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Could You Sleep Soundly with This Sort of Financial Stress?

On Monday, July 14, 2014 an article appeared in The Sarasota Herald Tribune's Business Monday section written by Robert S. Stepleman. The title of the column is Sleeping Soundly portfolio helps investors do just that. In today's volatile and periodically hectic investing environment such advice is apt to grab our attention.

According to the Dow Wealth Management website, Dr. Stepleman has lectured widely on practical methods for balancing portfolio risk and return. He espouses the view that investing success starts with portfolio design and ensuring that for each investment the potential return justifies the risk taken on by making it.

We couldn't agree more.

Dr. Stepleman, in his July article, lists those assets he recommends for a "2014 'Sleeping Soundly' Portfolio'". That being the case, taking a close look at that portfolio seems appropriate. In fairness to this guy, we must quote his accurate statement: However, no portfolio is right for all investors. Investors should do their own due diligence before considering any stock. We are happy, Mr. Stepleman, to do precisely that, right here.

Dr. Stepleman waxes glowingly, during an upwardly trending market, on the performance of an even dozen selected investments. As we all know, markets do not trend upwardly forever. Let us take a look at how these specific recommended investments actually performed in a downwardly trending market. Of course, past performance is no guarantee of future results, as traditionally disclaimed. Pleasant dreams?

After reviewing the performance of this portfolio in a downwardly trending market it would be far better to rename it, "A Nightmare Portfolio", Dr. Stepleman's credentials notwithstanding. A brief historical performance of these investments over a 2006 to 2009 period, in the order listed, ought to send chills up and down the spines of persons hoping to protect and grow their retirement assets.

AVA - 22.11 to 18.09: loss of 18.2%
BAX - 64.91 to 57.51: loss of 11.4%
EPD - 33.33 to 17.26: loss of 48.2%
K - 57.21 to 35.84: loss of 37.3%
Mat - 29.65 to 10.59: loss of 64.3%
MCD (The sole gainer) 79.76 to 100.74: gain of 26.3%
MCC - No down-market experience (Began in 2010)
NOC - 75.80 to 31.55: loss of 56.1%
PEP - 79.57 to 46.60: loss of 41.43%
SPG - 114.00 to 26.11: loss of 77.09%
WAG - 51.48 to 21.50: loss of 58.23%
WM - 50.91 to 21.50: loss of 57.76%

Even with the single down-market performer, MCD, and with equal amounts invested in each investment, that "Sleeping Soundly portfolio" would have lost more than 40% of its value. If a portfolio's value drops 40% it must rise 66.7% just to recover the losses, and that takes valuable time. You may, if you wish, check out the current prices of these stocks for yourself. How long would it have taken just to recover losses of the recent past? What is likely to occur next? Try to sleep soundly with such a portfolio. I dare you!

If you are anywhere near retirement age, before or after, ponder the above in view of The Sequence of Returns principle.

What is really going on here? Let us review Mr. Stepleman's background a bit. Robert S. Stepleman holds a Ph.D. in Mathematics from the University of Maryland and a B.S. in Physics from the State University of New York at Stony Brook. In addition to teaching at both Rutgers University and the University of Virginia, he spent twenty years at Exxon Research and Engineering Company and seven years with the RCA David Sarnoff Research Center.

This particular investment guru's credentials are comprised of having spent twenty years in the oil and gas industry and seven years in the development of media technology. Interestingly, the RCA David Sarnoff Research Center was established just before the 1941 Pearl Harbor "surprise attack" that lauched our propagandized masses into a horrendously bloody Second World War.

Investors hope and pray today that their retirement assets will be protected and grow. Those funds may have to last them ten, fifteen, twenty, or even thirty years. Since 1900 there have been 22 recessions and we experience downwardly trending markets every 5-6 years, on average. How many 40% drops can retired persons, and persons approaching retirement, afford? How many 30% or 20% drops can they afford? They cannot afford any. Discover sound investment alternatives.

Wouldn't you prefer to have your retirement assets tactically managed using a strategy that has obtained excellent returns during market growth periods and minimized or eliminated losses during inevitable market meltdowns? Wouldn't that strategy drastically reduce your stress and help you sleep more soundly?

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Dangers of
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