Quick Performance Comparisons

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Oct 1, 2008 5:25 pm

I have been going through a few of my bigger accounts for some pre-retiree clients that are moderately aggressive and am curious to compare to where some of your guys' accounts are.


YTD, they are down about 17%.  Q3, they were down about 10%. 


Everything was down, stock funds, bond funds, balanced funds, everything.  And they were down more than usual relative to their benchmarks. 


What are you guys seeing?

Oct 1, 2008 5:56 pm

On average, most clients are down about 11%. We favor moderate portfolios, built around a 60% max equity holding in good times, and tried to be around 50-50 coming into this, 30-40% max for retirees. Yeah, bonds havn't help much, especially active management in diversified bonds funds, not very impressive downside protection from the active managers.

Oct 1, 2008 8:27 pm

Everything was down, stock funds, bond funds, balanced funds, everything.  And they were down more than usual relative to their benchmarks. 


What are you guys seeing?


It sounds like you need to expand your category of "everything".  All of the money that we have in savings is up.  All of the money in fixed annuities is up.  The cash surrender value and death benefits of all the life insurance policies is up.   None of the guarantees in the VAs have decreased.  Those who are in the accumulation phase get to buy more with their investment dollars.  All told, things are looking pretty good!


 


Oct 1, 2008 8:43 pm

I've been disappointed in some of the funds that were sold to me (and that I sold to clients) as investments that would hold up well in down markets. Mutual Shares is down. Franklin Income is awful. American Funds have tracked the S&P 500. I'm going back to the drawing board on mutual funds to do some more due diligence. Bonds have been a headache - having to call clients to assure them their 'safe' Fannie Maes are going to be OK, but having doubts myself.
The stock portfolios I've put together have done well. Individual stocks have an advantage in that even if my recommended GE is down I can help the client understand that it is still a good investment. Not so with mutual funds, which are a mystery to most clients.
VAs -- it's a relief to tell a client this downturn hasn't affected their monthly check or their legacy for their childlren.



Oct 1, 2008 10:05 pm

My view is that the environment we are facing for the forseeable future
may require a more targeted or refined - no - transparent approach than
Mutual Funds. You dont know at any given moment what you own. You can
talk to the wholesalers and do all the research you want, the managers
trade daily.

Funds like WASAX and MDLOX will add value and have a place. But if you
think you need to be overweight consumer staples, for example, what
fund do you buy?

Thats why ETF's are going to become more and more important to me looking ahead.

The other issue is that its going to be tougher and tougher to find
good returns, and so expenses will be more important, i.e. ETF's

Oct 1, 2008 10:14 pm
Sportsfreakbob:

My view is that the environment we are facing for the forseeable future may require a more targeted or refined - no - transparent approach than Mutual Funds. You dont know at any given moment what you own. You can talk to the wholesalers and do all the research you want, the managers trade daily.
Funds like WASAX and MDLOX will add value and have a place. But if you think you need to be overweight consumer staples, for example, what fund do you buy?
Thats why ETF's are going to become more and more important to me looking ahead.
The other issue is that its going to be tougher and tougher to find good returns, and so expenses will be more important, i.e. ETF's

 
WASAX, MDLOX, LSBRX, Russell funds, ICFAX, they are all killing me...not literally yet though.
 
Ice could have a field day with this crap active management right now.
 
From what I can tell, the active managers were caught holding the bag in July when financials turned up and commodities sold off.  That created about a 5% difference in the performance I would've expected.
 
I too am going to take a closer look at ETF's. 
Oct 1, 2008 10:48 pm

Here Sportsbob:

 
http://online.wsj.com/article/SB122288822446995129.html
 
It is apparent that the WSJ wrote this article for me. 
Oct 2, 2008 12:10 am
anonymous:

Everything was down, stock funds, bond funds, balanced funds, everything.  And they were down more than usual relative to their benchmarks. 


What are you guys seeing?


It sounds like you need to expand your category of "everything".  All of the money that we have in savings is up.  All of the money in fixed annuities is up.  The cash surrender value and death benefits of all the life insurance policies is up.   None of the guarantees in the VAs have decreased.  Those who are in the accumulation phase get to buy more with their investment dollars.  All told, things are looking pretty good!


 


 
Life insurance is looking pretty good right now.
 
In the last 6 -8 months I have been doing quite a few fixed annuities.   AND I feel damned good about the people in 401K rollovers and big IRA accounts that I moved into VAs with the life pay type options last year about this time.  Yes we are down in 'real' dollars but the income pool that they pay an insurance premium to keep are doing what they are supposed to be doing.
Oct 2, 2008 11:48 am

I too am happy with the VA's with the income pool.


But what are you telling your mutual fund clients?  I mean, they are down pretty heavily now.  If the economy continues to get worse, could we end up where we were in 2002? 
 
