Detailed Proposal Prepared For:Johnny and June Cash
Prepared By: David RistauMay 15, 2018
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FINANCIAL PLANNING.
The core of what we do for high net worth clients, pension funds, corporations, retire-ment plans and charitable foundations is guiding them toward their financial goals.
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What We Do
ASSET MANAGEMENT.
We believe in low-cost, simple investment plans in a marketplace of near-limitless complexity. The strategies and solutions we utilize are selected specifically to address the objectives of each client.
INVESTMENT ADVICE.
We work directly with clients on a conflict-free, fee-only basis. We are held to a Fiduciary Standard as a registered investment advisory firm (RIA) and giving the right advice is the soul of our firm. No one pays us but you, we serve no other interest but those of our clients.
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TheRiskProfilequestionnaireisdesignedtohelpevaluateyourtoleranceforrisk.Youranswershavebeentalliedtodetermineyourriskscoreandcategory.Youradvisorcanusethisinformationtodesignanappropriateinvestmentportfolio.Ifyoudonotagreewiththisanalysis,youmayadjusttheriskcategoryontheInvestmentPolicyStatementwithyouradvisor.Youradvisorwillthendevelopanappropriateinvestmentportfoliobasedontherevisedinformation.
ThisriskscoreputsyouintheModeratecategory.
RiskProfile
ConservativeModeratelyConservative Moderate
ModeratelyAggressive Aggressive
Conservative:1-10%Acceptingoflowerreturnsforahigherdegreeofstability
Seeksprincipalpreservationandminimizingrisk
ModeratelyConservative:11-20%Comfortableacceptingasmalldegreeofriskvolatility
Acceptingoflowerreturnsinexchangeforminimallosses
Moderate:21-30%Acceptingofmoderaterisktoseekhigherlong-termreturns
Acceptingofshort-termlossesofprincipalinexchangeforlong-termappreciation
ModeratelyAggressive:31-40%Willingtoacceptsignificantrisk
Mayendurelargelossesinfavorofpotentiallyhigherlong-termreturns
Aggressive:41-50%Willingtoacceptsubstantialrisk
Maximizinglong-termreturnsismoreimportantthanprotectingprincipal
21%
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ThesurveybelowwastakenonJune7,2018.
Survey
Goals
1.Whatisthemaingoalforyourinvestments? Steadilygrowmyassets
2.Iexpecttopullmoneyfrommyinvestmentsin: 11-20years
Financials
1.Selectyourcurrentnetworth(excludingprimaryresidence):
500K-1M
2.Pleaseindicateyourcurrentannualhouseholdincome: 125,001-200,000
3.Pleaseselectthemostcomplexinvestmentyouhaveowned,orwouldbecomfortableowning:
MutualFunds/ETFs
RiskTolerance
1.Whichbestdescribesyourtolerancetorisk? Iaimforinvestmentgrowth,acceptingmoderateriskofloss
2.Thischartshowsthepotential1-yearrisk/returntradeoffofa$100,000investment.Whichwouldyouchoose?
+2,000
-0
3.Imaginethataninvestmentyouownlost30%ofitsvaluein3days.Whatwouldyoudo?
Sellallofmyshares
4.Youmakeaninvestment,planningtoholditfor5years.Itthenloses20%initsfirstyear.Howdoyoureact?
Iwouldwaittoseehowitcontinuestoperform
5.Thefollowingchartsshowthepotentialperformanceofaninvestmentover10years.Whichwouldyouchoose?
S&P500 Investment
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Holdings %Allocation DollarValue
CurrentIRA 100.00% 400,000.00
Total 400,000.00
Recommendation %Allocation DollarValue
TheThreeLittlePigsHL20/80Benchmark 14.00% 56,000.00
TheThreeLittlePigsModerateModel 86.00% 344,000.00
Total 400,000.00
AccountsSummary
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Holdings($400,000) Recommendation($400,000)
62% Equities 36% FixedIncome
<1% Alternative 2% Cash
54% Equities 44% FixedIncome
<1% Alternative 2% Cash
HoldingsEEM 12.50% iSharesMSCIEmergingMarketsETF
Fund-DiversifiedEmergingMkts
FCNTX 12.50% FidelityContrafundFundFund-LargeGrowth
MWHYX 12.50% MetropolitanWestHighYieldBondFundClassMFund-HighYieldBond
VOO 12.50% VanguardS&P500Fund-USIndex
AGG 12.50% iSharesCoreU.S.AggregateBondETFFund-Intermediate-TermBond
FOX 12.50% Twenty-FirstCenturyFox,Inc.DiversifiedCommunicationServices
AAPL 12.50% APPLEINCTechGiants
84247PGB1 12.50% SoCalPubWtrFixedIncome
HoldingsSPY 15.70% SPDRSP500ETF
Fund-USIndex
VTSMX 12.90% VanguardTotalStockMarketIndexFundInvestorSharesFund-LargeBlend
MDBAX 12.90% BlackRockBasicValueFundInvestorASharesFund-LargeValue
XLP 12.90% ConsumerStaplesSelectSectorSPDRFundFund-LargeBlend
BND 12.90% VanguardTotalBondMarketIndexFundETFSharesFund-Intermediate-TermBond
VTEB 12.90% VanguardTax-ExemptBondIndexFundETFSharesFund-MunicipalBond
AGG 11.20% iSharesCoreU.S.AggregateBondETFFund-Intermediate-TermBond
MPHQX 8.60% BlackRockTotalReturnFundClassKSharesFund-Intermediate-TermBond
PortfolioAllocations
62%Equities
54%Equities
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StressTestSummary
Holdings Recommendation
Theabove"potentialdownside"numberisthehypotheticallosstheportfoliocouldexperiencebasedonthepotentialdownsidescenariodefinedbelow.Thesescenariosare"what-if"economicsimulationsdoneontheportfolio.
PastCrashesThisscenariolooksathistoricalmarketcrashes,andasks"Whatifthishistoricalcrashhappenedtoday?"
FinancialCrisis9/1/08-3/9/09
S&PValuationWhatimpactwouldashiftintheS&P500cyclically-adjustedPEratiohaveontheeconomy?
17CAPE-LongTermAverage21CAPE-TypicalRecession44CAPE-All-timeHighs
Recommendation
-21%*
-23%
Holdings
-21%*
-38%
Recommendation
-19%
-14%
+13%
Holdings
-35%
-26%
+26%
-38%-$152K
-23%-$91,077
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*Thedashedlinerepresentsyourrisktolerance.
