An Investment Strategy Designed for a Confident Retirement Experience
Our investment strategy? As one of Jacksonville's premier investment advisers, our investment strategies are designed specifically for clients who have worked hard to build a nest egg and are ready to enjoy the fruits of their labor. The strategy contains 4 separate parts:
1) Strategic Allocation,
2) Tactical Overweight,
3) Risk Allocation, and
4) Recession Protocol.
We explain in detail below.
All portfolio returns are related, in some way, to an investor's ability to endure market risk. Our initial meetings are specifically designed to determine your true risk tolerance. After determining (and mutually agreeing to) your risk tolerance, we build a scientifically engineered portfolio designed specifically to meet your goals. Large amounts of research have indicated that Behavioral Finance - essentially an investor's ability to understand, feel confident in, and stick to an investment plan - is far more important than any other factor... especially in retirement.
Most market moves are unpredictable - and successful investors are the ones who can stick to their investment policy despite the inevitable market gyrations which occur as a result of living in a globally linked world. Investing in a portfolio which is too aggressive - which you abandon as soon as the market moves against you - only serves to make your journey more difficult. Conversely, allowing an investor to happily accept a portfolio which is not aggressive enough to generate meaningful returns is equally unproductive. 'Going Broke Safely' is not an acceptable strategy for most people looking to retire. Consequently, we proudly offer our High Confidence Investment Strategy designed to seek market returns - adjusted for your risk tolerance - with built-in safety features that hopefully will allow you to enjoy a productive and optimistic retirement experience.
PARAGON's Money Management Strategy - Ideal for Investors Nearing or Living in Retirement
PARAGON’s investment strategy can be best described as follows:
Strategic Allocation + Tactical Overweight + Risk Overlay+ Recession Protocol
Using data from multiple analysts, our custodians, proprietary subscription models and market data sources, PARAGON offers our proprietary “model” portfolios that are then customized for each client’s personal situation, goals, risk tolerance, and investment return needs.
In general, the building blocks of our portfolios are low-cost, tax efficient exchange traded funds (ETFs), institutional mutual funds, or individual fixed income securities (bonds). Typically we are not stock-pickers, and will gravitate toward strategies that lower the cost of portfolios versus trying to chase returns at the cost of higher expenses.
Strategic Allocation: This concept addresses the “weights” we assign to various asset classes such as large company US stocks, small company stocks, international stocks, growth versus value stocks, and various types and maturity dates of bonds within the portfolio. The ideal weighting of these asset classes will vary depending upon where we are in the current economic cycle and the movement of interest rates. We adjust our strategic allocation occasionally.
Tactical Overweight: Studies have shown approximately 80% of a portfolio’s return comes from its asset allocation – or what “types” of asset classes are in a portfolio. At any given time during an economic cycle, or perhaps when new technologies take hold, certain sectors tend to outperform the broad market. Examples might be real estate stocks, biotechnology, homebuilder stocks, precious metals, etc. It is PARAGON’s intent to have one, or perhaps at most two, tactical sectors expected to outperform the market within the portfolio at any given time. We adjust our tactical overweights as market conditions dictate, but generally not more than several times per year.
Risk Overlay: This concept addresses how much “risk” is inherently in the portfolio. Since our portfolios are fully diversified across many sectors, asset classes, and countries – PARAGON’s primary portfolio risk is known as “market risk.” We can manage market risk by varying the percent of “risky” assets (i.e., stocks) within the portfolio versus safer assets, such as investment grade bonds. For example, if a portfolio consists of 60% stocks and 40% bonds, and the market drops by 20%, it is reasonable to expect that portfolio to drop by approximately 12%. Consequently, since, over the long term, stocks tend to generate more return than bonds, it is reasonable to expect a portfolio with a higher percentage of stocks to outperform a portfolio with fewer stocks over a long period of time. Each PARAGON client fully understands – and we will mutually agree upon – their personal risk overlay prior to investing any money. YOUR risk overlay is adjusted only after discussions with you.
Recession Protocol: Over the last 100 years, the largest market drops (and investor losses) have been caused by recessions. The most memorable recent examples are the Great Recession in 2008, the Tech Bubble Recession in 2000, and the Oil Embargo/Hyperinflation Recession that occurred in 1974. Historically, recessions have occurred approximately once per decade, generating enormous portfolio losses in the process. Stock market crashes during recessions have been the destroyer of retirement dreams for many an investor who retired “at the wrong time.” The typical advice of most advisors, which sounds like “hold on, it will come back,” and “this is a buying opportunity” will work only if you are a young investor with plenty of time to recover and money to invest. "Buy and Hold" does NOT work,however, if you are a retiree taking withdrawals from your portfolio to sustain your standard of living, and suffer a large market loss.
