Model Revisions Needed

There are three things that have prompted me to revise a few of our Monson Wealth Management Models:

1. Market volatility at the beginning of the year
2. Some redundancy across some of our models
3. Recent Bond Market Activity after much careful consideration and deliberation I have decided it would be in my client’s best interest to make the following changes to a few of our models.

High Yield Bond Model is being folded into the Income Model. This will allow me to be invested in High Yield Bonds at the appropriate times over the market cycles but not feel I have to maintain that position during less advantageous times. The spread on the yield between High Yield Bonds and Investment Grade Bonds is at historic lows. You are not getting paid much for the extra risk you take in the high yield market right now. It’s an appropriate time to make this switch.

Momentum Model – Even during last year’s amazing run up, this model under-performed the other aggressive models. Not to sound unappreciative as it still did relatively well, but in the recent pullback it just didn’t hold up well. The recovery eventually came back nicely so now is a good time, in similar fashion to the high yield bond fund model, to close it out. The funds will be transferred equally to the Aggressive Growth Model and the International Model. The Aggressive model is mostly made up of small cap companies and International is what it says it sounds like…it’s pretty global. 😉

Income Model – This is a very conservative model made up 100% of various Bond Funds.With the potential of inflation and raising interest rates the importance of managing the fixed income side of the portfolio can’t be overstated. A lot of people forget you can lose real dollars in bonds when interest rates rise. The longer the duration on the bonds the more this is true. We have put together a mix of some of the best bond managers in the world inside our income model. I still worry about it but I absolutely feel we’ve done our best to manage it and will continue to do so.

S&P 500 Concerns – I’ve had this concern for a while but have obviously been wrong so far. S&P 500 is richly valued, has outperformed the other indexes and markets and it seems many folks I work with or talk to have a sizable percentage of their assets allocated to it. I think this is a mistake. Markets go through cycles and leadership in the market changes. When markets correct which they always do at some point this over allocation to the S&P 500 in so many portfolios could lead to some serious losses. Also, long term market analysis and research shows that the most compounding and largest returns come from exposure to the following factors: value, size & profitability. The S&P 500 has had a terrific run and it has benefited a lot of people but the importance right now of being diversified across market classes and assets is huge. If you’re not sure where you sit let’s chat.

I assure you with which each step I take in the watch care of my clients and their assets, there is careful consideration and deliberation. These changes resulted from that process and I feel strongly that they were needed.