TechBubbleAretechcompaniesintheearlystagesoftransformingthewholeeconomy,oraretheysettingupfora2000-stylecorrectioninvaluations?
TechCrashBullMarketCorrectionTechHitsY2KValuations
OilPricesWhatisthefutureimpactofchangingOilpricesontheglobaleconomy?
CommoditiesPerfectStorm$90-IranSanctionsReinstated
BaselineThisscenarioexaminestheimpactofstraightforwardmovesineconomicindicators.
S&P500Down20%Treasuryratesup100bpS&P500Up10%
Recommendation
-7%
-2%
+5%
Holdings
-18%
-9%
+11%
Recommendation
-10%
-1%
Holdings
-18%
-3%
Recommendation
-7%
+0%
+6%
Holdings
-13%
+1%
+10%
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Theinformationhereexploresothermeasuresofrisk.Pleaseseedisclosuresforaglossaryandexplanationofcalculations.
Holdings Recommendation
Forward-LookingRisk/Return
HistoricalCalcsTimeframe:June7,2013toJune7,2018
RiskStats
StressTestRisk
CorrelationRisk
S&P500Beta
PerformanceStats
TotalReturn
MaxDrawdown
Volatility
PortfolioStats
Yield
SharpeRatio
SortinoRatio
Expenses
ExpenseRatio
Fee%Thehypotheticaltotalreturnmaynotincludealldeductedfees(e.g.AUMfee)andchargesinherenttoinvesting.
RiskStatistics
PotentialDownside:-$152K
ExpectedReturn(5Yr):+$227K
PotentialDownside:-$91,077
ExpectedReturn(5Yr):+$138K
-38% -23%
0.38 0.44
0.74 0.50
* 43.96% 37.98%
-12.82% -6.53%
6.29% 5.25%
1.91% 2.19%
0.83 0.82
1.14 0.93
0.30% 0.21%
N/A N/A*
-38% -23%
+57% +34%
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Performancehistorymeasuresthereturnofeachportfolioincludingdividends,andsubtractinganyfees.Itassumestheportfolio'sallocationtodayhasremainedconstantoverthetimeperiodselected.Thereturnsarebacktestedandnotreflectiveofanyactualtradedaccount.Pleaserefertothedisclosurepageformoreinformation.
Timeframe:June7,2013toJune7,2018
TheThreeLittlePigsHoldings TheThreeLittlePigsRecommendation
HypotheticalPerformanceHistory
Jul2013 Jan2014 Jul2014 Jan2015 Jul2015 Jan2016 Jul2016 Jan2017 Jul2017 Jan2018-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Holdings
+43.96%
Recommendation
+37.98%
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Thechartbelowshowsthehistoricaldownsideperformance(inpercentageterms)foreachportfolio.Thelowestpointonthechartshowsthemaximumlossincurredbyeachportfoliooverthedepictedtimeframe.Pleaserefertothedisclosuresformoreinformation.
Timeframe:June7,2013toJune7,2018
TheThreeLittlePigsHoldings TheThreeLittlePigsRecommendation
HypotheticalDrawdownAnalysis
Jul2013 Jan2014 Jul2014 Jan2015 Jul2015 Jan2016 Jul2016 Jan2017 Jul2017 Jan2018-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
HoldingsPeak:May-18-2015Trough:Feb-08-2016
-12.82%
RecommendationPeak:Jan-22-2018
Trough:Apr-30-2018
-6.53%
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TheThreeLittlePigsHoldings($400,000) TheThreeLittlePigsRecommendation($400,000*)
Holdings Recommendation% $ % $
ExpenseRatio 0.30% $1,190.00 0.21% $850.59AUMFee N/A $0.00 N/A $0.00TotalFees 0.30% $1,190.00 0.21% $850.59
*Forcomparisonpurposes,bothportfoliosaredepictedashavingthesametotalvalue.
HoldingsSymbol Name/Category ExpenseRatio Cost CategoryFeeRange
FeeAttribution
ExpenseAnalysis
MWHYX MetropolitanWestHighYieldBondFundClassMFund-HighYieldBond
0.86 $430.00 0.10 0.86 1.93
FCNTX FidelityContrafundFundFund-LargeGrowth 0.74 $370.00 0.01 0.74 2.54
EEM iSharesMSCIEmergingMarketsETFFund-DiversifiedEmergingMkts 0.69 $345.00 0.18 0.69 2.39
AGG iSharesCoreU.S.AggregateBondETFFund-Intermediate-TermBond
0.05 $25.00 0.01 0.05 1.65
VOO VanguardS&P500Fund-USIndex 0.04 $20.00 0.02 0.04 1.96
Thefollowingpositionsdonotchargeanyfees:FOX,AAPL,84247PGB1
$1,190.00TotalFees
$850.59TotalFees
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RecommendationSymbol Name/Category ExpenseRatio Cost CategoryFeeRange
MDBAX BlackRockBasicValueFundInvestorASharesFund-LargeValue
0.82 $423.12 0.01 0.82 2.06
MPHQX BlackRockTotalReturnFundClassKSharesFund-Intermediate-TermBond
0.39 $134.16 0.01 0.39 1.65
VTSMX VanguardTotalStockMarketIndexFundInvestorSharesFund-LargeBlend
0.14 $72.24 0.00 0.14 2.12
XLP ConsumerStaplesSelectSectorSPDRFundFund-LargeBlend 0.13 $67.08 0.00 0.13 2.12
SPY SPDRSP500ETFFund-USIndex
0.09 $59.35 0.02 0.09 1.96
VTEB VanguardTax-ExemptBondIndexFundETFSharesFund-MunicipalBond
