I’m pleased to report that Pro-Folio Original returned 3.98% for the year ending December 31, 2012. Dividends from SPY, EFA, IEF, and IYR during the periods in which these investments were held, accounted for 1.85%. Market value increases accounted for the remainder of the return.
Pro-Folio PLUS returned 1.56% for the year. (Pro-Folio PLUS is a paid service that offers a more international, less US Dollar-centric portfolio.)
The S&P 500 index alone (as represented by SPY) returned 15.99% for the year, while the “buy-and-hold” portfolio holding the exact same investments as Pro-Folio returned 10.90% for 2012.
The end of 2012 marks 40 years of back-tested data for the Pro-Folio Original strategy, during which time the portfolio experienced only 1 year of loss, which was 2008, the year of the worldwide meltdown. In that year, the method lost less than 1%.
ppens because the model requires the asset class to demonstrate a certain amount of upward momentum before signaling a buy to “get back in.”
In years like 2012 when the US stock market turned positive early on and had a strong run in January before the Pro-Folio method signaled a buy, the Pro-Folio return for that asset class may be lower than the buy-and-hold return.
Remember to Re-balance!
Because different investment funds perform differently each year, their relative size in your portfolio may get out-of-whack over time. It is important to rebalance annually, which means selling a little bit of the funds that have done better, and buying a little bit of the funds that have done worse, so that each investment remains an equal portion of your portfolio. You don’t want to end up with a portfolio that is 60% SPY and 40% everything else! That exposes you to too much risk if SPY takes a hit.
Divide your total portfolio value by 5, and that is the amount that should be invested in each asset class after your rebalancing trades are completed.
Keep a close eye on your money this year! The battles in Congress are going to be fierce. They have already had an effect on the global economy and will continue to do so. Developments in Europe and China will also have an impact this year.
Fortunately for us,
the Pro-Folio model has proven its worth over 40 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.