Investment Process

Portfolio Rx serves investors who are comfortable when risk is significantly lower than that of the markets – and are happy when we exceed market returns.

We hope you join the Portfolio Rx investor family. When you do, you will notice a remarkable change in the way your account is managed. We make it happen with ETFs (Exchange Traded Funds). ETFs offer investors guaranteed low costs, more tax benefits and a way to quickly and easily target special assets to own that should go up even as the markets go down. You will likely benefit from increased income and growth as a result of lower expenses and proven investment solutions.

We think of our Investment Process as the 5 by 15 Solution. The 5 stands for years and the 15 is for up and down percentage change. We used the 15 twice.

The first use of the 15% is as a benchmark. Because our goal is to double money in 5 years, we need to grow it at 15% year over year. We’ve evolved an essential strategy to help us do that and call it “Go Where it’s Working”.* The second use of the 15% is as a trigger for our core risk management discipline. We’ve named that essential strategy ”Down and Out”.

We gave these strategies simple names because we want them to be easily understood. They are essential to the increase and maintenance of wealth.

We use a 5 year approach to investing because many investors feel that 5 years is a long time as things like college and retirement come up during that period and it is hard for them to plan for longer periods. But there is no lock-up period for your money and you can access it at any time without a Portfolio Rx penalty.

A good illustration showing the need for Go Where it’s Working is the chart below.

A chip designer for Intel, Deborah Marr, sait it well, “A lot of rules you had all of a sudden don’t work any more.” A buy-and-hold or dollar-cost-averaging strategy into Dow Jones type stocks or mutual funds didn’t work during those 11 miserable years for many investors. The results are not significantly better for funds that track the performance of the Dow Jones Industrials Average and the S&P 500 Index for the 10 year period ended mid-February 2008. That is why we need Go Where it’s Working.

ETFs give us the necessary tools to diversify into each investor portfolio only investments that we believe are working. And this works best when we go global, because now more than 70% of all investment opportunities are outside of the United States. We believe that with so many profit opportunities in so many different asset categories in all corners of the globe, we can increase investor wealth by an average of 15% year over year. That’s a nice benefit and would double investor money every 5 years.

All investors want high returns but fear exposing their hard earned dollars to risk. We share that fear. In fact, we’re preoccupied with risk. Here is why.

It can readily be seen that 3 years of growth at 15% is taken down to 6.6% by a 15% decline in year 4. Then in year 5, an up move of 56% is required to bring the growth rate back to up 15%. When is the last time your overall portfolio increased by 56%?

The prudent management of risk is the core of our investment discipline. We work to capture the profit opportunities created when different ETFs become more or less attractive. We attempt to own only the profitable ones. But facts unexpectedly change. Sometimes we’re going to be wrong. So right at the outset, we diversify into each portfolio some ETFs that should go up while others go down. We try to embed some negative correlation into each portfolio. That has served us well in times of adversity and helps us keep our heads while everyone else is losing theirs. It mitigates an overall 15% drop in portfolio values.

But diversification is not enough. We simply don’t want to give back 15%. We’ve evolved a strategy to complement portfolio construction. As mentioned earlier, it’s Down and Out. We work it by giving each individual ETF its own Down and Out percentage. That means that, generally, should a portfolio component ETF drop by 15%, we sell it. Because each portfolio is embedded with what we consider to be negatively correlated investment ETFs, it is unlikely that its overall value should suddenly drop by 15%. This essential strategy, reinforced by several others gives us a good chance to double money every 5 years.*

In aggressive investor accounts, Portfolio Rx may position high potential, but risky, individual stocks along with the same type ETFs. In those cases, the Down and Out percentage is more like -25% because those holdings are more volatile and need the room to work out. The Down and Out percentage is individually assigned.

At the core, we try to be long-term investors and don’t sell until the reasons for buying are no longer there. For instance, we bought energy in 2000 and still own some of the original position today, in 2008. On the other hand, some emerging market investments we made in December 2007 are gone as of early January 2008 because the facts changed.

You will likely benefit from increased income and growth when the Portfolio Rx Investment Process is applied to your portfolio. We have nearly 10 years of experience working the 5 by 15 Solution. ETFs brought to it a new panorama of investment opportunities and lower costs. We can now position the Go Where It’s Working Strategy from a choice of more than 600 ETFs sponsored by leading companies. The average U.S. ETF expense ratio is 56 basis points compared with 130 basis points for actively managed mutual funds. And we will likely out perform the mutual funds. Managing risk with the Down and Out Strategy has become a lot more flexible because ETFs can be bought and sold in real time through out the day.

We hope you let us apply our innovative solutions to proven investment strategies for you as well, so that you too, can benefit and likely double your money every 5 years.* And please remember, we are your trusted partner in the pursuit of that 15% year over year profit opportunity because only when the value of your portfolio goes up can the total amount of our small percentage fee go up.

* You should carefully consider the suitability of each investment you make and your risk management strategy as well. Performance quoted represents past performance. Past performance is no guarantee of future results.