Happy 2015 dear readers!
I’m pleased to report that Pro-Folio USA returned 5.58% for the year ending December 31, 2014, outpacing an identical buy-and-hold portfolio by 0.6% for the year (4.99%).
For the 15 years ending December 31, Pro-Folio USA averaged 8.07% per year while an identical buy-and-hold portfolio averaged 5.85% through the same period. The average performance advantage by Pro-Folio USA is more than 2.3% annually. Also keep in mind that the Pro-Folio model gets your money out of declining market segments, so while a buy-and-hold portfolio may feel like a rollercoaster in value, the Pro-Folio portfolio typically has little to no down-side (maximum annual loss on record is less than -1%).
Below is a chart of historical returns since 2001:Pro-Folio has delivered an average 2.3%+ better performance every year, with almost no downside risk. While the Buy and Hold portfolio had 3 down years with two of those being very painful (-30%, -10%, and -0.07%), Pro-Folio had only two slight down years (-0.06% and -0.35%).
Pro-Folio is designed to reduce or eliminate the effects of market downturns while performing well in “bull” market periods. Don’t let your financial advisor tell you to “stay invested” while you ride the market to the bottom. You can follow the Pro-Folio model to avoid down-market heartaches and sleep well at night.
Pro-Folio Global returned 4.4% for the year, contributing to a 6-year average of 3.43%. (Pro-Folio Global is a paid service that offers a more international, less US Dollar-centric portfolio.) Pro-Folio Global has underperformed USA over the past few years because the US Dollar has remained strong. In an environment where the value of the US Dollar is declining, Pro-Folio Global is designed to outperform Pro-Folio USA.
The end of 2014 marks 42 years of back-tested data for the Pro-Folio USA strategy, during which time the portfolio experienced only 2 years of loss, 2008 and 2011. In each year, the strategy lost less than 1%.
In evaluating Pro-Folio performance, as with any investment, it is important to look at performance over time, in both up markets and down markets. The chart below compares growth of $10,000 from 2000 through 2013. The methods compared are Pro-Folio USA, Pro-Folio Global (since 2009), the S&P 500 (SPY), and a “buy and hold” portfolio holding the exact same investments as Pro-Folio USA, but never selling them:Since 2000, Pro-Folio USA has significantly exceeded the performance of the “buy-and-hold” portfolio of the exact same investments. As you can see in the above chart, Pro-Folio tends to perform much better than buy-and-hold in down markets because the strategy prevents your portfolio from “riding down to the bottom” when markets turn ugly. On the other hand, Pro-Folio sometimes may miss out on a bit of early-phase growth immediately after an asset class “bottoms out” in price. This happens 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 re-balance 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 re-balancing trades are completed. The dollar difference between your current amount invested in each class and that rebalanced target amount, is the dollar value of what needs to be bought or sold to make each investment about equal with the others.
Keep a close eye on your money this year! The Fed has stopped its quantitative easing policy, putting upward pressure on interest rates (and setting the stage for a big fall in bond prices). The US Dollar has been surging lately, putting the squeeze on USD-denominated foreign debt, such as corporate bonds and sovereign government debt of other nations that is denominated in dollars. As the dollar rises in value, the foreign entities may have trouble paying the increasing interest bill.
Also, the European Central Bank (ECB) has decided to embark on a significant quantitative easing program like the one the Fed just exited – so keep an eye out for dropping value of the Euro as authorities on the other side of the ocean attempt to jump start the economy with vast amounts of money. Lastly, those crazy Swiss: last week, the Swiss National Bank (SNB) abruptly ceased its peg of the Swiss Franc to the Euro, allowing the value of the Swiss Franc to float freely, at which point the value of the Franc jumped up as much as 20%. This makes it harder for people in other countries to buy Swiss goods, or to pay obligations that are denominated in Swiss Francs. Imagine, for example, you have a mortgage denominated in Swiss Francs, but you are paid in Euros. It used to cost you 100 Euros a month to pay your mortage when the exchange rate was 1 to 1. Now, because the exchange rate has changed, you have to come up with 120 Euros to pay your mortgage every month, because the payment due is still 100 Francs.
Fortunately for us, the Pro-Folio model has proven its worth over 42 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.
If you want to get the PDF booklet showing you how to implement the Pro-Folio USA trading model on your own, click here.
If you want to learn more about the Pro-Folio Global upgrade portfolio, click here.
I wish you a very joyful and prosperous 2015!