First, is cash an asset class?
Second, a few comments about the latest economic data.
Ok, we’ve all heard that investing in to cash really isn’t investing. However, cash is considered to be an integral part of an investor’s portfolio. And it can be a significant part when the market is in decline, like what we’ve recently witnessed. Since it doesn’t really pose any capital risk, it can at times, be a great place for even a significant portion of one’s investment portfolio because it protects your money.

The risk/reward trade off works this way… the more you have in cash, the lower returns you might receive but, it beats losing money, especially when the declines are volatile and somewhat significant. Nonetheless, the All-Climate Portfolio has been mostly in cash recently due to a relatively higher risk/reward ratio. In other words, right now it is considered to be a poor time to “take on” risk in the market. This “is” the reason the All-Climate Portfolio (ACP) utilizes “inverse” mutual funds… so that it has the opportunity to profit in a falling market. Hence, the reason it maintains a “market neutral” investing process; a process whereby over time (3-5 years), it has the opportunity to be profitable in a long term rising or falling market. Although every quarter does not work this way, this last calendar quarter is a good example; the S&P500 had a negative calendar quarter and the ACP was positive.

So, bottom line, over time, the All-Climate Portfolio is expected to successfully navigate long term negative market periods and do it with its eye on the risk factor. Minimizing risk is a key factor in the active investment process; it’s really what it’s all about so this “is” the reason you have seen the All-Climate Portfolio to a great degree in cash over this last month; to minimize risk.

Second – Latest Economic Data

Seems the data has gotten worse recently, not better. We just learned that Chinese imports and manufacturing are sinking further, while deflation is deepening… that’s NOT a good thing. It’s a sign of increasing pressure on the global economy. And here in the U.S., September job growth missed estimates by a wide margin and retail sales and producer prices slumped further. It is also being reported that corporate earnings are falling at the fastest rate since the tail end of the Great Recession. Bad news has flowed from great companies as diverse as Caterpillar (CAT), FedEx (FDX), Ryder Systems (R), and JPMorgan Chase (JPM).

Then Wal-Mart Stores (WMT) stated yesterday considerably lower expectations for profits for the next couple years, causing the stock price to fall slightly over 10% in a single day! The world’s largest retailer said “sales won’t rise at all next year, while rising expenses will hurt profit.”

These markets remain volatile. The U.S. economy remains lukewarm, and overseas…Germany’s economy is faltering – with industrial production sliding, major problems at Deutsche Bank and Volkswagen – and the refugee crisis is starting to strain not only Germany’s budget, but budgets all over the European Union. Whew, that’s a lot.

The economic strain that I have been speaking of in past market commentary is building momentum. I truly believe we are still in its early stages, so it is normal to expect a lot of noise in the markets, a lot of up and down movement… and the markets sure are showing it – “volatility” remains the word of the year. The fundamental and technical developments I’m seeing validate the cautious approach I’ve been recommending since early this summer. I’m very glad the All-Climate Portfolio utilizes cash to minimize risk as well as invest into inverse positions… it makes sense and is expected over time to protect our assets. If every one of us had a 30 or 40 year time horizon, significant declines are not much of a concern, however, that is just not the case for most of us investors in our later years. So, we proceed with caution.

As always, please feel free to contact us with any questions.



Performance Disclosure

Any reference to performance and portfolio results data has been compiled by reliable third-party sources by using information we believe to be reliable but cannot be guaranteed. Performance results illustrated are net of 2.5% management fees .The fee for investment management will be based on the quarter ending value of the account for the previous calendar quarter and is payable quarterly in advance. Performance results also include the reinvestment of dividends and other earnings. Client accounts will invest in leveraged and inverse mutual funds; such funds may seek to enhance returns through the use of financial instruments such as derivatives, swaps, and options, as well as short sales. Although such instruments may improve fund returns, they also increase the funds’ risk of loss and magnify the funds’ potential volatility. Most leveraged and/or inverse mutual funds “reset” daily, meaning that they are designed to achieve their stated investment objectives on a daily basis. Due to the effect of compounding, the return for investors who invest for a period different than one trading day may vary significantly from the fund’s stated goal as well as the target benchmark’s performance. This is especially true in very volatile markets or if a leveraged fund is tracking a very volatile underlying index. Such funds are considered speculative investments and should be used only by investors who fully understand the risks and are willing to absorb potentially significant losses. Due to the increased risks of leveraged and inverse funds, portfolio’s are suitable only for investors who are able to withstand significant volatility in the value of their investment, and who do not foresee the need to liquidate their investment for at least three to five years.

Current performance may be higher or lower than the performance presented. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of a portfolio. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.

Caution Regarding Statistical Measurement: Investors are cautioned that although statistical measurements may be useful when analyzing an investment, they are subject to material assumptions and limitations, and should not be used as the sole basis for making an investment decision. Favorable statistical measurements do not guarantee that an investment will be profitable or achieve an investor’s objectives.

Comparisons to Indices: The mutual funds utilized in client portfolios seek to provide investment results that, before expenses, generally correspond to the price and yield performance of their respective indices as well as utilize different types/methods of calculations.

Although The Wealth Pilot relies on and utilizes both reputable and third-party investment sources and software as well as accepted industry conventions in its reporting of performance calculations, this data has not been audited by an independent third-party source and has not been prepared to meet compliance with Global Investment Performance Standards.

Past performance is no guarantee of future results. Investing in equity markets involves risk; you could lose a significant portion or all of your original investment. All recommendations are based upon our experience and may or may not have been profitable in the past, now or in the future.

Information pertaining to The Wealth Pilot’s advisory operations, services, and fees is set forth in The Wealth Pilot’s current disclosure statement, a copy which is available from The Wealth Pilot upon request.




Leave a reply