Category Archives: 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.

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.

Continued Recovery or Double Dip Recession? Part II

Posted August 17, 2010 by admin. tags:Tags: , , , ,
Newspaper Paper Headline


 Photo By Shutterstock

 

 

Article taken from Paragon Wealth Management 2nd Quarter Newsletter

 

Written By: Nathan White, Chief Investment Officer

 

Media & Current Affairs

In the short-term emotions rule and volatility reigns as investors are pushed around by headline news. A study of bear markets by Ed Clissold of NDR showed that bear markets that occur on rallies after recessions tend to be relatively short and not associated with a new recession- a sort of “echo bear”.

Worries of the European debt crisis and its ramifications are coinciding with the slowdown in economic data compounding the market nervousness. Many are worried that the austerity policies being promoted by the European Countries will stifle the economic recovery even though those actions would reduce their large deficits, which are what the markets were worried about in the first place. The U.S. administration is arguing the opposite of the Europeans with the belief that it is too soon to withdraw stimulus and reduce deficits. 

I find it strange that people are fleeing Euro zone currency and debt due to fear over deficits into U.S. government debt, even though the U.S. is preaching more deficit spending? Somehow I don’t think that will end well. We are therefore avoiding long-term U.S. treasuries, as they could be a time bomb waiting to happen. It might not happen soon, but the low return (below three percent for 10-year Treasuries at the time I am writing this) is not worth the risk in our opinion. 

Above all, the market hates uncertainty and with the bear market still very fresh in investor minds we are in a condition where people are very fast to sell and ask questions later. A report in the Wall Street Journal on June 14 by E.S. Browning (Rapid Declines Rattle Even Optimists) showed that the 12.4 percent drop in the Dow Jones Industrial Average from the peak on April 26 to June 7 occurred in only 42 days. The article indicated that the only other time that the Dow has fallen that fast in the past 80 years was at the start of the Korean War. 

 

Conclusion

As I write this article, the S&P 500 is down about 14.5 percent from its peak. That’s only 5.5 percent away from the negative 20 percent that most consider as the condition for a bear market. It seems the market is pricing in a double-dip recession whether it actually unfolds or not! We have been slowly raising cash over the past month or so and as the market continues to show uncertainty. If our indicators weaken, we will raise more, but for now we still want to have exposure to the market as it could strengthen as fear subsides and investors realize that the market has already priced in any bad news. After all, we are still in recovery mode. Although it is weak, a recovery is still a recovery. 

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.

 

Continued Recovery or Double Dip Recession?

Posted August 6, 2010 by admin. tags:Tags: , , ,
American Stock Exchange



Photo By Shutterstock 

Article take from Paragon Wealth Management 2nd Quarter Newsletter

Written By: Nathan White, Chief Investment Officer

During the second year of an economic recovery, the economic data in the first year of a recovery is strong because companies ramp up production to refill depleted inventory levels, and economic activity in general resumes. As the growth rates come down in the second year, it often coincides with the stock market taking a break as well.

Part of the reason the market did so well in 2009 was because it was rebounding off extreme oversold conditions that were unwarranted. Now the we have entered the second year after the recovery low, the economic dad is slowing down, which is contributing to the reasons for the recent market decline.

The big question now is whether or not the recovery will continue, and if so at what pace, or are we headed for the dreaded double-dip recession scenario so widely reported in the press?

GDP, Income Figures, Government Actions
First quarter real Gross Domestic Product (GDP) was recently revised downward to a 2.7 percent annual rate, which is pretty anemic for this stage in the recovery. This shows that the recovery is not as robust as in past recoveries especially considering how severe the recent recession was. The economic data currently coming out is showing a mixed picture-as is to be expected at this stage of a recovery.

The main reason for the downward revision of GDP was that personal consumption expenditures were adjusted down and this is a significant portion of the GDP figure. It is a possible sign that consumers are still very timid and might not be willing or able to spend. On the other hand, income data show that personal income rose 0.4 percent in May, and this figure has been up for seven straight months.

Increasing income figures strengthen the recovery as it eventually provides people with more money to spend or shore up their finances. However, continued high unemployment, approximately one million less jobs than a year ago, is offsetting the benefits that are coming from income growth. For the most part the economic data is coming in at about average for this stage in the economic cycle. We hoped for better numbers due to the severity of the last recession. A less robust recovery is due to the damage done by the last recession and may indicate that we have not cleared all of the ghosts out of the closet yet. 

Government actions have created a significant amount of uncertainty, which continues to hamper the recovery. The most positive figures coming from the economic data are the rise in productivity and corporate profits. These two data points have performed better than average, and in my view are the main support for the rally off the bear market lows.

The productivity data has enabled corporations to increase profits in the absence of significant increases in sales. I believe this is a significant positive factor for the market moving forward. If the recovery continues with even small increases in sales, it could considerably boost earnings. On the other hand, if the economy wanes high productivity along with current relatively strong balance sheets can serve to support earnings in the face of a condition in which they would normally fall. In the end, markets are moved by earnings. Even if we entered another recession, you could see corporate profits hold up relatively well, which would end up supporting equity prices.

Article to be continued next week…

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.

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