0.09 $46.44 0.01 0.09 1.76
BND VanguardTotalBondMarketIndexFundETFSharesFund-Intermediate-TermBond
0.05 $25.80 0.01 0.05 1.65
AGG iSharesCoreU.S.AggregateBondETFFund-Intermediate-TermBond
0.05 $22.40 0.01 0.05 1.65
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StyleAnalysis
Holdings
Value
Large 8
Blend
30
Growth
58
Mid 1 1 2
Small 0 0 0
Recommendation
Value
Large 44
Blend
23
Growth
21
Mid 6 4 2
Small 0 1 0
Holdings Recommendation
MarketCapAnalysis
Small Mid Large
0.2% 3.7%
96.1%
1.9%11.3%
86.8%
MarketCapReturns
Past90Years
Past30Years
Past10Years
Large-CapStocksS&P500Index
9.7% 7.1% 4.6%
Mid-CapStocksRussellMidcapIndex
10.2% 8.7% 5.7%
Small-CapStocksS&P600SmallCapIndex
11.9% 7.4% 6.8%
Holdings Recommendation
StyleAnalysis
Value Blend Growth
9.4%
30.8%
59.8%
49.6%
27.2%23.2%
StyleReturnsPast30Years
Past20Years
Past10Years
LargeValueIndexRussell1000ValueIndex
6.5% 4.7% 3.3%
LargeBlendIndexRussell1000Index
7.1% 5.2% 5.1%
LargeGrowthIndexRussell1000GrowthIndex
7.3% 4.9% 7.5%
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SectorAnalysis
Holdings Recommendation
ConsumerDiscretionary
ConsumerStaples
Energy
Financials
Healthcare
Industrials
Materials
RealEstate
Technology
Telecommunications
Utilities
6.9
2.3
2.6
11.7
3
2.7
2.6
0.80.8
40.5
26.4
0.60.6
7.2
29.2
6.1
15.1
11.8
6.6
2
1.51.5
14.4
2.8
3.3
ConsumerDiscretionary
ConsumerStaples
Energy
Financials
Healthcare
Industrials
Materials
RealEstate
InformationTechnology
Telecom
Utilities
as%ofequityallocation
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GeographicAnalysis
Holdings Recommendation
Domestic Developed EmergingMarkets
78.7%
6.6%14.6%
97.7%
2.3% 0%
DevelopmentTypeHoldingsByRegion Holdings Recommendation
NorthAmerica
79% 98.1%
LatinAmerica 2.1% 0%
Europe 1.6% 1.9%
AsiaPacific 15.7% 0%
MiddleEast+Africa
1.5% 0%
7979%%vsvs98.198.1%%
2.12.1%%vsvs00%%
1.61.6%%vsvs1.91.9%%
15.715.7%%vsvs00%%
1.51.5%%vsvs00%%
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FixedIncomeAnalysis
Holdings Recommendation
Long Intermediate Short
13.6%
37.6%
48.8%50.7%
32.7%
16.6%
TermAnalysis
Holdings Recommendation
Municipal Corporate Government0%
62.6%
37.4%30.8%
25.6%
43.6%
TypeAnalysis
InterestRateRisk Holdings Recommendation
AverageYield 2.62% 2.71%
AverageDuration 2.94 5.82
CreditQuality Holdings Recommendation
AAA 40.77% 54.29%
AA 1.41% 17.41%
A 5.65% 12.51%
BBB 9.65% 12.7%
BB 19.36% 0.68%
B 18.29% 0.63%
BelowB/Unrated 4.86% 1.79%
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Ticker Name/Industry Holdings Recommendation
MWHYX MetropolitanWestHighYieldBondFundClassMFund-HighYieldBond
12.50%
FCNTX FidelityContrafundFundFund-LargeGrowth
12.50%
EEM iSharesMSCIEmergingMarketsETFFund-DiversifiedEmergingMkts
12.50%
AGG iSharesCoreU.S.AggregateBondETFFund-Intermediate-TermBond
12.50% 11.20%(-1.30%)
VOO VanguardS&P500Fund-USIndex
12.50%
FOX Twenty-FirstCenturyFox,Inc.DiversifiedCommunicationServices
12.50%
AAPL APPLEINCTechGiants
12.50%
84247PGB1 SoCalPubWtrFixedIncome
12.50%
MDBAX BlackRockBasicValueFundInvestorASharesFund-LargeValue
12.90%
MPHQX BlackRockTotalReturnFundClassKSharesFund-Intermediate-TermBond
8.60%
VTSMX VanguardTotalStockMarketIndexFundInvestorSharesFund-LargeBlend
12.90%
XLP ConsumerStaplesSelectSectorSPDRFundFund-LargeBlend
12.90%
SPY SPDRSP500ETFFund-USIndex
15.70%
VTEB VanguardTax-ExemptBondIndexFundETFSharesFund-MunicipalBond
12.90%
BND VanguardTotalBondMarketIndexFundETFSharesFund-Intermediate-TermBond
12.90%
ComparePositions
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AnnualizedReturnsforHoldings
Symbol NameExpenseRatio YTD 1Year 3Years 5Years 10Years
SinceInception
Ann.Return Volatility Drawdown
MWHYX MetropolitanWestHighYieldBondFundClassM
0.86 -1.59% 0.24% 2.61% 2.57% 6.38% 7.21%Sep-30-2002
6.92% -28.32%
FCNTX FidelityContrafundFund 0.74 9.81% 21.75% 14.54% 15.66% 10.38% 11.77%Jan-01-1980
17.88% -47.98%
EEM iSharesMSCIEmergingMarketsETF
0.69 1.97% 14.35% 6.93% 4.84% 1.53% 11.53%Apr-14-2003
21.72% -61.46%
AGG iSharesCoreU.S.AggregateBondETF
0.05 -3.05% -2.34% 0.98% 1.50% 3.30% 3.57%Sep-29-2003
3.37% -7.34%
VOO VanguardS&P500 0.04 5.40% 14.97% 11.45% 13.13% 14.71%Sep-09-2010
10.63% -15.10%
FOX Twenty-FirstCenturyFox,Inc.
