http://www.amdgservices.com/blog/index.php A Description of Wayne's Wisdom en wbt@amdgservices.com Copyright 2007 2007-03-22T19:47:00+00:00 http://www.amdgservices.com/blog/index.php/site/asset_class_versus_sector_investing/ http://www.amdgservices.com/blog/index.php/site/asset_class_versus_sector_investing/#When:20:47:00Z I recently received a note from a client.  They had read an article on the decline of the “building supplies” sector here in the United States.  They were curious if their portfolio included investments from this category and what my thoughts were. The investment strategy we use is NOT based on sector.  Thus, we don’t really look at or care about “building products”, per se, as a sector, but instead care more about how those companies fit into one of 9 different asset classes that we utilize in our diversification strategy.  I haven’t read any research studies that indicate sector performance is “predictable”, nor any that indicate diversification by sector is “better” than the current strategic asset class diversification that we use.  When I reviewed the detailed holdings of our portfolios, as they existed and were reported in Morningstar at 12/31/06, there are “building products” companies in the diversified portfolio.  Of those stocks, overall, 24% appear to be invested in the “Manufacturing Economy / Industrial Materials” sector.  Even at the “Industrial Materials” level (the 24%), it was further diversified by 75% of the stocks held internationally and 25% in the US.  A much smaller % of this 24% amount (Industrial Materials) is held specifically in the “building supplies” category.  The diversified model portfolios (at end of February) held over 14,500 stocks in the US and Internationally, combined.  By applying the percentages gathered from Morningstar, this means that approximately 3,480 companies held were in the Manufacturing Economy / Industrial Materials sector.  Approximately 870 of these company stocks held were in the United States.  An even smaller group are specifically in the “building supplies” sector.  So less than 6% of current portfolio of U.S. stocks held in the model portfolios are focused in this sector. So, what does this mean?  Certainly there is an impact in portfolio performance when specific companies that are involved in “building supplies” or other sectors perform poorly.  We expect this.  We believe that no one can consistently pick winning stocks, and we believe that no one can optimize and consistently choose when to invest or divest in a sector.  Certainly we can’t, and don’t predict the future. More than nine times out of ten, the level of diversification in a portfolio will explain that portfolio’s performance.  Consequently, diversification is the most prudent approach.  Provided a portfolio is broadly and strategically diversified, even if one sector in the U.S. does poorly, the impact on the portfolio will likely be smaller. My advice?  Choose a prudent investment strategy that directly supports your financial plan goals and objectives and stick with it.  Don’t be swayed by the financial press. From financial wisdom, better stewardship. 2007-03-22T20:47:00+00:00 http://www.amdgservices.com/blog/index.php/site/rollercoasters/ http://www.amdgservices.com/blog/index.php/site/rollercoasters/#When:11:21:00Z When I’m working with a client, we spend a significant amount of time speaking about risk.  The risk you need to take to achieve your objectives, the ability that you have to take risk given the timeframe and investment horizon needed in order to achieve your goals and objectives, and finally, the risk that you DESIRE to take. When I say “Desire to take risk”, I am speaking about what many advisors call “the stomach test”.  How much risk can you stomach?  What level of risk begins to make you uncomfortable?  I usually put it in this fashion… If you don’t like rollercoasters, you probably don’t go to Cedarpoint (the rollercoaster capital of the U.S.). Consequently, my role as your advisor is to help you determine what rollercoaster to get on.  I believe the success (or failure) of a client’s investment strategy is based on their ability to stay in their seat.  As in the case with a rollercoaster, if you stand up and try to exit at the wrong time, things might get messy.  Just like the announcements say, “Stay in your seat, keep your hands in the car!” This doesn’t mean that we recommend our clients buy and hold investments; rather we recommend a strategy based on buying and rebalancing the risk when necessary.  More on this some other time.  Now back to rollercoasters… I had a message from a client yesterday regarding the drop in the U.S. market (DJI over 400pts by market close).  