The Case for Doing Your Own Investing
You’ve probably been told that investing your own money in the stock market is too risky and that you should depend on professional investment managers. The truth is, you can be successful doing your own investing. If you base your trust on big brokers and financial “wizards” who may not perform well and most often do not have your best interest in mind, you could end up wishing you had invested your money yourself. After all, it’s your money, and you care about it more than anyone else.
Financial concepts can be overly complicated for the individual investor. For example, your company retirement plan offers several different mutual funds, but how do you choose which ones are right for you? Even those funds are highly correlated to the stock market and to each other and rarely outperform the S&P 500 index.
The goal of Cromer Wealth Management is to make financial decisions and concepts easy to understand. We don’t just simply offer investment theories, –we build trading strategies that are meticulously back-tested in bullish and bearish markets. Not only that, but we provide model portfolios that show our members exactly what each strategic portfolio consists of. Combining several non-correlated strategies provides reduced risk and overall stability and maximum profits. Reduced risk is paramount to the financial success of the individual investor. Our customers appreciate the objective and accurate information we offer, and they look forward to our timely updates.
Portfolio Strategies
Some of our portfolio strategies are:
- Index Trader #1 and #2
- Rick’s Models #1, #3 and #3
- Commodities
- Riot 3x
All these models (and others) are designed to outperform the market. You will see below some examples showing the historical performance of some of the strategies.
Index Trader #1
Shown below is the portfolio’s equity growth curve of the Index Trader #1 compared to the performance of the S&P 500 Index. Notice in the 2008-2009 time frame the S&P had a maximum drawdown of more than 50%, whereas the Index Trader #1 had only a 20.3% drawdown. Also notice by protecting your portfolio during drawdowns, that this model outperforms the S&P significantly. The better performance can be seen in the difference in the final balance.
Index Trader #2
Index Trader #2 uses different market indices. Following this strategy, like other strategies, will change your position based on how the market is performing to move into a less risky position. Avoiding big losses makes a big difference in how your portfolio performs.
The following chart shows the cumulative return for the two portfolios, (Index Trader #1 & Index Trader #2), the cumulative return is show in the plot named PF.Combined, and the performance of the S&P 500 ETF, SPY for comparison. Since there was an equal amount allocated to Index Trader #1 and Index Trader #2 portfolios and no allocation for SPY, the cumulative return was an average of the Index Trader #1 and Index Trader #2 portfolios.
The next chart shows the drawdowns of each of these portfolios. The chart illustrates the large drawdown by just holding SPY. By combining two non-correlated strategies, the actual drawdown of the combined portfolio, shown as PF.Combined, resulted in less drawdown than either of the two individual portfolios.
The Risk vs return chart shows increased risk as you move further to the right side of this chart and higher return going up on the x axis. If you can take the same risk, but double your return, your return/risk is much better.
The Performance stats table below contains the performance statistics for each portfolio. The combined portfolio represents 50% allocated to both Index Trader #1 and Index Trader #2 portfolios. During this market period, the SPY ETF had a respectable 10.81% return, the PF.Combined, Index Trader #1 & #2, had an 18.24% annualized return. Looking at the Annualized Std Dev, which represents the volatility, between SPY and the combined portfolio, SPY is slightly more volatile. At Cromer Wealth Management we consider the Annualized Sharpe ratio as an important measure. It indicates the amount of return compared to the risk. The higher the number, the better. Another important statistic is the Worst Drawdown. Notice that SPY shows 50.79% and the combined portfolio shows 17.83%.
Even though these two strategies trade the index ETFs during risk-on periods, the portfolios are just slightly correlated to the S&P. 1 indicates it’s 100% correlated and 0% indicates no correlation. At Cromer Wealth Management there are other strategies that are less correlated than these.
For Very Conservative Investors
One of our more conservative strategies at Cromer Wealth Management is named Rick’s Model #3. The figure below shows the historical value, low drawdown, and conservative nature of this strategy. A couple of points to notice, this chart compares Rick’s Model #3 strategy to a 60/40 benchmark, which is typically used in more conservative portfolios. Notice how smooth the equity curve has grown. This strategy is ideal for retirement accounts or investors that want less risk.
Below is a graph of the Model #3 drawdowns. What’s interesting is that the biggest drawdown wasn’t during the 2001 dot com sell-off or the 2008 financial crises, but it was only 8.2% back in Aug 1990. Also notice that the drawdowns are compared to the industry standard 60/40 conservative benchmark and Model #3 had less than one-third of that drawdown.
For Aggressive Investors
For younger investors or investors willing to take on more risk and volatility, the next strategy has provided a very strong 47% compounded annual growth during the same period compared to the 13.4% return of the S&P 500. This strategy is not for everybody, but if you want to add a little return booster into your portfolio, a small amount allocated to this strategy would do it. Note how an initial investment of $100,000 has grown to $7,980,920 in just over 11 years.
Our goal is to help you outperform the market, with less risk. Each model portfolio aims to outperform the stock market in gains while minimizing risk.
The key is to manage the risk of all your holdings together, rather than considering each one separately. Here at Cromer Wealth Management, we give our members the tools and education they need to effectively manage portfolio risk while maximizing returns.
Comer Wealth Management provides easy-to-follow asset allocation models, doing all of the hard work for you, researching risk levels for each asset class, reporting on returns, and providing allocation models designed for our members.
The most important benefit is the peace of mind you will have knowing your portfolio will have less risk and much greater profits.
Key Points
When combining strategies, the resulting return is based on the average of each of those returns.
Combining non-correlated strategies reduces the overall volatility of you portfolio.