N/A 25.75% 42.72% 6.09% 7.31% 10.12% 9.80%May-19-1986
34.88% -80.76%
AAPL APPLEINC N/A 12.29% 26.67% 15.90% 27.06% 23.22% 17.75%Dec-08-1980
102.90% -86.51%
Total(SinceSep-09-2010) 5.17% 12.62% 6.86% 7.55% 8.26% 6.29% -12.82%
AnnualizedReturnsforRecommendation
Symbol NameExpenseRatio YTD 1Year 3Years 5Years 10Years
SinceInception
Ann.Return Volatility Drawdown
MDBAX BlackRockBasicValueFundInvestorAShares
0.82 3.37% 11.11% 4.99% 8.93% 6.98% 8.54%Oct-17-1994
16.50% -54.96%
MPHQX BlackRockTotalReturnFundClassKShares
0.39 -2.86% -2.00% 1.36% 2.43% 2.93% 2.65%Dec-03-2001
5.96% -20.91%
VTSMX VanguardTotalStockMarketIndexFundInvestorShares
0.14 5.89% 15.52% 11.09% 13.07% 9.47% 9.65%Apr-27-1992
15.07% -54.03%
XLP ConsumerStaplesSelectSectorSPDRFund
0.13 -9.46% -10.53% 3.47% 6.94% 8.66% 5.43%Dec-21-1998
12.70% -34.60%
SPY SPDRSP500ETF 0.09 5.38% 14.91% 11.38% 13.18% 9.34% 9.52%Jan-25-1993
14.87% -53.89%
VTEB VanguardTax-ExemptBondIndexFundETFShares
0.09 -0.89% -0.37% 2.05%Aug-25-2015
2.41% -5.27%
AGG iSharesCoreU.S.AggregateBondETF
0.05 -3.05% -2.34% 0.98% 1.50% 3.30% 3.57%Sep-29-2003
3.37% -7.34%
BND VanguardTotalBondMarketIndexFundETFShares
0.05 -2.99% -1.88% 1.07% 1.45% 3.23% 3.55%Apr-09-2007
3.13% -4.84%
Total(SinceAug-25-2015) -0.54% 2.86% 6.28% 5.25% -6.53%
Thevaluesherearecalculatedfromeachinvestment'sreporteddataandpricehistory.Past
HistoricalReturns
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performanceisnotindicativeoffutureresults.Investingalwaysinvolvesriskandyoumayincuraprofitorloss.Noinvestmentstrategycanguaranteesuccess.Pleaserefertothedisclosurepageformoreinformationonthesecalculations.
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*Thedashedlinerepresentsyourrisktolerance.
StressTestDetails
CurrentTotal=$400,000.00 ScenarioTotal=$248,415 Total%=-37.9(+/-2.90%)
CurrentTotal=$400,000.00 ScenarioTotal=$308,914 Total%=-22.8(+/-2.85%)
PastCrashes:FinancialCrisis9/1/08-3/9/09Description:ThisscenariocoversthetimeframefromSeptember1,2008throughMarch9th,2009,andmeasuresthehistoricalchangeofeachleveroverthosedates.
Outcome:ThisscenariooutcomereflectstheeconomicmovementsbetweenSept.1,2008andMarch9th,2009.Formonthlyandotherlessgranularlevers,thenearesttimeperiodisused
Timeframe:6MonthsScenarioProgress:0%Complete
Levers Current Projected Change
S&P500 2772.35 1438.85 -48.1%
10YUSTYield 2.97% 2.13% -0.84%
12MT-BillYield
2.32% 1.48% -0.84%
CPI 2.43% -0.51% -2.94%
EUR 1.18$ 1.05$ -11.02%
Oil 65.52$/barrel 24.12$/barrel -63.19%
RetailSales 4.68% -1.26% -5.94%
Unemployment 3.8% 5.9% 2.1%
USGDPGrowth
2.86% -0.36% -3.22%
USD 93.9(IndexValue)
108.3(IndexValue)
15.34%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
-56.7%
-7.2%
-46.9%
-0.0%
-21%*
-43.3%
+1.6%
+1.1%
-0.0%
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*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$258,548 Total%=-35.4(+/-2.74%)
CurrentTotal=$400,000.00 ScenarioTotal=$323,459 Total%=-19.1(+/-2.47%)
S&PValuation:17CAPE-LongTermAverageDescription:WhatiftheS&P500suffersacorrectioninvaluationdowntolongtermaveragelevels(downto17CAPE)?
Outcome:ThelongtermaverageCAPEmultiplefortheS&P500isaround17,comparedto33atthestartof2018Adeclineofroughly45%fromthosehighswouldberequiredtonormalizetheS&P500CAPEmultipleThisassumesonlyamodestriseinearnings,asthescenariowouldbeaccompaniedbyabroadereconomicslowdown
Timeframe:1YearScenarioProgress:0%Complete
Levers Current Projected Change
S&P500 2772.35 1524.79 -45.0%
10YUSTYield 2.97% 1.77% -1.2%
12MT-BillYield
2.32% 0.78% -1.54%
CPI 2.43% 0.47% -1.96%
EUR 1.18$ 0.98$ -16.95%
Oil 65.52$/barrel 33.12$/barrel -49.45%
RetailSales 4.68% -3.6% -8.28%
Unemployment 3.8% 8.2% 4.4%
USGDPGrowth
2.86% -1.48% -4.34%
USD 93.9(IndexValue)
105.1(IndexValue)
11.93%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
-53.6%
-5.5%
-44.2%
-0.0%
-21%*
-39.6%
+5.3%
+7.7%
-0.0%
22
*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$294,782 Total%=-26.3(+/-2.64%)
CurrentTotal=$400,000.00 ScenarioTotal=$345,008 Total%=-13.7(+/-2.16%)
S&PValuation:21CAPE-TypicalRecessionDescription:WhatiftheS&P500experiencesatypicalrecessionarycorrection,bringingtheCAPEmultipledowntotheaverageofthe1990and2003recessions?
Outcome:TheS&P500CAPEmultipledroppedby17%duringthe1990recession,andby23%in2003DroppingtoaCAPEaround21wouldrequireamarketdeclineofnearly35%fromS&P500at2500Valuationsaremuchfurtherextendedtoday,withearningsgrowthprovidingonlyapartialcushionforapotentialrecessionarycorrection
Timeframe:1YearScenarioProgress:0%Complete
Levers Current Projected Change
S&P500 2772.35 1819.16 -34.38%
10YUSTYield 2.97% 2.49% -0.48%
12MT-BillYield
2.32% 1.42% -0.9%
CPI 2.43% 1.71% -0.72%
EUR 1.18$ 1.07$ -9.32%
Oil 65.52$/barrel 44.1$/barrel -32.69%
RetailSales 4.68% 0.86% -3.82%
Unemployment 3.8% 5.72% 1.92%
USGDPGrowth
2.86% 0.99% -1.87%
USD 93.9(IndexValue)
101.18(IndexValue)
7.75%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
-41.4%
-1.4%
-33.7%
-0.0%
-21%*
-29.8%
+5.6%
+5.0%
-0.0%
23
*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$505,664 Total%=26.4(+/-2.01%)
CurrentTotal=$400,000.00 ScenarioTotal=$452,179 Total%=13.0(+/-1.72%)
S&PValuation:44CAPE-All-timeHighsDescription:CanlowinterestratesandagrowingeconomyenabletheS&P500tosustainlevelsofvaluationfarabovelong-termaverages?
