missing a defense.  The defensive part of an investing strategy is what allows investors to “stay invested” over the long term.  Staying invested is what allows investors to actually reap the long term rewards of investing.

At Paragon, we have developed a number of different strategies.  They range from conservative to aggressive. They invest in public or private markets, depending on the strategy.  All have good track records. Some are newer strategies that we have recently implemented but have solid historical back testing in place.
Others, such as Managed Income and Top Flight have twelve and sixteen year real time track records.  Over their lifetimes and in historical testing all strategies significantly beat the S&P 500.  Most importantly, they all employ sophisticated strategies to reduce risk.

Written by Dave Young, President & Founder of Paragon Wealth Management

Disclaimer
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.

Money And Happiness

Posted July 5, 2012 by admin. tags:Tags: , ,
Happy Family

Written by Dave Young, President of Paragon Wealth Management

A friend of mine, Steve Moeller, did research on the science of happiness. He gathered information to write a book about what really makes people happy. He gave me permission to share some excerpts with you from an article he wrote for Investment Advisor magazine. I found his thoughts very interesting, and hope you will too.

The assumption that more money will make us happier is etched into our consciousness. Happiness is something we all want; it’s the holy grail of Western civilization. Biologists have recently proven that all higher species from lizards up to humans are biologically programmed to pursue pleasure and positive emotions. It’s a basic subconscious drive that all creatures have. Everything we do, we do because we consciously or unconsciously believe that it will make us happy.

That more money will lead directly to more happiness is such a basic assumption that most people never stop to question it. When researchers at the University of Michigan asked research subjects what would improve the quality of their lives, the majority of the respondents said “more money.”

The assumption that more money will bring us more happiness is etched into our consciousness, championed by our culture, promoted with billions of dollars of advertising each year, and institutionalized in our public policy. And it is still the primary promise of benefits that many investment advisors focus on. But is it true?

“Happiness” researchers have conducted more than 150 surveys all over the world with more than a 1 million participants. Let’s take a look at what they have learned.

Since the end of WWII the purchasing power of American households has tripled. New homes are now twice as big as they were after the war, we have twice as many cars per person, and we eat out more often. The average American now lives much better than most of the kings and queens throughout history.

So are we happier? No!!

This spectacular increase in wealth has had almost no positive effective on our society’s happiness. In fact, from 1957 to 1996 the proportion of people telling the University of Chicago’s National Opinion Research Center that they are “very happy” declined slightly (from 35% to 30%.) Over the same time period; divorce doubled, the prison population quintupled and major depression rose tenfold, turning it into the fourth most common debilitating disease. America’s not alone; Europe and Japan have experienced the same basic trends.

One of the happiness researchers’ more noteworthy findings came from a survey of Forbe’s 400 wealthiest Americans. These cent millionaires and billionaires were asked to rate their life satisfaction from “extremely dissatisfied” (1) to “extremely satisfied” (7). Surprisingly, the respondents’ average rating was 5.7, only slightly above the average rating.

But here’s the really interesting part. Masai tribesmen from Kenya in East Africa also participated in the life satisfaction survey. Although they live in huts made out of dirt and cow dung, herd cattle for a living, have no electricity or running water, and don’t have any money, they also rated themselves a 5.7 in the life satisfaction scale.

Quite a few studies now show that believing that money is more important than other values—like relationships with loved ones, spirituality, a feeling that your life is contributing to the greater good—is actually detrimental to happiness. Clearly there’s more to happiness than wealth, luxury and material comforts.

So, how much is the right amount of money to maximize our happiness? Here’s the bottom line from the scientific research on happiness—once we have enough money to pay for life’s basics like food, clothing and housing, more money has very little impact on our happiness.

More money does buy more happiness and well-being if you are poor, and increases fairly quickly until you achieve a solid middle class income. But research shows once your household income reaches the middle class range, increased income has a diminishing positive impact on your happiness and well-being.