We likely weren’t going to have an opportunity to speak by phone, so I composed this email regarding her specific portfolio. (As additional background, she has been receiving unsolicited financial advice from a family member to place ALL her investments in silver).  Here was my response: “Thanks for your message.  I know that this bump in the market probably scares you, and you probably guessed that I was going to say this next, “I don’t know what today will bring”. Let me try to put it in perspective. First, the broad markets around the world were down yesterday, mostly on “gloomy” financial news from China which drove down their markets significantly causing a ripple effect around the globe.  We are, of course, a global economy, but not so much so that everything moves together exactly the same.  They don’t.  The asset classes you’re invested in are not highly correlated, thus your risk is spread into MANY different baskets, AND you have a portion in bonds which provide you a stable base to grow from. Here are some key things that should give you a little comfort: The Dow Jones down 3.29%; Russell 2000 down 3.7%; S&P 500 down 3.47%; NASDAQ down 3.86%; Gold / Silver Index down 6.96%; Oil Index down 3.5%. Your portfolio, down about 2.8%. Think of it this way: you lost approx. 2.8 cents on every $100 you have invested.  Other investors likely lost more than 3.5 cents per $100.  This means you lost roughly 25% less than they did (had you been invested in silver, you would have lost roughly 249% as much-more than 2 and 1/2 as much. Now, it may not seem like much comfort to be speaking about how “little” you lost in the market yesterday.  BUT, we spoke about volatility (the movement of markets up and down).  There will always be this movement.  The important thing is to diversify your assets so that they aren’t in one basket, and in this way, your assets are prudently invested.  (By the way, the gold / silver basket yesterday was the BIGGEST loser in the index list that I reviewed this morning). I know its hard to not be distracted by the financial market news, especially when the markets have a day like yesterday. (Yours won’t likely be the only email or call I will have today!) but rest assured, you are WELL diversified, and over the long run, I believe this is the BEST strategy for you given your comfort, need, and desire to take risk.” I can tell you that I appreciate when my clients share with me that they are scared or concerned.  Volatility is a scary thing, but necessary (and unavoidable) for most client investment strategies and financial plans. My advice? Work with a Fee-Only advisor to develop and implement a prudent investment strategy that supports your fiancial plan and considers the impact of taxes. Please stay in your seat and keep your hands in the car! From financial wisdom, better stewardship. Financial Wisdom for Families, Financial Wisdom for Business Owners, Stewardship 2007-02-28T11:21:00+00:00 http://www.amdgservices.com/blog/index.php/site/not_gold/ http://www.amdgservices.com/blog/index.php/site/not_gold/#When:06:35:00Z Click here for: All that glisters is not gold... Audio Wisdom from Wayne 2007-02-24T06:35:00+00:00 http://www.amdgservices.com/blog/index.php/site/not_what_you_know/ http://www.amdgservices.com/blog/index.php/site/not_what_you_know/#When:05:33:00Z Click here for: It’s not what you know that hurts you... Audio Wisdom from Wayne 2007-02-24T05:33:00+00:00 http://www.amdgservices.com/blog/index.php/site/insanity/ http://www.amdgservices.com/blog/index.php/site/insanity/#When:05:31:00Z Click here for: The definition of insanity is doing the same thing over and over expecting a different result Audio Wisdom from Wayne 2007-02-24T05:31:00+00:00 http://www.amdgservices.com/blog/index.php/site/paretos_law/ http://www.amdgservices.com/blog/index.php/site/paretos_law/#When:05:28:00Z Click here for: Are you putting 80% effort into financial and investment decisions only to receive 20% of the results? Audio Wisdom from Wayne 2007-02-24T05:28:00+00:00 http://www.amdgservices.com/blog/index.php/site/retire_to/ http://www.amdgservices.com/blog/index.php/site/retire_to/#When:05:25:00Z Click here for: People know what they want to retire from, but no what they want to retire to. Audio Wisdom from Wayne 2007-02-24T05:25:00+00:00 http://www.amdgservices.com/blog/index.php/site/education_experience/ http://www.amdgservices.com/blog/index.php/site/education_experience/#When:05:23:00Z Click here for: Education is what you get when you read the fine print. Experience is what you get when you don’t. Audio Wisdom from Wayne 2007-02-24T05:23:00+00:00 http://www.amdgservices.com/blog/index.php/site/righttrack/ http://www.amdgservices.com/blog/index.php/site/righttrack/#When:04:55:00Z Click here for: Even if you’re on the right track you’ll get run over if you just sit there. Audio Wisdom from Wayne 2007-02-24T04:55:00+00:00 http://www.amdgservices.com/blog/index.php/site/the_top_10_questions_you_should_be_asking_your_advisor/ http://www.amdgservices.com/blog/index.php/site/the_top_10_questions_you_should_be_asking_your_advisor/#When:13:45:00Z The Paladin Registry is a great site to review if you’re looking for an investment advisor.  