Outcome:TheS&P500reachedanall-timehighCAPE(cyclically-adjustedPEratio)of44.19inDecember1999,atthepeakofthedot-combubbleReachingthoselevelswouldimplyanS&P500riseto3600fromaround2700atthestartof2018Thelasttimethislevelofvaluationwasreached,theensuingcrashhalvedtheS&P500overthefollowing2.5years
Timeframe:1YearScenarioProgress:8%Complete
Levers Current Projected Change
S&P500 2772.35 3614.88 30.39%
10YUSTYield 2.97% 4.52% 1.55%
12MT-BillYield
2.32% 3.48% 1.16%
CPI 2.43% 2.69% 0.26%
EUR 1.18$ 1.2$ 1.69%
Oil 65.52$/barrel 75.47$/barrel 15.19%
RetailSales 4.68% 4.85% 0.17%
Unemployment 3.8% 3.62% -0.18%
USGDPGrowth
2.86% 3.37% 0.51%
USD 93.9(IndexValue)
91.69(IndexValue)
-2.35%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
+42.7%
-0.5%
+31.0%
-0.0%
-21%*
+29.7%
-7.1%
-5.5%
-0.0%
24
*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$326,664 Total%=-18.3(+/-2.13%)
CurrentTotal=$400,000.00 ScenarioTotal=$372,910 Total%=-6.8(+/-1.78%)
TechBubble:TechCrashDescription:Whatiffrothytechsectorvaluationscomecrashingdown,butdoesn'tcompletelydestroythemarketasawhole?
Outcome:TechcompaniesandtheNasdaqwouldfeelthemostpaininthisscenarioTechisnotthesolemarketdrivertoday,soadownturnwouldbemoremutedthanin2000TheFedmightattempttocombatacrashwithQEandlowrates,proppingupothersectorslikehousing
Timeframe:1YearScenarioProgress:0%Complete
Levers Current Projected Change
Nasdaq 7689.24 5059.52 -34.2%
S&P500 2772.35 2245.6 -19.0%
10YUSTYield 2.97% 2.37% -0.6%
12MT-BillYield
2.32% 2.18% -0.14%
CPI 2.43% 2.29% -0.14%
EUR 1.18$ 0.99$ -16.1%
Oil 65.52$/barrel 47.52$/barrel -27.47%
RetailSales 4.68% 1.8% -2.88%
Unemployment 3.8% 4.4% 0.6%
USGDPGrowth
2.86% 1.88% -0.98%
USD 93.9(IndexValue)
95.5(IndexValue)
1.7%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
-29.3%
-0.2%
-26.5%
-0.0%
-21%*
-15.7%
+4.0%
+4.9%
-0.0%
25
*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$362,687 Total%=-9.3(+/-1.65%)
CurrentTotal=$400,000.00 ScenarioTotal=$391,272 Total%=-2.2(+/-1.21%)
TechBubble:BullMarketCorrectionDescription:Whatiftechcompanyvaluationsnormalize,erasingtherecentoutperformancebytheNasdaq?
Outcome:TheNasdaqhasoutperformedtheS&P500byroughly10%overthelastyearDropintechvaluationsmightstartinprivatefunding(VCs)andspreadtopublicmarketsAmildcorrectionintheNasdaqmightensue,withlesserimpactsonothermajorequityindices
Timeframe:1YearScenarioProgress:0%Complete
Levers Current Projected Change
Nasdaq 7689.24 6089.88 -20.8%
S&P500 2772.35 2495.12 -10.0%
10YUSTYield 2.97% 2.73% -0.24%
12MT-BillYield
2.32% 2.32% 0.0%
CPI 2.43% 2.43% 0.0%
EUR 1.18$ 1.15$ -2.54%
Oil 65.52$/barrel 61.92$/barrel -5.49%
RetailSales 4.68% 4.5% -0.18%
Unemployment 3.8% 3.8% 0.0%
USGDPGrowth
2.86% 2.72% -0.14%
USD 93.9(IndexValue)
96.3(IndexValue)
2.56%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
-16.3%
+2.4%
-15.6%
-0.0%
-21%*
-7.4%
+4.2%
+4.0%
-0.0%
26
*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$443,137 Total%=10.8(+/-1.53%)
CurrentTotal=$400,000.00 ScenarioTotal=$420,392 Total%=5.1(+/-1.18%)
TechBubble:TechHitsY2KValuationsDescription:WhatiftechgiantscontinuerisingsothattheirvaluationsonaP/Ebasisaresimilartothatofthe2000peak?
Outcome:NasdaqwillcontinuetorallyfasterthantheoverallmarketastechcompaniesdominatemoremarketsGDPgrowthandinflationwillbemutedastechnology-baseddeflationspreadstomoresectorsTechnologywillenablenewcapabilities,butwillalsocontinuetodisplacemiddleclassjobs,sothatunemploymentstaysflat
Timeframe:1YearScenarioProgress:49%Complete
Levers Current Projected Change
Nasdaq 7689.24 9014.34 17.23%
S&P500 2772.35 3011.23 8.62%
10YUSTYield 2.97% 3.46% 0.49%
12MT-BillYield
2.32% 2.82% 0.5%
CPI 2.43% 2.64% 0.21%
EUR 1.18$ 1.16$ -1.69%
Oil 65.52$/barrel 62.78$/barrel -4.18%
RetailSales 4.68% 4.68% 0.0%
Unemployment 3.8% 3.95% 0.15%
USGDPGrowth
2.86% 3.0% 0.14%
USD 93.9(IndexValue)
95.52(IndexValue)
1.73%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
+16.3%
+1.7%
+13.5%
-0.0%
-21%*
+9.7%
-0.3%
+0.6%
-0.0%
27
*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$346,335 Total%=-13.4(+/-1.97%)
CurrentTotal=$400,000.00 ScenarioTotal=$373,274 Total%=-6.7(+/-1.42%)
Baseline:S&P500Down20%Description:WhatiftheS&P500hasastrongcorrectionandfalls20%overashorttimeframe?
