January 23, 2006
Dear Client:
We evaluate your portfolio's performance by comparing your portfolio return to the appropriate weighted index of the same asset allocation. The "Model Portfolio Benchmark Returns" table contains the weighted index returns that correspond to our clients' Investment Policy asset allocations.
Your Investment Policy calls for an asset allocation of 100% bonds. The return of the corresponding benchmark for 2005 was 2.4%, as shown in the following table:
Model Portfolio Benchmark Returns1
| |
Q4 2005 |
2005 |
3 Years |
3 Years
Annualized |
| 100% equity |
2.5% |
7.4% |
67.5% |
18.8% |
| 90% equity + 10% fixed income |
2.3% |
6.9% |
61.3% |
17.2% |
| 75% equity + 25% fixed income |
2.0% |
6.2% |
52.3% |
15.1% |
| 60% equity + 40% fixed income |
1.7% |
5.4% |
43.6% |
12.8% |
| 50% equity + 50% fixed income |
1.5% |
4.9% |
37.9% |
11.3% |
| 100% fixed income |
0.6% |
2.4% |
11.3% |
3.6% |
Index Returns2
| Index |
Asset Class |
Q4 2005 |
2005 |
2003-2005 |
3 Years
Annualized |
| S&P 500 |
U.S. Large-Cap Stocks |
2.1% |
4.9% |
49.7% |
14.4% |
| Russell 1000 Value |
U.S. Large-Cap Value Stocks |
1.3% |
7.1% |
62.2% |
17.5% |
| Russell 2000 |
U.S. Small-Cap Stocks |
1.1% |
4.6% |
82.2% |
22.1% |
| MSCI EAFE |
Foreign Stocks |
4.1% |
13.5% |
89.2% |
23.7% |
| Lehman Aggregate Bond |
Bonds |
0.6% |
2.4% |
11.3% |
3.6% |
This March marks our tenth anniversary. I incorporated the business before the start of the dot.com era. Our staff of five provides comprehensive financial planning and portfolio management to seventy families.
Now that I'm a lot older and a little wiser, I'd like to share some of my thoughts and experiences with you. Any resemblance to real clients is purely intentional.
It's not about the money.
| Sounds funny coming from a financial manager. But it's about helping people achieve their goals, protect their families, and be able to sleep at night. |
We're not "giving" you investment returns, we're making sure you get what you are entitled to: market returns.
| A prospect called me a few years ago, a referral from someone who is not a client. The man wanted to talk about my investment strategy, how I "picked the winners". One of his first questions was "how much money do you run?" That question makes me want to run. (FYI, we manage $75 million.)
Since 75% of managers underperform the market, just getting the market return puts you in front of the pack.
|
Can someone please explain to me...
| ...why the big brokerage firms do not report portfolio returns relative to an appropriate benchmark in their account statements? Why the statements are twenty pages long, and require a PhD in finance to decipher? How people are supposed to know if their broker is doing a good job? (By the way, the brokers now call themselves "financial consultants" or "advisors".)
An elderly uncle of mine announced that his broker "made him a ton of money". "Uncle Henry", I said, "how much did you make?" His answer: $300,000 on a portfolio of $2,000,000 in 1998.
"Uncle Henry", I said. "That's a 15% return, in a year that the S&P 500 was up 29%. You ought to have a chat with the guy."
|
Just because someone has been successful in their work, it doesn't mean he will be a successful investor.
| Just being smart doesn't make you a great investor. Some of my clients are brilliant, but I don't expect them to perform brain surgery without ten or twenty years of study and experience. And even then they wouldn't operate on their own family.
|
Don’t delay, do it now!
| I did a financial plan for a married couple a few years ago. No children, early forties. The wife worked at UC Berkeley, with a nice salary and great benefits. The husband worked in the restaurant business, with low income and no benefits. One of the recommendations was for the wife to purchase life insurance with a substantial death benefit.
A day after our meeting, she was diagnosed with breast cancer. She has since recovered, but the cost to obtain life insurance is now prohibitive.
|
Don’t even think about timing your initial investments to take advantage of market conditions.
| You may get it right once or twice, but the times you don't will cost you much more. If anyone could do it consistently, they wouldn't be talking about it - they'd be too busy making billions.
|
Don’t believe friends or family who say they are beating the markets buying stocks.
| People only talk about the winners. A fancy car, big house, or vacation property doesn't translate into a sound financial condition; the owners are often in debt up to their noses, have no savings for their kids' college, are underinsured, and on their way to a cat food diet in their golden years.
|
Finally, my most important advice: DO recommend Grubman Financial to your friends.
Our best wishes to you and your family for a happy, healthy and successful new year.
Regards,
Audrey Grubman
1MODEL PORTFOLIOS ARE CALCULATED AS FOLLOWS:
| |
S&P 500 |
RUSSELL 2000 |
EAFE |
LEHMAN
AGGREGATE |
| 100% equity |
50% |
20% |
30% |
0% |
| 90% equity + 10% fixed income |
45% |
18% |
27% |
10% |
| 75% equity + 25% fixed income |
38% |
15% |
23% |
25% |
| 60% equity + 40% fixed income |
30% |
12% |
18% |
40% |
| 50% equity + 50% fixed income |
25% |
10% |
15% |
50% |
| 100% fixed income |
0% |
0% |
0% |
100% |
2Index returns include reinvested dividends
|
