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How We Doin’? (10-Year Edition)

In early 2002, we launched the model portfolios as a way to apply our MAXfunds rating system to an actual portfolio. Our goal was to offer portfolios with varying levels of risk (at the time, we had five core portfolios and two special-purpose portfolios) for different types of investors, including those with only a few thousand dollars to invest.  Now that the Powerfund Portfolios are in their tenth year (we created them in March 2002), we think it's a good time to take a look back at our long-term performance. 

August 2012 Performance Review

In the absence of scary economic news, stocks drift higher – like the roughly 2.25% gain in August. We would expect this to continue if we avoid a deep recession and any debt market shocks that drive rates higher. 

When Bad Things Happen to Good Fund Shareholders

Baby Boomers are following the age-old advice to shift from stocks to bonds as they grow older, despite the fact that this general recommendation might not apply in a world in which bonds yield less than stocks. But two 50%+ haircuts in the stock market since 2000 (with a "flash crash" thrown in for good measure) certainly aren't inspiring confidence in the stock market. Fear of another global catastrophe is keeping some money in seemingly low-risk places, but that doesn’t explain the shift within stock funds.

July 2012 Performance Review

The rebound in stocks at the end of June carried through to July, though with some slides along the way. It’s a market scared of another collapse, yet it keeps finding support from (probably) not much else than the trillions of dollars globally that needs to be invested and the fact that cash and bonds should be very low return assets for the next few years.

Less than Zero New World Order

We’ve noted the hard times facing lower-risk tolerance investors – times that just got a little bit harder now that the 10-year Treasury bond yield has sunk back below 1.50%. Today, any funds with low interest rate risk (the risk of losing money if rates go up) and low default risk (the risk of borrowers not paying you back) is yielding less than 2%, often much less. Between retiring baby boomers and disappointment in a market that seems to slide 50% every few years, there are more lower-risk investors now than ever. But what about the poor multi-trillion dollar mutual fund industrial complex?

June 2012 Performance Review

The S&P 500 Index got off to a rocky start in June but ended up with a just over 4% gain for the month, pushing the index to a near 10% return so far in 2012. Bonds were basically flat even as investors stuffed tens of billions of new money into bond funds while taking money out of stocks. The Vanguard S&P 500 now yields significantly more than the bond index fund: 2.2% vs. 1.88%, both including fund fees. 

The Dangerous Safe Road

There 's good deal of concern in the markets that Europe's slow collapse will turn into something a little more 2008-ish. Remember 2008? The year Lehman, along with most of the financial services industrial complex, imploded? At least until governments near and far propped up the poor pinstriped saps and halted the panic. Free markets until markets free fall. The worry this time around centers on the governments themselves – governments that have increased spending to support weakening  economies while simultaneously moving the debts of a global real estate bubble to their own tattered balance sheet The buck has to stop somewhere. 

May 2012 Performance Review

Apparently somebody jumped the gun on the whole stock market ‘sell in May and go away’ cliché. U.S. stocks have been going down since early April, but the selling picked up last month - resulting in a 6% S&P 500 slide and turning the 1-year return for the benchmark negative. 

Decouples Therapy

The popular term from about a half-decade ago was "decouple" — a scenario in which the global economy and stock market would lose the weight of the United States and no longer be dependent on U.S. demand to spur growth. This would lead to wild riches for those smart enough to focus abroad. This strategy, of course, is reminiscent of another popular investment concept, the “New Economy” versus the “Old Economy," because in 1999, tech stocks were leaving value stocks in the dust, and the smart move was to own a bunch of tech and growth funds.

April 2012 Performance Review

Fund investors continue pulling money out of stock funds. We see around $10+ billion a month come out of ordinary mutual funds – an investment class that is in long term decline. If it wasn’t’ for 401k assets, there would be big problems in the mutual fund industrial complex. ETFs continue to bring in money to offset these losses in total fund assets.