Portfolio Newsletter 4Q 2013

In 2013, all five portfolios faced an unexpected challenge: a closed fund at the end of the first quarter. The adjustment was to simply select a new fund based on the same criteria (for those investing after the first quarter) and to move forward. For each portfolio, we selected a fund with high returns and low risk (for the complete selection process, please refer to page 3).

This created a bit of extra work to track performance, but the end results are quite fascinating. On page 2, you can see the annualized returns (assuming both funds were purchased January 1st). In nearly every case, the returns were very close. They varied just a few tenths of one percent or less between each portfolio, pre 4-1 and post 4-1.

This really reaffirms the value in a formulaic selection process. As long as the formula is followed, the process should yield similar results. The larger the pool of available funds, the better the returns, as demonstrated here.

Heading into 2014, I’ve made some minor adjustments to all funds based on the economic reports and the Federal Reserve plan to slowly begin tapering of their bond purchase program.

On the equities side of the portfolios, minor changes were made in the Large Cap funds due to Schwab adding some new funds to the list. The new choices are slightly lower in risk and have excellent returns.

On the bond side of the portfolios, more changes were made in anticipation of rising interest rates. Each fund was closely evaluated and compared against its peers to make sure the appropriate bond funds are in the portfolio. The focus was to minimize downside risk of rising rates while taking advantage of rising rates. This was achieved by making sure all the bond funds have a lower duration and a lower maturity than their peers.

I feel very good about these changes and how the portfolios will perform over this coming year. As always, I will continue to monitor the portfolios and keep you updated on how changes in the economic climate affect your money via emails and quarterly newsletters.