Outcome:A20%correctionisusuallyassociatedwithaslowdowninGDPgrowthandariseinunemploymentInterestrateswouldfallsignificantlyasinvestorsbraceforarecessionMostinvestableassetsincludingrealestate,commodities,andpreciousmetalswouldseesomedecline
Timeframe:1YearScenarioProgress:0%Complete
Levers Current Projected Change
S&P500 2772.35 2217.88 -20.0%
10YUSTYield 2.97% 2.49% -0.48%
12MT-BillYield
2.32% 1.9% -0.42%
CPI 2.43% 2.01% -0.42%
EUR 1.18$ 1.05$ -11.02%
Oil 65.52$/barrel 52.92$/barrel -19.23%
RetailSales 4.68% 4.14% -0.54%
Unemployment 3.8% 4.2% 0.4%
USGDPGrowth
2.86% 2.02% -0.84%
USD 93.9(IndexValue)
97.1(IndexValue)
3.41%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
-22.4%
+1.6%
-19.2%
-0.0%
-21%*
-16.6%
+5.3%
+4.4%
-0.0%
28
*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$405,986 Total%=1.5(+/-1.11%)
CurrentTotal=$400,000.00 ScenarioTotal=$400,244 Total%=0.1(+/-1.14%)
Baseline:Treasuryratesup100bpDescription:Whatif10yeartreasuryratesrise100basispointsasinterestratesnormalize?
Outcome:A100bpriseinratesmightoccurindependentofotherlargemarketmoves30yearmortgagerateswouldbemostimpacted,risingtothe5%rangeIfinterestratespreadswiden,couldbepositiveforfinancialfirmsandlenders
Timeframe:1YearScenarioProgress:0%Complete
Levers Current Projected Change
S&P500 2772.35 2800.07 1.0%
10YUSTYield 2.97% 3.97% 1.0%
12MT-BillYield
2.32% 2.82% 0.5%
CPI 2.43% 2.43% 0.0%
EUR 1.18$ 1.17$ -0.85%
Oil 65.52$/barrel 65.52$/barrel 0.0%
RetailSales 4.68% 4.68% 0.0%
Unemployment 3.8% 3.8% 0.0%
USGDPGrowth
2.86% 2.86% 0.0%
USD 93.9(IndexValue)
93.9(IndexValue)
0.0%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
+2.8%
-0.6%
+1.2%
-0.0%
-21%*
+2.7%
-3.2%
-2.4%
-0.0%
29
*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$439,089 Total%=9.8(+/-1.56%)
CurrentTotal=$400,000.00 ScenarioTotal=$425,285 Total%=6.3(+/-1.21%)
Baseline:S&P500Up10%Description:WhatiftheS&P500rises10%,inlinewithitslongtermaveragesince1950?
Outcome:Since1950theS&P500hasrisenroughly10%peryearincludingdividends(7.7%without)AsmallriseinratesmightaccompanythiskindofaverageperformanceInflationandcommoditiespriceswouldlikelybeheldincheck
Timeframe:1YearScenarioProgress:0%Complete
Levers Current Projected Change
S&P500 2772.35 3049.58 10.0%
10YUSTYield 2.97% 3.21% 0.24%
12MT-BillYield
2.32% 2.6% 0.28%
CPI 2.43% 2.57% 0.14%
EUR 1.18$ 1.21$ 2.54%
Oil 65.52$/barrel 67.32$/barrel 2.75%
RetailSales 4.68% 4.68% 0.0%
Unemployment 3.8% 3.7% -0.1%
USGDPGrowth
2.86% 3.28% 0.42%
USD 93.9(IndexValue)
93.9(IndexValue)
0.0%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
+14.3%
+2.4%
+9.8%
-0.0%
-21%*
+11.0%
+0.9%
+2.0%
-0.0%
30
*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$328,951 Total%=-17.8(+/-2.49%)
CurrentTotal=$400,000.00 ScenarioTotal=$360,066 Total%=-10.0(+/-1.94%)
OilPrices:CommoditiesPerfectStormDescription:Whatifthecommoditiesdropandsubduedinflationareapreludetoamarketcorrection?
Outcome:EquitiesmarketsgenerallyunderperformindeflationaryperiodsIfcommoditiesandCPIareindeedpredictingfallingprices,thestockmarketandeconomicgrowthmightbothnotbefarbehindThisscenariowouldlikelyexacerbatethetrendwhichstartedwiththeoildrop-weaknessinenergyandmaterials,andrelativestrengthintechandconsumer-orientedsectors
Timeframe:1YearScenarioProgress:0%Complete
Levers Current Projected Change
Oil 65.52$/barrel 45.0$/barrel -31.32%
S&P500 2772.35 2070.95 -25.3%
10YUSTYield 2.97% 2.37% -0.6%
12MT-BillYield
2.32% 1.76% -0.56%
CPI 2.43% 1.59% -0.84%
EUR 1.18$ 1.09$ -7.63%
RetailSales 4.68% 2.88% -1.8%
Unemployment 3.8% 4.0% 0.2%
USGDPGrowth
2.86% 1.6% -1.26%
USD 93.9(IndexValue)
97.1(IndexValue)
3.41%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
-27.8%
-1.3%
-24.1%
-0.0%
-21%*
-21.5%
+3.8%
+4.3%
-0.0%
31
*Thedashedlinerepresentsyourrisktolerance.
CurrentTotal=$400,000.00 ScenarioTotal=$388,150 Total%=-3.0(+/-1.37%)
CurrentTotal=$400,000.00 ScenarioTotal=$394,778 Total%=-1.3(+/-1.16%)
OilPrices:$90-IranSanctionsReinstatedDescription:WhatifIran'saccesstoworldoilmarketsiscutoffbyarestartofUSandEuropeansanctions?
Outcome:TheUSalreadyreinstatedIransanctions,butEuropecontinuestonegotiateoverIran'snuclearprogramOilpricesmightspikeupwardifIranianoilproductioniscurtailedAmildpriceshockmightslowgrowthabitintheUSandothermajorenergyconsumers
Timeframe:1YearScenarioProgress:23%Complete
Levers Current Projected Change
Oil 65.52$/barrel 83.94$/barrel 28.11%
S&P500 2772.35 2575.46 -7.1%
10YUSTYield 2.97% 2.79% -0.18%
12MT-BillYield
2.32% 2.43% 0.11%
CPI 2.43% 2.9% 0.47%
EUR 1.18$ 1.17$ -0.85%
RetailSales 4.68% 4.82% 0.14%
Unemployment 3.8% 4.0% 0.2%
USGDPGrowth
2.86% 2.67% -0.19%
USD 93.9(IndexValue)
95.25(IndexValue)
1.44%
Holdings
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
Recommendation
Equities-Stocks
FixedIncome-Bonds
Alternative-Alt
Cash-MoneyMarket
-21%*
-5.8%
+1.8%
-6.4%
-0.0%
-21%*
-4.8%
+2.9%
+3.2%
-0.0%
32
ClientAcknowledgement
ClientSignature Date ClientSignature Date
WealthAdvisorSignature Date WealthAdvisorSignature Date
Iunderstandthatthisreportisonlyaguidetobuildinganoverallfinancialsolution,andrecognizethatthereareotherfactorstoconsiderwhenmakingportfoliodecisions.Thepurposeofthisreportistoestablishaclearunderstandingbetweentheclient(s)andtheadvisorastotheinvestmentguidelinesandgoalsfortheinvestor'sassets.Pleasereviewtheunderlyingassumptionscarefully.Pastperformanceisnoguaranteeoffutureresultsandprincipalvaluesfluctuatewithchangingmarketconditions.
