Summary:

The stock markets average a 20% or greater decline once every three and one half years!

Traditional investment managements answer is to simply diversify and hold.

We believe in playing offense when markets are good, but going to defense when they are bad.

“Past performance is not indicative of future results!”

If you’ve ever read an investment disclaimer then you’ve seen words like these, but if you’ve received advice from the average investment professional you’ve more than likely been presented with a colorful pie chart recommending that if you diversify your assets according to a predetermined or strategic allocation based on things like your age, goals, tolerance of risk and then hold your investments for an extended period of time you should expect certain results.

“What is, IS.”

This approach is also referred to as “Buy and Hold”. We think it should be called Buy and Hope because it is simply hoping for future results based on long term historical performances. In our opinion this is a dated and dangerous approach to investing. We believe the smarter approach is to invest based upon what currently IS happening in the markets.  Just like a football game there are times to play offense and there are times to play defense .  You wouldnt expect to win if you only had your offensive team on the field for the entire game.  During favorable market conditions the objective is to help you build wealth by seeking to deliver positive, real returns. However, during unfavorable periods the objective is to help you protect and preserve your investment capital.  Defense Wins Championships!

Strategic vs. Tactical

Typical investment management is strategic in that they recommend to us that we diversify our investments based on long term historical data because this will help us estimate what kind of Rate of Return we can expect and how much Risk (volatility) we can expect to take in order to achieve that return, and to re-balance those investments periodically.

So how did this work in the 2008 bear market?

How about other bear markets like 2000-2002, 1994, 1987, 1974, 1973, 1929 ……?

Buy and hope can be painfully expensive!

In our opinion, the most important historical data that you should know is that the U.S. stock market has averaged a 20% or greater decline (a bear market) once every 3½ years! (Capital Research and Management )  That’s a long term average that has repeated itself for over a century.  Bear markets are really nothing more than the reversal of buying excesses that occur from time to time.  Much like a balloon filling with air.  When it gets too full.it pops!

If you had a choice wouldnt you rather follow a discipline to help minimize the impact of this kind of decline instead of simply holding through it and accepting the loss?  Guess what?  You do.  Its called the Carlson difference.

Click here for a full report on The Carlson Wealth Management difference

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Asset allocation does not guarantee a profit or protect against loss. Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. Buying commodities allows for a source of diversification for those sophisticated persons who wish to add commodities to their portfolios and who are prepared to assume the risks inherent in the commodities market. Any purchase represents a transaction in a non-income-producing commodity and is highly speculative. Therefore, commodities should not represent a significant portion of an individual’s portfolio. Bond prices fluctuate inversely to changes in interest-rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.· Technology and Internet-related stocks, especially of smaller, less-seasoned companies, tend to be more volatile than the overall market. Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Dorsey Wright and Associates developed the indicators described above. They have been prepared without regard to any particular investor’s investment objectives, financial situation and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisor and should not rely on information herein as the primary basis for their investment decisions. Continuous Commodity Index: A broad grouping of 17 different commodity futures, which is a benchmark of performance for commodities as an investment. The index was developed in 1957. 13 Week T-Bill Total Return: Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and fixed principal value. Dorsey, Wright Foreign Currency Index: An equal weighted index comprised of eight foreign currencies. The index is rebalanced on a daily basis and measured by pricing all currencies against the US Dollar. S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stocks weight in the Index proportionate to its market value. MCSI EAFE Index: The Morgan Stanley Capital International Europe, Australasia and Far East (“MSCI EAFE”) Stock Index is an unmanaged group of securities widely regarded by investors to be representations of the stock markets of Europe, Australasia and the Far East. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. Dow Jones Industrial Average: The Dow Jones Industrial Average is an un-weighted index of 30 blue-chip industrial U.S. stocks. This article was written by Dorsey Wright & Associates. Independent Financial Group did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. Any statements nonfactual in nature constitute only current opinions and interpretations of their indicators, which are subject to change without notice. There may be instances when fundamental, technical and quantitative opinions may not be in concert. Any opinions expressed or implied herein are not necessarily the same as those of Independent Financial Group. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Data and opinions are current as of (June 22, 2010). Additional information is available on request. This investment may concentrate on certain economic sectors, asset classes and/or geographic regions, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater piece volatility. Foreign exchange trading is not suitable for all clients.