The markets provided great returns for 2009 which was good because they were awful in
2008. When you look at the broad picture volatility still rules the day. In the investment
world we often hear absolute terms and phrases that rarely prove true in our actual
experiences. In the late 90’s you might have heard and investment advisor or market
analyst say that if you hold stocks for 10 years or more you would see average returns of
around 10%. While that might have been true of the past 10 years it was not true for the
next 10. What matters is when you put money in, when you took it out, and what
strategy you were following along the way. I want to use the past two years to give you
and example that will show the effects of volatility and how averages can fool us.
Suppose that you began 2008 with $1,000,000 invested 100% in the Dow Jones Industrial
average. At the end of 2008 your $1,000,000 would have been worth $660,000 because
the DJIA lost 34% that year. Through November, the DJIA is up 19.02% for 2009 so
now your investment, after a great year of returns, is up to $785,532. The average
“annualized” return based on these numbers would be -11.36%. So while the market
gave us some back in 2009 we still have a ways to go before the stock market can get
back to zero.
Now look at how averages can mislead. If you take a -34% return and a 19% return and
average them over two years your average percentage return is -7.5%. Using the example
above, in 2008 using the average say we lost 7.5%. At the end of the year you would
have had $925,000. Then take off another 7.5% in 2009 and you end with $855,625.
This is much better than the $785,532 that you actually ended up with.
Two Lessons:
1. Consistent returns (base hits) are much more powerful long term than hitting a
solo home run after two strikeouts. The difference between you and the baseball
player is when you swing for the fence with your investments, you can lose runs
you have already scored!
2. An average does not tell us how you performed unless is an annualized average
and includes additions and withdrawals over the time period. A regular
mathematical average does not show the damage that losses can do to a portfolio
and the time it takes to recover.
As with secular bear markets of the past (using Crestmont Research chart), we expect
high volatility in stock markets to last for years to come. Our prediction for broad stock
markets is that we will see good years followed by bad years but in the end look back and
have gone nowhere. We have much to unwind and it will take a while to improve
measures of the economy that have to be in place to see true economic growth.
Therefore, our goal for 2010 and beyond is to seek out annualized returns of 5% or better
without taking on undue risks for clients.

We have two styles of management based on the needs and contract with the clients.

Wealth Management Portfolios: For our clients signed up for our “Wealth Management” service, we tailor their portfolio to their needs using investments from various asset classes including options for hedging and enhancing the portfolio. Our investment team considers Macro risks and the client’s advisors consider the individual risk reward profile of the client to build out and manage the individual portfolio.

Wealth Builder Portfolios: For our clients signed up for our “Wealth Builder” service our investment team focuses on building portfolios for long term growth while still taking into consideration the clients risk/reward profile. For this service our investment team manages models by selecting mutual funds and percentages of a portfolio to be invested in each fund for a risk reward profile. Then advisors can assign the investments to each client and the portfolio will remain invested and rebalanced based on our team’s parameters on a regular basis.

Active vs Passive: Our philosophy leans toward active management but we feel that this should not be a choice of style that an investor must pick. We believe there are definitely times and opportunities where active managers provide a lot of value to a portfolio in various areas of the market and there are also times where passively investing in an index is difficult to beat. With that said, even deciding the allocation of passive investments is an active management decision. It is also an active decision to keep some money in cash. Investing involves decision making. Our goal is to help the client make the best decision possible for their portfolio at a given time based on the information we have for them.

Our team of professionals spans many years of experience in a multitude of areas that are covered in wealth management. For our wealth management clients, we want to help you look at the areas of your financial life where we can make the most difference. Therefore, we take a comprehensive approach looking into various areas of your finances and making recommendations in areas such as tax planning, risk management, generational planning, and retirement planning strategies.

Need help keeping up with your business finances? Would you like a team to work with that can help you make informed and guided decisions? Our business planning team can help you make sure you are keeping up with the essentials while planning for the future. There are specific advantages for business owner’s finances with good decision making.

Have you been appointed as the Executor/Executrix of an estate? Our team has assisted clients with the settlement of an estate on many occasions. This area is one that can have many hurdles and pitfalls. Our experience in assisting clients can be used to your benefit. If you are the executor of an estate, we can work with you through this process to make sure it is done in a way that can save you time, money and stress. If you would like to discuss these services with our team, click here to make an appointment and put “Estate Assistance” in the “Additional background information” field.

Since opening Team Financial Strategies in April of 2005 we have developed sound investment management strategies that we manage within client portfolios and for institutional investors. For a brief description of each strategy click here. To inquire further, please contact our investment team at 325-480-1587.