The point is, above a certain income level, which isn’t by any means “wealthy”, additional income alone has almost no impact on our happiness. And depending on the price you pay to earn it, more income could even reduce your quality of life.

In fact, a large and growing number of studies support happiness researcher Ed Diener’s comment that, “Materialism is toxic for happiness.” But most Americans don’t seem to believe this.

Why, if we tell researchers that more money doesn’t make us happier, do we chase it so hard? We could blame it on advertisers and the media, two giant institutions that have a vested interest in having us consume more and more stuff each year. But there is another, more subtle villain; the subconscious workings of our brain.

Psychologists have developed a term “hedonic treadmill” to describe humans adaptation to more wealth and material goods. So if you get a new car, you will be happier for a while, but then you will adapt, and so think it’s normal. In order to maintain the same level of happiness through consumption, you must continually buy new things. This is what the concept of “retail therapy” is all about. Adaptation is great for the economy, but bad for you and your financial security.

As an investment advisor, I often work with people who believe that more money will buy them more happiness. As evidenced by this article, in reality, I should help clients determine what will really make them happy and then determine how much income their ideal life will require. It may be a lot less than they originally thought.

Disclaimer
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.

Why Warren Pays Less in Taxes than his Secretary…

Posted October 6, 2011 by admin. tags:Tags: , , , ,
How Warren Buffett pays taxes


Photo credit:  Connected

Written by Dave Young, President of Paragon Wealth Management

President Obama says that his most important priority is to create jobs. With that priority, it does not make a lot of sense that he relentlessly attacks those who create most of the jobs in America, i.e. “the rich”.

For the past couple of weeks the president – and his new helper, Warren Buffett- have campaigned endlessly against the job creators who he says do not pay their fair share of the tax bill.

I agree that everyone should pay their fair share. That is common sense. However, I do not believe that Warren Buffett or the president should make up facts to mislead the public that the rich are not paying their fair share.

I work with wealthy people. Regardless of what the president says, these people pay a lot of taxes. It could easily be argued that they pay much more than their fair share.

As a matter of fact, the top 10 percent of earners pay 70 percent of all  federal income taxes. 

According to the Tax Policy Center, the average person making:

  • $50,000 pays $6,250 in Federal Income Taxes.
  • $75,000 pays $11,250 in Federal Income Taxes.
  • $1,000,000 pays $291,000 in Federal Income Taxes.

So if you make 20 times more than $50,000, or in other words $1,000,000, then you will pay 46 times more in taxes.

So you make 20 times more but pay 46 times more, and that is considered unfair? You are endlessly attacked and told you are not paying your fair share when in reality you should be getting a “thank you” card.

Do the rich get to use the roads more or do they get better police and fire protection? Do they get better protection from the military? I know they get much more attention from the IRS.

These are the actual numbers. The real numbers don’t back up the populist picture that the rich do not pay their fair share. They actually show the opposite.

So what about Warren Buffett? Why is he helping to distort the facts?

I’m only speculating, but he owns several large insurance companies. It is very much to the benefit of his insurance companies to have high tax rates. Because of the tax preferential treatment that insurance products receive, those companies  would benefit significantly from higher tax rates. In that way Buffett would benefit from higher tax rates.

Or maybe, Buffett is right that his secretary pays a higher rate than him. I would imagine she gets paid more than your typical secretary and is in a fairly high tax bracket.

Buffett built his reputation as a legendary investor in the 70’s, 80’s, and 90’s. However, for the past 13 years he hasn’t done much at all.

From June 30, 1998 to August 31, 2011 he has returned only 2.6 percent compounded to his investors in Berkshire Hathaway. That is 2.6 percent compounded over 13 years.

Maybe that is why he has been paying less in taxes than his secretary.

Disclaimer
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.

Letter to Obama– How to Create Jobs

Posted December 9, 2009 by admin. tags:Tags: , , ,
Obama


photo by mrsrichardson823

A couple days ago I heard President Obama say that he wanted input on how to create more jobs. Here is my input.

