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Easy Investment Strategies
What is your idea of an easy investment strategy? Do you want a "set-and-forget" strategy that you can put on automatic pilot and hopefully have a few million dollars at retirement? Do you want to hand over your savings to someone else to manage? Or would you prefer to manage your own investments and follow the guidance of an investment newsletter with a proven track record?
Here are three easy investment strategies to consider. Compare the features, pros and cons of each:
1. Sage Investment Strategies newsletter subscription
2. Lifecycle funds
3. Managed accounts
SAGE INVESTMENT STRATEGIES NEWSLETTER
One of the easiest and most rewarding investment strategies available
is to
simply follow the advice of an investment newsletter with a proven
track record like ours. You'll open your own account at a reputable
discount brokerage firm, subscribe
to our newsletter for
a nominal fee and place your own trades online. By managing
your own investments and following our proven strategy, you could potentially:
- Save thousands of dollars per
year in recurring fees
- Achieve results better than or equal to
other strategies
- Increase risk-adjusted returns
- Avoid prolonged market downturns
- Reduce unwanted portfolio drawdowns
- Reduce portfolio volatility and inconsistency of
returns
- Adopt a lifetime strategy you can stick with
- Feel more confident about your
investments
- Receive weekly updates on the market, economy
and performance of our strategies
- Avoid spending precious time researching investments
Sage Investment Strategies follows an active investment strategy guided by clear rules, expected behaviors and well-defined procedures programmed into a trademarked SISTMTM (the Sage Investment Strategies Timing Model). Testing over a 36-year period (33 years in-sample and 3+ out-of-sample) proves that the SISTM generates not only comparable compounded returns but substantially better risk adjusted returns than a buy and hold investment strategy over the same period.
Take a look at the chart and tables below to see how the Sage Investment Strategies portfolios (solid lines) compared with the S&P 500 Index (black dashed line) and a hypothetical portfolio of 60% stocks and 40% bonds (gray dashed line) over the past three years. Unfortunately, you probably cannot find comparable performance data for lifecycle funds or for managed accounts, particularly when it comes to their measures of risk such as Maximum Drawdown, Standard Deviation or Sharpe Ratio.
LIFECYCLE FUNDS
Sold through major mutual fund and brokerage companies such as Charles
Schwab (Target Funds), Vanguard (Target Retirement Funds), Fidelity
(Freedom Funds) and others, lifecycle funds are all-in-one mutual
funds that
give you a diversified portfolio of stocks, bonds and cash in a single
fund. A lifecycle fund is professionally managed for you to gradually
become more conservative as your retirement year approaches. Purchasing
a lifecycle fund is an easy, "set-and-forget" investment strategy. But
is it the best investment strategy for you?
Although lifecycle funds are professionally managed, they are not immune from volatility. The further out your target retirement year, the more volatile the returns because of the higher percentage allocation to stocks. For example, in the 1-year period ending 2/28/2009 the Vanguard Target Retirement 2005 Fund lost 20.84% while the Vanguard Target Retirement 2050 Fund lost 40.87%. For the same period, the Fidelity Freedom 2005 Fund lost 28.03% while the Fidelity Freedom 2050 Fund lost 45.08%. If you are 40 years from retirement, you can afford to lose 40%-50% of your savings in one year because you have 40 years to recover. However, if you retired in 2005 and had your life savings tied up in one of the 2005 lifecycle funds, how would you feel about losing 20%-30% of your "conservative" investment portfolio in one year?
Besides volatility, investors should look closely at the management fees for lifecycle funds. In addition to the management fee for the lifecycle fund itself, investors may also be indirectly paying the management fees for the underlying funds. If you have a $1 million portfolio at retirement, the difference between a management fee of 0.18% (Vanguard), 0.64% (Fidelity) or 0.96% (Schwab) could cost you as much as $7,800 in additional fees per year.
SEPARATELY MANAGED ACCOUNTS
Another easy investment strategy is to simply pay a professional to
manage your investments. While you own the account, the manager
typically makes all the investment decisions. Every managed account has
an investment objective and each manager typically oversees multiple
individual accounts invested to meet the same objective. Managed
accounts require a minimum amount (e.g., $100,000, $1 million
or more) to open an account.
The performance of a managed account is based on the manager's strategy. An investor should look carefully at the manager's track record of actual results and ask a lot of questions before proceeding. How did their strategy perform during market downturns? What is the standard deviation (a measure of volatility) of returns? What was the maximum portfolio drawdown experienced for the strategy? Managed accounts generally perform no better than mutual funds. Sometimes the managers are one and the same.
If you are going to hand over your money to someone else to manage, you might not want to put all your eggs in one basket. Most people have heard the story of how Bernard Madoff bilked thousands of individual investors, hedge funds, banks, pension plans and charities out of $50 billion through a Ponzi scheme that finally collapsed. Everyone trusted the man with a sterling reputation for delivering consistently better investment returns than anyone on Wall Street. While Madoff is not representative of investment managers as a whole, returns may vary significantly between investment managers.
Fees for managed accounts are based on account size, and typically range from 1.25% to 2.7% of assets per year, depending on the size of your account. The smaller the account size, the larger the percentage. If you have a $1 million managed account, you could pay upwards of $12,500 per year. In addition, separately managed accounts typically suffer from higher trading costs than self-managed brokerage accounts.
CONCLUSION
After reviewing the differences among the three easy
investment
strategies
described above, which strategy would provide you with the best long
term performance - a lifecycle fund, a
managed account or Sage
Investment Strategies newsletter? Our long term risk-adjusted
performance typically outranks lifecycle funds and managed accounts.
Get started now and sign up here for a
free 30-day subscription to Sage Investment Strategies.
