UNION RETIREMENT PLAN PARTICIPANTS

 

 

 

 

YOU NEED UPDATED INFORMATION ON PROTECTING YOUR RETIREMENT ACCOUNT WHILE STILL ALLOWING ROOM FOR GROWTH . READ ON. YOU WILL LEARN MUCH. RECENT ARTICLES HAVE DISCLOSED THE INEFFICIENCIES OF PIE CHARTS AND STAR RATINGS WHEN MANAGING MARKET INVESTMENTS. 

 

What is 50 years old and still called Modern?    

 

Modern Portfolio Theory has been the basis of portfolio construction for half a century and is the foundation upon which plan trustees and their consultants stand when selecting investment options for employees. The liability mantra resulting from a litigous society and the assignment of liability to trustees under the 1974 Employee Retirement Income Security Act has become "It's the process, not the outcome."

 

Well, in real life the employees need a viable outcome for a retirement plan to work for them. If it does not work, it is not the company or its owners or officers who suffer the consequences. It is real people with real income needs after a working career comes to an end.

 

Recently, a major academic and proponent of Modern Portfolio Theory admitted that MPT was not intented to protect portfolios from market declines. You must use more current data than the 30 year averages in MPT. The data herein can help you make portfolio adjustments during changing markets.

 

It has become imperative for you to maximize your contributions to your 401k or 403b plan. You do not want to start retirement with inadequate funding. Some people argue these plans should be discontinued. Others claim inadequate retirement reserves is due to employees' inadequate commitment to contribute maximun dollars combined with a lack of investment knowledge. Hopefully, the information in this section will be helpful in making better investment decisions.

 

The portfolio pie charts using historic returns - (looking in the rear view mirror for forward movement) - did not provide the account protection expected by advisors or by investors during 2008 with the crisis in the financial markets. Depending on the baseline data used, portfolios were typlically designed with average returns and volatility starting either in 1929 or in 1979. In some cases, shorter periods were selected to correspond to the history of specific assets that were younger. The year end outcome and loss of capital was unprecedented and created great doubt about the efficacy of continued use of MPT.

  

We can learn from history - specifically, Benjamin Graham, the Father of Portfolio Analysis. He created the first analytical process to "value" a stock. Well known adherents are Peter Lynch, Warren Buffett and John Templeton. There are many "quantitative" investment managers whose processes rely on Graham's value methodology as a foundation to their portfolio decisions.

 

Less well known is Benjamin Graham's development of Point & Figure charting (PnF) processes. Without regard to the passing of time, PnF tracks price movement, up or down and compares the movement to other possible investment choices. The comparison of price movement provides a "relative strength" indicator assisting in the selection of better performing assets.

 

When applied to Asset Allocation, PnF changes the process from long-term historic modelling to current trends referred to as Dynamic Asset Evaluation.   Current returns for asset classes, sectors and industries and individual stocks are compared daily to cash for capital preservation. If cash wins, then cash becomes the safe haven until the other choices provide better return potential. Each major asset class competes daily with the other choices to be represented in a portfolio. This is radically different than a blind insistence on asset classes that are "out of favor" in the financial markets.

 

Relative strength has become a cornerstone of our investment process. It is, in our opinion, the most robust and adaptable method of security analysis. Relative strength has been shown time and time again by portfolio managers and academic studies to be a viable methodology (1) for outperforming the market over time.

 

Relative Strength measures the price performance of a security versus a market average or universe of securities. A security's relative strength can improve if it rises more than the market in an uptrend, or goes down less than the market in a downtrend.

 

Relative strength measurements are undistorted by emotion or personal bias. It is not necessary to interpret whether or not a security is exhibiting strong relative strength. It either is, or it is not. Relative strength screens lead to those securities being rewarded by the market under existing economic conditions.

 

The rankings on our company plan pages are an indication of a given security's relative strength versus the other ranked options. The higher the ranking, number one being the highest, the stronger the security has been over the past ten weeks. This is no guaranty of higher returns but a high relative strength ranking is an indicator that a security is in a favored market sector.

 

The rankings provided are constrained by the choices plan trustees have decided to allow. The rankings do not imply that the lowest ranked choices are inappropiate or "not good" to own. The rankings illustrate normal shifts in the financial market from industry to industry, sector to sector and asset class to asset class.

 

Our theory and reason for providing this resource is that investing continuously in the strongest asset choices should provide a better retirement outcome than dogmatically including choices with lesser relative returns.

 

A Money Market or Stable Value choice is presumed to exist in all plans and will rise in the rankings when other choices are providing negative returns. Paying attention and adjusting your investment election should create a more defensive portfolio in down trending  , bear markets   and allow you to participate with less angst in up trending  , bull markets.

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(1) Dorsey, Thomas. "Point & Figure Charting;" 3rd, Wiley & Sons, Inc. (2007), 104