As I was not doing the fixed annuities 6-8 months ago, I am really at a loss now.
Oct 2, 2008 12:13 pm

What interest rate are your fixed annuities generally paying right now? I'm generally not  a fan, so trying to be open-minded. Is this a good time to be buying them, versus cds or such for the timid?

Oct 2, 2008 12:13 pm

I understand the a lot of mutual funds got hit hard in late july/ early august thanks to a ban on short term selling. I was surprised to hear this from two mutual fund companies. I know for Ivy, their hedging strategy bit them in the ass but I think have the right idea for the next 6-12 months.

 
What Am I telling cleints? DCA and buy more shares. Markets are down almost 20% and you're down 7-9%. If the losses are higher perhaps we need to not change the investments but your allocation. Your VA is covering your basic needs today and your ebenficiaries in event of death. I understand your nervous but understand that the stock market is still the only place you can adjust your money for inflation and taxes, two things you will never have any control of. 
Oct 2, 2008 12:18 pm
anabuhabkuss:
 
What Am I telling cleints? DCA and buy more shares. Markets are down almost 20% and you're down 7-9%. If the losses are higher perhaps we need to not change the investments but your allocation. Your VA is covering your basic needs today and your ebenficiaries in event of death. I understand your nervous but understand that the stock market is still the only place you can adjust your money for inflation and taxes, two things you will never have any control of. 
 
I would like to change the allocation, but right now it feels too late.  The problem is, what happens if we go down another 15%?  I do worry a little about their retirements.
 
If we get a rally ever, maybe I can reallocate then...but we may be down a lot further by then. 
Oct 2, 2008 12:29 pm

Babs, which fixed annuity contacts are you using?

Oct 2, 2008 12:48 pm

ING was paying 4.95% on the 5 year about 2 weeks ago.  That was the best I had seen.  They're currently paying 4.60%. 

Best 3 year I had seen was 3.9 with American National. 

All the rates have substantially dropped over the last 30 days.  

Oct 2, 2008 1:51 pm

Please tell me you folks aren't having these type of discussions with your clients.  Changing asset allocation strategies, buying fixed annuities because of the market, complaining about a fund that was up 40%+ last year (WASAX) is down less than 20% this year, active vs passive management, blah blah blah...

 
Did you buy good, quality investments to begin with?  Did you properly set up their asset allocation strategy based on their risk tolerance?  Do you have enough cash set aside for emergencies?  If the answer to all of those is yes, then what in the world would make you think you need to change anything you are doing? 
 
Perhaps I'm just a simple Jones FA and I'm not very well edjumacated, but falling for the same traps and into the same emotionally based decisions that they would on their own is the exact opposite of what you should doing right now.  And it is not the reason they pay us to do what we do.  It absolutely is a time to be talking with your clients and talking about risk, comfort, and their goals.  If their risk tolerance hasn't change (it shouldn't), their comfort level isn't off the charts (it shouldn't be), and their goals haven't changed (probably won't), then just hold their hand, tell them it's going to be alright and call the next person.  Oh yeah, ask them to give you a check for $10K right now.  Buy something stock market related with it.  They'll thank you later.
 
Oct 2, 2008 1:59 pm

Well said, Spaceman. Buy now. Based on my experience in 2000, though, the plain fact is there are train wrecks that, all things considered, you either give them what they want or your lose the business. I'd rather let them walk than put them in a fixed annuity right now.

Oct 2, 2008 2:01 pm
spaceman spiff:

Did you properly set up their asset allocation strategy based on their risk tolerance?

 
Spiff,
 
These conversations will happen for the very reason you alluded to in the quote above. What people say one moment goes out the window the next. People will change their mind on their risk "tolerance" when they actually get to a point of emotional turmoil in their head. That, then, becomes the bar going forward. It's a learning process. It happens.
 
the trick is to try and distinguish true risk tolerance from "over reacting".
Oct 2, 2008 10:46 pm

Finally, something well-written from CNBC:


http://www.cnbc.com/id/26976758
 
There should be an advisor's advisor...someone that is like a psychologist, because sometimes even some of us need it too.
 
POST EDIT:
 
Just when CNBC puts out something decent, they have to go and do this:
 
http://www.cnbc.com/id/26607851
 
They say now is the time for some to reallocate to more bonds.  Isn't that essentially throwing in the towel right now?!?
Oct 2, 2008 11:45 pm

Down anywhere between 7%-14% with the majority of my clients, depending on their allocation of course.  I'm staying the course and trusting my evaluation and allocation of my clients investments.  The only thing I am considering making a switch on is one fund had a manager leave, and watching some of my closed-ends very closely as quite a few funds are doing mandatory redemtions. 

Oct 3, 2008 1:13 am
" They say now is the time for some to reallocate to more bonds.  Isn't that essentially throwing in the towel right now?!? "
 
More like burning money. This business is profoundly simple, but we forget that what we have learned isn't easy.