January 2007: Past, Present & Future

Past, Present & Future


Past: 2006 Returns for our managed accounts were strong at +13.0%. We again outpaced our benchmark of comparable balanced mutual funds, the Morningstar Moderate Allocation Category, an index of 800+ balanced mutual funds. Please bear in mind when viewing the various indexes shown, the only “apples-to-apples” comparison for our actual results is our benchmark of comparable balanced mutual funds. (Please see Investment Performance Disclosures.) While the other indexes are interesting, they would require using investment strategies (and levels of risk) completely different from our own.

"Our value proposition as your investment managers is to provide you with above average investment results, after all fees and expenses are subtracted, without taking more risk."

The next chart provides a snapshot of cumulative two year returns (2005-2006) for Asset Allocation Advisors and some popular indexes. This time span coincides with when we adjusted our investment strategy. Since then, Asset Allocation Advisors has outpaced the benchmark (the Morningstar Moderate Allocation Category) each year. This was achieved primarily due to our fund managers’ superior stock and bond selections and, secondarily, due to the asset allocation (mix) of investments chosen by our “A Team” of fund managers.



We are very pleased with our investment results since improving our investment strategy. We hope that you, too, are satisfied.

Present: Making money in virtuous markets is important, but not nearly as important as preserving it when markets incur setbacks, as they routinely will from time to time. Fund manager Steve Leuthold says it well, "Our definition of long-term success is making money...and keeping it."

The single most important characteristic that separates the best mutual fund managers from the rest is the best managers excel at preserving capital in down markets. That doesn’t happen by itself. It is largely dependent on how, when, and why specific stocks and bonds are bought or sold. We refer to this as the “asset allocation” process. Our portfolios are based on decades of investment experience and provide what we have observed to be the best path to meet the standard of sound and effective investing.

  The Asset Allocation Process:

     Each mutual fund manager we have selected adjusts their respective mutual fund portfolio by adding or deleting individual stocks and bonds. Purchases are made when undervalued stocks and bonds are found, thereby reducing cash balances. Conversely, when an investment becomes fully valued, it is sold and cash balances are increased

    Therefore, the asset allocation (i.e., investment mix) of your portfolio is determined as money flows into the investments perceived to be most beneficial to achieving our investment objectives, and out of investments thought to have limited potential for profits. This provides a built-in, ongoing adjustment process that continuously updates the asset allocation of your portfolio as money flows into attractive investments and out of unattractive investments.

Future: Neither we nor anyone else can accurately predict the future. It’s simply not possible. Of course, that won’t stop the media from soliciting “expert” predictions about the coming year. And some of those prognostications may even be correct. (Even a blind squirrel occasionally finds an acorn.)

Fortunately, it isn’t necessary for us to do the impossible and foretell the future. With the portfolios we have constructed, we believe we are in good shape to handle whatever the coming year may bring because our portfolios are guided by an investment strategy based on research, logic and history. We are optimistic that our portfolios are well positioned to weather and take advantage of whatever comes our way.

Thank you! We are grateful for our growing number of clients and wish to acknowledge and thank all of you that have told your friends and associates about our investment services. And, we want to say “Welcome aboard” to the new clients that joined us this past year. Thank you. ***

Greg Schultz & Bruce Grenke
© 2007 Asset Allocation Advisors, Inc.