Theinformationpresentedinthisreportisforillustrativepurposesonlyanddoesnotconstituteinvestmentadvice.Theresultspresentedherearehypotheticalandmaynotreflecttheactualgrowthofinvestments.Thedatapresentedmayexcludecommissions,saleschargesorfeeswhich,ifincluded,wouldhavehadanegativeeffectontheannualreturns.Investinginsecuritiesinvolvesriskoflossthatclientsshouldbepreparedtobear.ItshouldbeassumedthatinvestmentslistedinthisreportarenotFDICinsured.
Investorsshouldconsideraninvestment'sobjective,risks,charges,andexpensescarefullybeforeinvesting.InthecaseofETFs(ExchangeTradedFunds)andmutualfunds,theassociatedprospectuscontainsthisandotherimportantinformationwhichshouldbeconsideredbeforeinvesting.Theadvisorwillassisttheclient(s)inmakinginvestmentdecisionsbasedinindividualneeds,objectives,andrisktolerance.Theclient(s)is/areresponsibleforprovidingvalidinformationontheirfinancialstatus,risktolerance,goals,andmustnotifytheadvisorofanychanges.
IherebyaffirmthatIhavereviewedtheinformationpresentedinthisreport.Iacknowledgethattheinformationaccuratelyreflectsmyinvestmentobjectivesandgoals.Onatimelybasis,Iwillinformtheadvisor(s),inwriting,ofanymaterialchangesinourfinancialsituationand/ormyinvestmentobjectives,whichmightaffecttheinvestmentofmyassets.
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Disclosures
ExcludedTickers:
TheThreeLittlePigsRecommendation:VTEB:Excludedfromchartsandriskmeasuresbecauseithasinsufficientdataforthistimeframe.Important:
TheprojectionsgeneratedbyHiddenLeversregardingthelikelihoodofvariousinvestmentoutcomesarehypotheticalinnature,donotreflectactualinvestmentresults,andarenotguaranteesoffutureresults.Assumptionsonratesofreturnandstandarddeviationusedinthisanalysisarebasedonhistoricalreturndataforeachsecurityandassetclass.Pastperformanceisnoguaranteeoffutureresults.Resultsmayvarywitheachuseandovertime.Youcannotinvestdirectlyinabenchmarkorindex.Indexresultsdonotreflectfees,expenses,orsaleschargesincurredwhenmakinginvestments.Allcalculationsinthisproposalarebasedondatafromthepreviousday'smarketclose.Thepreviousdayreferstothedaybeforethedateprintedonthecoverpageandintheheaderofeachpage.
Forindividualfixedincomeinstruments(bondCUSIPS,preferredshares,CDs,etc.),HiddenLeversbackfillsperformancedata.ForsymbolsrecognizedasaUSTreasury,theBarclays3-7YearTreasuryBondIndexisused.Formunicipalbonds,theBarclaysCapitalMunicipalBondIndexisused.Forpreferredequities,iSharesS&PU.S.PreferredStockdataisused.Forotherfixedincomeinstruments,theBarclaysUSAggregateIndexisused.ThesebackfillsaffectcalculationsontheRiskStatistics,HypotheticalDrawdownComparison,HypotheticalPerformanceHistory,andHistoricalReturnssections.Youradvisormaychangethesebackfillsiftheydeemitappropriate.
MethodologyUsedtoGeneratethisReport:Definitions:Beta-Betameasurestherelationshipbetweenaninvestmentandamajormarketindex(theS&P500isusedinthisreport).Abetaof1.0meansthata1%riseintheS&P500couldleadtoa1%riseintheinvestment,whileabetaof-0.5meansthata1%riseintheS&P500couldleadtoa0.5%dropintheinvestment.ThebetaforaninvestmentisdeterminedbyusingregressionanalysistomeasuretherelationshipbetweenthereturnsoftheinvestmentandthereturnsoftheS&P500.HiddenLeversuses10yearsofdatatomeasurethebetaforaninvestment.Forinvestmentswithlessthan10yearsofhistory,allavailablehistoricaldataisused.
CategoryFeeRange-Therangeisdeterminedbytakingtheaveragefeeofallfundsinacategory,andthendeterminingthestandarddeviationoffeesfromthataverage.Thelowendofthefeerangeissettobetwostandarddeviationsbelowtheaverage,andthehighendofthefeerangeissettobetwostandarddeviationsabovetheaverage.CrossCorrelations-HiddenLeversmeasuresthecorrelationbetweeneverypairofinvestmentsintheportfolio.Thecorrelationresultscanvarybetween1and-1,whereacorrelationof1meansthattwoinvestmentsmovetogetherperfectlyovertime,andacorrelationof-1meansthattwoinvestmentsmoveinoppositedirectionsovertime.
ExpectedReturn-Thisisthe5-yeartotalreturnoftheportfoliobasedonthestresstestscenariosselectedforthereport.Thesystemtakestheweightedaverageoftheeconomicscenariostocalculateaone-yearreturn,whichisthencompoundedtodeterminethefive-yearreturn.
Lever-HiddenLeverstracksdifferentlevers(economicindicators)likeCPI,USGDPGrowth,andoilprices,andusesmovementsintheseleverstodefineeconomicscenarios.
LeverImpact-Theleverimpactssectiondescribestheimpactofdifferenteconomicleversontheportfolioasawhole.AnS&Pleverimpactof1.0,forexample,meansthata1%riseintheS&P500isprojectedtoleadtoa1%riseintheportfolio.HiddenLeverssimilarlymeasurestheimpactofarangeofeconomicleversontheportfolio.