I’ve mentioned in previous posts that I do my best to look at things from a neutral perspective. I really don’t care who is in charge as long as they do not complicate my wealth management practice too much.

The Obama administration has made that difficult.

Dear Obama,

In my past 23 years of money management, politicians haven’t had much effect on our investment strategies. As a general rule, the less they do, the better the free market functions and that is usually positive for the stock market.

On the other hand, the more they do, the worse the free market functions, and that is usually negative for the market. The offset this time is that the stock markets were so extraordinarily undervalued that they really had nowhere to go but up.

Now that unemployment has skyrocketed, our politicians have decided that jobs are important.

Unfortunately, they did not decide that before they allocated $787 billion towards their “stimulus” program that we bought for them earlier this year.

Last week they held a job summit, also know as a “PR stunt”, to show how much they care about jobs. Then on Tuesday, five days later, they announced their plans to “save and create” more jobs. It’s amazing to me that you can go from the information gathering summit stage to the implementation stage in five days. Aside from that anomaly, let me explain.

Businesses create jobs. Politicians do not.

On a national level, some studies claim that it cost the government, which is code for the taxpayers (since the government does not actually have any money), $242,000 for each job they created with their stimulus bill. In Utah County, they claim it cost $147,000 for each job created by bill. Contrast that with business that spends nothing to create a job. In business a job is created when it adds value to and helps a company make more money. Any way you cut it, it is silly for government to spend billions of our money artificially creating temporary jobs.

So what can government do to help create jobs?

It is simple. First, create an environment where business can prosper. Second, let businesses keep more of the money they earn so they can use it to expand and hire additional employees.

The pot of money that businesses have to work with is limited in size. So when government takes the business owner’s money for extended unemployment coverage, which originally started at 16 weeks, and is now up to 99 weeks. Then you asses them with workman’s comp, social security and then another 40% cut of their income for state and federal taxes. It does not leave a lot to work with.

But, that is not enough. Then you propose punitive taxes on “the rich” ie. business owners (since they do not pay their fair share) followed by additional significant taxes on business for health care and cap and trade.

Since they do not have unlimited resources (like the government thinks they do) businesses cut back on hiring. Because they are afraid they are going to be taxed into oblivion and there is no real benefit for them to take risks (since they do not get to keep the money they earn) they stop expanding.

It really is simple. Get government out of the way of the free market. Reduce the ineffective and burdensome regulatory bureaucracy. Provide an infrastructure that allow businesses to prosper. Let businesses keep what they earn.

This is basic economics and a lot more effective than spending $242,000 to create a $45,000 temporary job. This is the way to see employment expand and create millions of jobs. Just like it did throughout the 80’s and 90’s.

Sincerely,

David Young
President of Paragon Wealth Management

What do you think? Feel free to leave comments.

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.

Avoid Large Losses: Part II

Posted June 10, 2009 by admin. tags:Tags: , , ,
The Bridge to success

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.

Don’t Buy Stuff You Cannot Afford

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

We saw this video the other day and thought you might enjoy it. It is a funny clip about not buying things you cannot afford starring Steve Martin. I don’t think credit card companies would like this video!

Seven Steps for Building Wealth: Step #7

Posted May 1, 2008 by admin. tags:Tags: , ,
A man with patience

Written by Dave Young, President

Step #7:  Be Patient

After you find an investment strategy that meets the above criteria, it’s all about patience, self control, patience and more patience.

We are constantly positioning our funds to take advantage of whatever the markets will give us. We never know in advance when we’re going to be rewarded. We sometimes spend months waiting. But we do know that following this process in the past has yielded tremendous rewards.

Managed Income and Top Flight have both tested our patience during periods of underperformance. By exercising patience and staying invested, Managed Income has generated a compound annual return of 9.63% since its inception in 2001. Paragon’s Top Flight portfolio has generated a compound annual return of 18.03% since its inception in 1998 (see track record for full disclosures).

These seven rules apply whether you have a large or small amount of money. Building wealth is possible…if you follow the rules.

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