Portfolio Analysis
[private]Your Investment Portfolio Analysis we refer to as The Free Market Investment Analysis (FMIA) is a diagnostic measure of your current investment portfolio or investment holdings. The purpose of this personalized analysis is to first understand the true cost of your investments. Second, help you understand how various mixes or styles of investment portfolios may have performed in the past. There are four components of the FMIA:
Let’s start with an explanation of the cost analysis. Edward O’Neal, a Wake Forest University Professor said,
“Forty-three percent of a fund’s expenses are omitted from their expense rations and the transaction costs of some funds exceed four hundred percent of their expense ratios.”
Mark M. Carhart, USC Professor said,
“Expense ratios, portfolio turnover, and load fees are significantly and negatively related to performance. Expense ratios appear to reduce performance a little more than one-for-one. Turnover reduces performance about 0.95% for every buy-and-sell transaction.”
John C. Bogle, Chairman and Founder of the Vanguard Group said,
“Every 0.10% of lower expenses accounted, on average, for 0.20% of enhanced net return.” “Expenses accounted for 83% of active managers shortfall compared to an unmanaged index, and consumed fully 9% of the funds’ average return.”
Once you understand your true cost we can then show you how to lower your expenses.
Next, the report will include the historical returns of basic asset categories or markets and compares them to every investment’s long-term enemy — inflation.
Further, the report attempts to estimate, via broad-based asset category selection, the current mix of your portfolio and to simulate the mix’s historical risk and reward characteristics.
Finally, we will discuss the Overlap and Style Drift of your current holdings to help you learn what your current asset categories REALLY look like. (What your diversification really is.) The FMIA allows you to compare your portfolio against those of broadly diversified mixes weighted toward small cap investing, international fixed income and equities, and high book to market value securities.
In both the analysis of your current portfolio and the mixes labeled asset allocation portfolios, indices have been used to demonstrate the performance of the various categories chosen. Studies by Brinson, Hood, and Beebower* demonstrate that 91.5% of a portfolio’s performance is determined by its allocation policy. To this end, the goal of free market investing is to provide broadly diversified portfolios that deliver market returns with reduced risk.
Most everyone will say that diversification is important to them and believe that they are diversified. However, in reality, most people are falling extremely short when it comes to actually achieving true diversification in their portfolio. Once you truly understand your current allocations we can then help you to achieve true diversification.
People often ask “why do you go through all this effort for free?” Simple! – when you see the information provided you will say, “This report is terrific!” You will see the type of work Mark does for his clients and realize that this might be the person you need to help with your investing. For those folks who want to talk to Mark further, he can put together options for you that will show you how you can improve your current investment plans.
Before your appointment, there are a few items you will need to prepare to make the most of our time together. First, obtain copies of your most recent investment statements for all of your accounts. Second, please be sure to have listened to the audio CD and read any chapters of Mark’s book he has asked you to read. He will be discussing some of the information on the CD and from his book. Third, complete the Confidential Personal and Financial Profile (we will send you this the week before your appointment.)
You can rest assured that everything is completely confidential. Again, congratulation and we look forward to meeting with you soon. Call our office or just use the form below to contact Mark and get your free initial consultation scheduled.
*Source: “Determinants of Portfolio Performance,” Financial Analysts Journal, Gary P. Brinson, L. Randolf Hood, and Gilbert L. Beebower, 1986, 1990, 1991.
**Disclaimer: Past market performance is no guarantee of future investment performance or success. Diversification does not ensure a profit or guarantee against loss; it is a method used to help manage risk.[/private]
