Fall is in the air, and for many Americans, the rituals and enthusiasm of football season are in full effect. Millions of households and corporations band together to participate in Fantasy Football leagues, stocking benches with all-star players and tracking each move and metric all season long. Whether in football or investing, using long-term statistics to analyze and prepare for various scenarios can be an effective game plan; however, with mass media and public opinions around every corner, taking a critical eye to avoid skewed data can be one of the biggest challenges to overcome.
Reviewing the Film
While past performance does not guarantee future success, simulating a portfolio’s performance over a longer time period and with strict mathematical protocols in place, Beacon believes that it thoroughly understands how a particular investment strategy reacts—its ups and downs in bull and bear markets, and how to compensate without undue risk to investors’ money. A key consideration for using historical data to help shape future investment decisions is reviewing the scientific accuracy and protocol of the backtesting methodology. Unfortunately, data can be manipulated to validate just about anything, so keep in mind key caveats including net-of-fee performance numbers and a long enough duration to accurately represent the full swing of performance variation. For example, many mathematicians will consider twenty or more years of market data to capture the range of both boom and bust years in the sample.
A Win-Win Approach
Recent weeks and months have provided a considerably volatile market environment. The Federal Open Market Committee (FOMC) determined at its September meeting that economic conditions have not shown sufficient progress to warrant an increase in short-term interest rates. In order to develop an effective investment game plan for any market conditions, a strategy must include both a strong offense and a strong defense. Offensively, an equal allocation approach in Vantage 2.0 portfolios offers balanced exposure to eleven market sectors. This “team” technique of diversification allows investments to participate in growth opportunities while avoiding overexposure or reliance on a “star player” that can lead to dramatic losses.
Limiting risk to a client’s portfolio is an important part of the Beacon success strategy as losses can be more powerful than gains. Take for instance, given a 35 percent portfolio loss, you will only have a 61.1 percent probability of getting back to even over the next five years according to “The Math of Gains and Losses,” Craig L. Israelsen, Brigham Young University. Automatic stop-loss protections act as the defensive line within Vantage 2.0 portfolios, by attempting to limit losses to ten percent to help keep recovery time to a minimum. Beacon also implements a mechanical buyback philosophy designed to avoid emotional market timing that can leave investors on the sidelines for too long, missing the growth potential of rebound opportunities.
Beacon Capital Management employs a variety of investment strategies that we are have been tested, refined and equipped to take on today’s marketplace. Now is the time to prepare your investment strategy to tackle whatever Q4 may bring. For more information about our philosophy and innovative Vantage 2.0 portfolios, visit BeaconInvesting.com.