MaximumDrawdown(MDD)-thisismeasuredasthelargestpercentagedropinapositionduringthetimeframeofmeasurement.
Scenario-Ascenarioisarepresentationofamajormacro-economicorgeopoliticaleventwhichhasthepotentialtoimpactinvestmentreturns.HiddenLeversmodelsscenariosasasetofup-or-downmovementsinanyoftheeconomicindicators(levers)inthesystem.
ScenarioImpacts-UsingHiddenLevers'stresstestingmodel,anupsideanddownsideimpactareprojectedfortheportfolioineachscenario.Mostscenariosaremodeledwithmultiplepotentialoutcomes,withbothpositive,neutral,andnegativeoutcomesconsidered.ThebestandworstprojectionsarederivedfromrunningthedifferentscenariooutcomesagainsttheportfolioinHiddenLeversmodel.Thescenario-basedstresstestingmodelisdiscussedindetailintheMethodsectionbelow.
SharpeRatio-TheSharpeRatioistheameasureforcalculatingrisk-adjustedreturn,andthisratiohasbecometheindustrystandardforsuchcalculations.ItwasdevelopedbyNobellaureateWilliamF.Sharpe.TheSharperatioistheaveragereturnearnedinexcessoftherisk-
34
freerateperunitofvolatilityortotalrisk.HiddenLeverscalculatestheSharperatiobysubtractingshortterm(1M)T-billratesfromtheportfolio'sannualizedtotalreturn,andthendividingbytheportfolio'svolatility(annualizedstandarddeviation).
SortinoRatio-TheSortinoRatiosubtractstherisk-freerateofreturnformtheportfolio'sreturn,andthendividesthatbythedownsidedeviation.
StressTestRisk/Reward-TheStressTestRisk/Rewardcomparestheportfolio'spotentialdownsideriskagainstthe5yearexpectedreturnoftheportfolio.DownsideRisk:Thisisthemaximumdownsidecalculatedacrossallofthescenariosincludedinthereport.5YearExpectedReturn:HiddenLeversfirstcalculatestheexpectedreturnfortheportfoliobycalculatingtheone-yearweightedaverageexpectedreturnacrossallincludedscenarios.Theone-yearexpectedreturnisthencompoundedtoobtaina5yearreturnestimate.Historically,majordownsideeventsoccurroughlytwiceadecade,making5yearsanappropriatetimeframeforcomparisonoflongtermreturnsanddownsidescenariorisk.
Volatility-HiddenLeversmeasuresvolatilityastheannualizedstandarddeviationofaninvestmentorportfolio,expressedinpercentageterms.Thestandarddeviationiscalculatedusingweeklydatapoints,andisthenannualizedbymultiplyingbythesquare-rootof52(numberofperiodsinoneyear).
PotentialDownside-PotentialDownsideiscalculatedbytakingtheaccountvalueandmultiplyingbythemostpotentialdownsideseenintheportfoliothroughstresstestslistedinthestresstestsection.TotalReturn-Calculationofreturnsofallsecuritiesinsideofportfoliooverthetimeframeselectedforproposal.Thecalculationassumesthesameportfolioforentiretimeframerebalancedweekly.Yieldandexpenseratioforeachsecurityisincludedinthiscalculation.
ExpenseRatio-Theexpenseratioisaweightedaverageofthemostrecentlydisclosednetexpenseratioforsecuritiesintheportfolio.
Yield-Theweightedaverageofthecurrentyield(dataupdatedmonthly)forsecuritiesintheportfolio.
Method:
Thisreportdescribesoneormorepotentialscenarios,andshowstheHiddenLevers-modelbasedperformancefortheportfolioineachscenario.Thestepsbelowareperformedtogeneratetheprojections:Scenario->Levers->Assets(Stocksetc)->PortfolioReturn
Ascenariopushesleversupordown,whichinturnpushassetsupordown,whichinturnimpactaportfolio'smodeledreturninthescenario.Asdefinedabove,ascenarioismodeledasasetofmovementsinthelevers.Regressionanalysisisusedtodeterminethehistorical(prior10year)relationshipbetweeneachleverandeachassetintheportfolio.Themodelisthenrun2500timesforeachscenario/portfoliocombination.Ineachiteration,themodelprojectsthereturnsforeachassetusingthehistoricalregressioncoefficientsforeachlever,andusingthescenarioassumptionsonhoweachleverwillchange.Themodelvariestheregressioncoefficientsforeachiterationusinganormaldistributionaroundtheirmean(similartoaMonteCarlomodel'svaryingofexpectedreturnsacrossiterations),andaggregatestheresultsofthe2500iterationstofindameanportfolioreturnwitha95%confidenceinterval.Theconfidenceintervalisdisplayedonthereportas"marginoferror"foreachscenario.
LimitationsandAssumptions:
EachscenariodiscussedinthisreportisdefinedbytheeconomicassumptionslistedintheMacroImpactsectionofeachscenariopage.HiddenLeversdoesnotguaranteethatanyparticularscenariowilloccurasmodeledinthisreport.HiddenLeversuseshistoricalanalysisinthecreationofthisreport,andpastperformanceisnotaguaranteeoffutureresults.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.
GxWorksLLC,makerofsoftwareusedtocreatethisreport,makesthefollowingdisclosures:GxWorksLLC's(GxWorks)missionistoeducateandprovideusefulmacroriskanalyticaltoolstohelpprovidedatatoassistwiththeinvestmentdecisionprocess.GxWorksreliesonfinancialdata,includingstockprices,providedbythirdparties.Thedataisbelievedtobeaccurate,butGxWorksdoesnotguaranteeorwarrantythisdata.Thisreportisintendedonlyasaninformationaltoolforyouandyourinvestmentadvisor,andshouldnotinanywaybeconstruedasinvestmentadvicebyGxWorks.Ifyoumakeinvestmentdecisionsbasedoninformationyoureceiveinconnectionwiththisreport,youdosoatyourownriskandneitherGxWorksnoritsemployeeswillbeliableforanylossesthatyoumayincur.GxWorks,itsemployees,officersoraffiliates,insomeinstances,mayhavelongorshortpositionsorholdingsinthesecuritiesorotherrelatedinvestmentsofcompaniesmentionedherein.Usersofthisshouldconducttheirownindependentresearchandduediligenceandconsultwiththeirinvestmentadvisorbeforemakinganyinvestmentdecisionsorrecommendations.
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