In this year-end post, we’ll take a look at the 2011 performance of our 5 core investment instruments (on their own, buy-and-hold for the year), the total year-end performance for the Pro-Folio model, and cover the December month-end trade instructions.

Core Component Buy-and-Hold Performance

SPY  – According to Yahoo! Finance, SPY (S&P 500 index fund) ended the year up 0.77%. With multiple 5%+ ups and downs during the year, this was a risky instrument to hold during 2011 without a stop-loss strategy in place. All for a lousy 0.77% return. Until the US and Eurozone get their debt problems figured out, this is the most likely pattern of equity performance for the forseeable future.

EFA – The Europe-heavy EFA performed even worse than SPY, returning -10.25% in the light of universal uncertainty about the future of multiple Eurozone economies. The choices are complete melt-downs or painful austerity measures for a number of sovereign economies, either of which spells trouble for equity markets. Again, until the path is clear on what the governments are going to do, the EFA index isn’t going anywhere.

IYR – The Dow Jones US Real Estate index ended the year returning 1.31% in market return. While this index took a fall in July and August along with many others, it seems to be creeping back toward a buy signal.

DJP – In the face of worldwide economic uncertainties, the demand for raw materials has been slack. The Dow Jones UBS Commodity index returned -10.73% for the year.

IEF – Our one bright spot for the year, the Lehman 7-10 Year US Treasury index returned 13.4% in 2011. As long as global uncertainty remains, the US Dollar and US government obligations continue to be perceived as the safest place to store money. Despite the long-term outlook in favor of declining USD and US economic power, in the short run the markets still believe there is no place better to go.

Pro-Folio Year-End Performance

For the year ended December 31, 2011, including dividends from the investment components during the time that the model was invested in those components, the Pro-Folio portfolio returned -0.35%, performing significantly better than the buy-and-hold portfolio of the same investments, which returned -1.1% for the year.  The Pro-Folio returns also include a return on your cash holdings; we used the national average of 0.22% annual interest on money market funds according to

With these 2011 data now in, we have the following cumulative performance for the period 1973-2011:

Buy-and-Hold Portfolio:
9.72% avg annual return; 11.65% standard deviation (volatility)
Pro-Folio Portfolio: 10.94% avg annual return (1.22% better than buy-and-hold); 6.57% standard deviation (volatility)

I’m quite pleased with Pro-Folio performance for 2011. In a very tough market, we outperformed a buy-and-hold portfolio of the same investments, limiting loss to less than 1/2 of 1 percent, with significantly lower volatility (risk). Though the markets were unfriendly in 2011, this goes down as a win in my book.

Month-End and Year-End Trades

As a
result of current conditions, Pro-Folio
remains on the sidelines for 4 of our 5 investments. Here are the trade

Trade Instructions

Pro-Folio model evaluates its holdings on a monthly basis. As of the
last trading day of December (30th), we have the following trade signals (no change from last month):






For existing investors:

Make no changes in your portfolio. 
You should keep 20% of your portfolio invested in the remaining 1 holding of the Pro-Folio model as shown above.  The other 80% of your portfolio value should be in cash or money market funds.

For new investors:

If you are new to Pro-Folio this
month, you should divide your portfolio into 5 equal parts, and invest
an equal amount of money in each of the securities shown above marked
“HOLD” or “BUY”. Because you didn’t invest in the components of the
model at the time when the buy signals first turned positive, your
returns on these initial trades may not be reflective of model’s typical
expected returns. DO NOT invest in SPY, EFA, DJP, or IYR right now. Stand by with that
portion of your portfolio in cash, awaiting the buy signal.

Signing Off

are very uncertain times in the financial markets. US treasury bonds,
despite all the debate and worry about our debt ceiling and such, are
still considered the safest financial instrument in times of
uncertainty, as demonstrated by the recent increases in US bond prices.
The world’s investors are running to safety.

Fortunately for us,
the Pro-Folio model has proven its worth over 37 years including the
2008 market crash, so we can continue to follow it precisely and expect
that the value of our holdings will be preserved.

In looking at the charts for our core investments, it would seem that several of them are creeping back toward a buy signal. If recent trends continue, I would not be surprised to see a couple of re-investments occur at the end of January or February.

If you want to get the PDF booklet showing you how to implement the Pro-Folio Original trading model on your own, click here.

If you want to learn more about the Pro-Folio PLUS upgrade portfolio, click here

Your Ready-to-Give-Thanks Publisher-

Matt Willson


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