PARAGON is remarkable in that we are one of the few advisory firms that take a proactive approach to avoid losing money during recessions. Recessions are not random events – they are a normal part of every economic cycle. Essentially all economic cycles eventually come to an end, and the “reset button” is the economic contraction that we know as recessions. Recessions come with very specific markers, such as an inverted yield curve, accelerating unemployment, a slowdown in new home construction, a decline in durable goods orders, and many more.
PARAGON employs multiple data sources and algorithms specifically designed to alert us of oncoming recession. When a recession is indicated – and confirmed by cash flows out of the market – it is PARAGON’s policy to trade all client accounts entirely out of stocks and into safer assets that tend to do well during economic downturns – such as Treasury bonds. This is known as PARAGON’s “Recession Protocol.”
We have invested in the technology to effectively execute this action, and we train on it routinely. We can execute Recession Protocol within one day across all client accounts if necessary. When Recession Protocol would cause a taxable event for a client – we discuss it in advance and act according to client wishes. We will not sell a “favorite stock” or a highly appreciated position and give you an unexpected tax bill without talking to you first.
We seek high returns - but even more so, we seek to avoid losing money!
The cause of major market dips, such as the ones that occurred in 2000 and 2008, is the appearance of an economic recession. While we agree with most research that suggests "timing the market" is virtually impossible - we feel that most advisors take this rudimentary research too far, and do not fully understand the dangers of retirees remaining fully invested during recessions. It is our belief (as well as our observation) that by paying close attention to prevailing economic conditions and leading economic indicators, it IS possible to avoid significant market downturns as a result of recession onset. Recessions occur rather infrequently, but are devastating when they do occur. We subscribe to multiple data sources and recession prediction models that allow us to understand the true numbers behind the news, so as to avoid unnecessary trading when political unrest or market volatility occurs - but also to rapidly adjust client portfolios to defensive positioning when recessions appear to be imminent.
Safety of Your Assets:
All client assets are invested ONLY with qualified custodians - national firms that provide trading, custody, and brokerage services to registered investment advisors, trust institutions, and third party administrators. Currently, PARAGON is able to offer institutional-level accounts with both Fidelity and TD Ameritrade. Both custodians meet strict regulatory guidelines, have acceptable trading policies, have maximum investor protections under the Securities Investor Protection Corporation (SIPC), and offer significant pricing discounts for our PARAGON clients that individuals are unable to negotiate on their own. PARAGON never takes custody of client money or securities, clients receive monthly statements directly from their custodian, and clients are able to view their accounts and the investments they own 24 hours per day, 7 days per week, by logging in to Fidelity.com or TDAmeritrade.com.
Our Strategies Are Based Upon 3 Components
Three Factor Model
Kenneth French and Eugene Fama's research determined which sources of risk the markets systematically reward with higher returns. By utilizing this research, we believe it is possible to 1) identify which market segments should be held, and which should generally be avoided or underweighted, and 2) calculate an expected return in a portfolio that is to be held over a reasonably long period of time. Click here to see more information on the Three Factor Model.
Efficient Market Hypothesis
With modern technology, today's markets are generally efficient at setting proper prices. Rarely do stock-picking money managers outperform their market segments for very long - especially without incurring more risk. Even more difficult is trying to pick those managers who may outperform - in advance. Investors enjoy far higher success rates by owning investments that seek to capture the entire returns of each market segment - at the lowest possible cost, and with the least tax impact. Generally, this means that we try to avoid high-cost, high-turnover investment strategies. We do, however, make changes in our portfolios as markets and economic cycles change.
Modern Portfolio Theory
MPT is a Nobel-Prize winning investment theory which allows investors to construct portfolios designed to maximize their expected returns for their specific risk preference. PARAGON portfolios typically use anywhere from 8-20 different asset classes, depending upon a client's risk tolerance. A detailed overview of Modern Portfolio Theory can be found here.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Investment Advisory Services Provided by Paragon Wealth Strategies, LLC, a registered investment adviser.