6 Reasons Wall St. Hates Lazy Portfolios

March 27, 2012
	The briefing was updated today and can be found in The Briefing Room. The subject line of today's email was the title to an article I read this morning at MarketWatch.com.  I thought it was going to address the ineptitude of asset allocation and diversification as a solution to mitigating risk within portfolios.  After all, the "buy and mold" tactic that is asset allocation and diversification is about as "lazy" as a portfolio can get.   The first paragraph in bold print suited my outside the Wall Street box mentality.  It used a 10 year old quote from former SEC Chairman, Arthur Levit in Fortune magazine.  The paragraph read:   "America's investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask."  That same year in his classic "Take On The Street," Levitt lambasted the fund industry as "a culture that thrives on hype . . . withholds important information," a "cutthroat business" that "misleads investors."  Today, it's worse. He goes on a few paragraphs later "Since my days at Morgan Stanley it's been obvious that Wall Street gets rich on "the action," on all the hot trading going in their casinos.  More commissions and fees mean they can skim off America's retirement money.  Want hard evidence?  In the decade ending in 2010, Wall Street's stock market lost an inflation-adjusted 20% of America's retirement money." This was the climax of the article for me.  I was in complete agreement with him.  Unfortunately he used the above two paragraphs to build a case for hanging on to an asset allocated and diversified portfolio of low cost index mutual funds.  Ugh!!!  This is like fighting the corruption of Wall Street by throwing your hands into the air and giving up.  Might as well move to France! The bottom line to his argument is the superior return of an asset allocated and diversified, low cost portfolio of index funds compared to the returns of broker sold, asset allocated and diversified, expensive mutual funds over the last 10 years. He assumes the only way to manage money is by asset allocation and diversification.  If this truly is the only option, then yes, why pay a broker?  Unfortunately he completely leaves out the downside to his conclusion.  Real life market fluctuations kick many people out of these overtly risky investment approaches at the bottom of the market, then leaves them at the bottom to drown.  Want proof?  All we have to do is look at the Vanguard Mutual Funds cheap Target Date funds.  A Target Date fund has a professional money manager asset allocating and diversifying a portfolio of mutual funds.  Vanguard utilizes their own low cost index mutual funds.  But lets look at the volatility of these funds compared to the stock market. The above is a simple google finance chart of Vanguard's 2030 Target Date fund.  The blue is Vanguard the red is the S&P 500.  At the bottom of the last recession the market was down 55% and this bundle of cheap index funds was right down there with it at nearly 50% loss.  Both are still down nearly 10% from 2007.  You can see it moves nearly identically with the market.  Why not just buy the S&P 500 and forget about it?  If you think I'm selecting their worst performing fund, think again.  This fund is designed for someone between 45 and 50 years old (according to their wisdom).  The fund designed for someone 65 years old still lost nearly 40% and still hasn't broken even either. I've been in this industry since 1992 and was trained with the same asset allocation and diversification approach as everyone else.  Fortunately it didn't take me long to figure out the lie associated with this approach and begin looking for other alternatives.  I thank God for his guidance to our current investment approach.  Our Moderately Aggressive portfolios have been quite busy lately.  Please visit the Briefing Room to get an idea what we are expecting next! Have a great day!! John Norquay CEO PivotPoint Advisors		In order to view the graphs and charts in our newsletter, please click the link at the top of your email to "always show images from PivotPoint Advisors" Resources Check out our Youtube Channel  Like our FaceBook FAN Page We manage money inside 401k plans. Know anyone who may want to use us? Click "Forward to a friend" (immediately below) to share this newsletter with friends you think may appreciate our services. Forward to a Friend Twitter Subscribe to the Weekly Briefing Report Unsubscribe Update Subscription Preferences View Email In Browser