Jack Waymire, author of “Who’s Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor” created this website which includes great resources on what to look for when selecting a Financial Advisor. I’ve taken and answered his “Top 10 Questions for Advisors”. Top 10 Questions for Advisors ~Excerpted From Paladin Registry 1. Are you a Registered Investment Advisor (RIA) or an Investment Advisor Representative (IAR)? AMDG Financial is a Registered Investment Advisor with the State of Michigan and Wayne Titus is an IAR for his firm, AMDG Financial. 2. Do you acknowledge you are a fiduciary when you provide financial services? Yes. When the firm started in 2002, Wayne’s vision for AMDG Financial was to serve their clients by placing client needs first.  Since then, there has been a great deal of movement in the financial marketplace toward fiduciary advisors. AMDG Financial has implemented internal business processes that follow Global Fiduciary Standards of Excellence as defined by the Center for Fiduciary Studies, in Pittsburgh, PA (http://www.fi360.com) and the Centre for Fiduciary Excellence, in Toronto, Ontario (http://www.cefex.org).  AMDG Financial has completed the first phase of a process of obtaining certification from CEFEX as to the implementation of these standards, which we should receive shortly.  Wayne is also an Accredited Investment Fiduciary Analyst®.  Not only has he implemented fiduciary processes for his firm, but with this certification, he can perform fiduciary reviews for Investment Stewards, other Investment Advisors or Investment Money Managers. 3. Are you willing to provide full written disclosure for your credentials, ethics, business practices, and wealth management services? Yes.  Attached is AMDG Financial’s ADV, which describes the details of the services we offer.  It is my goal to provide ethical services and to maintain a high level of professional business practices and to always put my client’s interest above my own.  I am also a Certified Public Accountant, which further indicates my dedication to a high standard of ethical business practices. 4. How many years of financial experience do you have? I have been providing investment and financial services through my own financial firm for over five years.  Prior to this, I was a Senior Manager at PricewaterhouseCoopers for six and a half years and a Manager at Ernst & Young for four years.  Please refer to the attached ADV for more information. 5. What is your educational background? Graduated with a Bachelor of Arts in Business Administration from Grove City College. Graduated with a Bachelor of Science in Accounting from the University of South Florida. Additionally, I maintain and attend annual continuing professional education credits which greatly exceed the requirements for my profession. 6. Do you hold any professional certifications or designations? Certified Public Account with a Personal Financial Specialist (CPA/PFS) Certified Information Systems Auditor (CISA) Accredited Investment Fiduciary Analyst® (AIFA) 7. Do you have any disclosures on your NASD or insurance compliance records? No.  This can be confirmed by going to http://www.nasd.org, then doing a search through our CRD number, which is 119569. 8. Do you have any disclosures on your criminal record? No. 9. How are you compensated for your services? AMDG Financial is a Fee-Only advisory firm.  We do NOT accept commission or sell any products as we feel this is a conflict-of-interest. The annual fee for Investment Management Services is charged as a percentage of assets under management, and is inclusive of ALL financial and investment advice as well as integration with tax strategy (does not include tax preparation).  See our Form ADV for further information. 10. Are you willing to provide full disclosure in writing for any potential conflicts of interest that may impact the performance, risk exposure, or expenses of my assets? Yes.  Though we feel that we will never have a conflict of interest putting our client’s interest first, should there ever be a case that arises, we feel it is our duty and obligation to notify you of any potential conflicts of interest and disclose in writing with EVERY client engagement letter. Financial Wisdom for Families, Financial Wisdom for Business Owners, Stewardship 2007-02-10T13:45:00+00:00