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Copyright 2013 Tom Madell, PhD, Publisher
July 8, 2013

Our Prior Model Portfolios Are Doing Better Than Previously Thought

By Tom Madell

In the July 2013 Newsletter, we discussed the fact that when compared to a global benchmark, our recent Model Stock Portfolios were doing quite well in spite of the fact that the Portfolios were trailing the S&P 500 index.

As was explained, what this means is that while US stocks have been doing quite well over the last 5 years, a diversified portfolio that also contained foreign stocks would have been doing less well as a result of the latter's considerably lower performance than the S&P 500 and US stocks in general.

Since most US investors do invest in some funds that hold foreign shares, to get an accurate picture of their portfolio's degree of success, one needs to compare the portfolios's performance to a similar benchmark that also contains foreign shares.

Below, I show how one would have done if they had held our Model Stock Portfolios from one, three, and five years ago with this insight in mind. Our global benchmark consists of index performance for a combination including 65% US stocks, 30% developed market foreign stocks, and 5% emerging markets.

From 1 Year Ago (July 2012)

We recommended 67.5% in stocks, 27.5% in bonds, and 5% in cash for Moderate Risk investors.

Overall, the S&P 500 index returned 20.6%, while the bond benchmark returned minus 0.7% and cash near zero. (All returns cited are through 6-30-13.)

Our Model Stock Portfolio, weighted as we recommended and including all listed funds, returned 19.6% vs. 18.4% against a worldwide benchmark giving the Portfolio a 1.2% advantage.

From 3 Years Ago (July 2010)

We recommended 60% in stocks, 35% in bonds, and 5% in cash for Moderate Risk investors.

Overall, the S&P 500 index returned 18.5% (annualized), while the bond benchmark returned 3.5% and cash near zero. (All multi-year data is annualized.)

Our Model Stock Portfolio, weighted as we recommended and including all listed funds, returned 15.8% vs. 14.4% against a worldwide benchmark giving the Portfolio a 1.4% advantage.

From 5 Years Ago (July 2008)

We recommended 45% in stocks, 35% in bonds, and 20% in cash for Moderate Risk investors.

Overall, the S&P 500 index returned 7.0%, while the bond benchmark returned 5.2% and cash near zero.

Our Model Stock Portfolio, weighted as we recommended and including all listed funds, returned 3.7% vs. 3.6% against a worldwide benchmark giving the Portfolio a 0.1% advantage.

This Is Good News for Those Who Put Faith in Our Recommendations

The above data suggests that not only were our overall allocations to stocks, bonds, and cash leading investors to favor the assets that did the best, but also our specific stock fund recommendations managed to come out ahead of merely investing in diversified index funds.

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