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Reallocation Strategy Comparison FAQs

What is asset allocation?

Asset allocation is an investing strategy whereby you diversify your portfolio amongst the various kinds of possible investments. Investment choices are categorized according to which ASSET CLASS—stocks/equities and bonds/fixed income—they belong.

What is formulaic asset allocation (FAA)?

Formulaic asset allocation is a "set-it and forget-it" style of investing—the familiar "pie chart" that most people have seen and are familiar with.

An FAA strategy calculates your portfolio's "ideal" percentage allocation in each major asset type (i.e., stocks/equities, bonds/fixed income) based on how you answer questions rating your risk tolerance, age and life expectancy, planned retirement date, etc.

Your portfolio will ALWAYS hold that predetermined percentage of each primary asset class REGARDLESS of market and economic conditions.

Most FAA approaches look to rebalance your portfolio's reallocations back to the original predetermined percentages one to four times a year.

Some FAA strategies (e.g., Life Cycle mutual funds) will automatically increase your percentage of bond/fixed income investments slightly each year as you approach your retirement date.

What are the flaws of an FAA strategy?

While FAA may be appropriate for some investors and represents a viable strategy opposed to the uncertainty of making investment decisions on your own, any FAA approach has several inherent flaws. These must be fully understood and considered when deciding which approach is best and most comfortable for you.

For example, during recent severe down markets (2000-2003, 2008) an FAA strategy would have required that you hold a large percentage of your money in stock funds—losing money for the entire 3-year period.

During each subsequent market recovery, an FAA approach would have a large percentage of your portfolio invested in bond fund alternatives—even though they historically lose money in strong up markets—resulting in severely reduced growth.

Investing with FAA is similar to driving with one foot on the brake and one on the accelerator at the same time—you will not go very fast and you will end up wearing out your brakes!

What is Adaptive Asset Allocation™ (AAA)?

Unlike traditional asset allocation strategies that have been popularized by Target Date Funds, Life Cycle funds and managed accounts, Adaptive Asset Allocation™ does NOT follow a preset formula. Instead, AAA seeks to have your portfolio consistently invested according to how the market and economy are performing, i.e., your funds are always best positioned to work WITH, not AGAINST, the market's prevailing direction.

An essential part of an AAA approach is that your current allocations are reviewed much more frequently—10-11 times per year versus the 1-4 times for a traditional approach—so that you are paying much more attention to ensuring the alignment of your investment choices with the market direction.

As it becomes evident that an upward moving market has leveled off and started to decline, an AAA strategy would begin to shift money out of stock funds and into bond funds. During a sustained down market, there will come a point where an AAA model has moved ALL investments into bond funds, thereby protecting the portfolio against sustained loss—losses that could take years to recover from.

Similarly, at the conclusion of a down market, the reverse happens. AAA strategy gradually begins to shift money back into stock funds and out of bond funds. There will come a point when the AAA strategy has moved ALL your money into stock funds, thereby maximizing the portfolio's gain opportunity.

What is Horizon™?

Horizon™ is a computer model, consisting of millions of calculations that analyze a finite collection of mutual funds such as you would have in an employer-sponsored retirement plan or IRA. These calculations mathematically determine which fund choices are best aligned with current market conditions.

Horizon™ analyzes and suggests adjustments to your portfolio's fund holdings using an objective process that yields outstanding results.

The output of the model, along with simple-to-use reallocation instructions, are made available to subscribers via the Horizon™ Action Report that is updated every 5-weeks.

The Horizon™ Model Portfolio, included in every Action Report, lists each available fund in your portfolio, and shows the exact percentage of the portfolio that is being invested in each one.

How do FAA performance results compare to Horizon's™?

The 13-year history of Horizon™ demonstrates investment returns that are 2.3 TIMES HIGHER than the BEST performing professionally managed target date retirement fund, all of which follow a traditional asset allocation approach.

Due to the extraordinary effect of compounding, this higher investment return results in portfolio values that are 300%+ GREATER.

Click here to see the performance chart.

How do I know the Horizon model and results are valid?

Our objective process and calculation of results were independently reviewed by Ashland Partners & Company, LLP. Founded in 1992, Ashland offers compliance verification, consulting, and performance examination services for the investment management industry. Their engagement, concluded in 2006, was conducted in accordance with attestation practices generally accepted in the United States.

Please contact us for a full copy of the Ashland report.

Compass Investors is a member of the Profit Sharing/401(k) Council of America (PSCA).

Is Horizon™ right for everyone?

Horizon™ is a self-managed approach that requires a commitment to review and possibly reallocate your investments once every five weeks.

Once you become comfortable with it, according to 97% of our subscribers, the entire process should take less than 10 minutes each time, or only about 2 hours a year.

Yes, it does require this minimal amount of your attention, but the reward for creating your own Retirement Income Security is priceless.

Is Horizon™ an aggressive or risky strategy?

When someone asks about “risk” they are typically referring to investment risk, or in other words, the amount of fluctuation you are willing to accept in your portfolio’s performance from one year to the next. Investment risk is defined on a continuum from “conservative” (most of your money in bonds and cash and therefore little fluctuation) to “aggressive” (most of your money in stocks, high fluctuation). Because of the adaptive nature of Horizon™, the investment risk changes depending on what the market is doing. So, for example, when the market is clearly going up, Horizon™ may be 100% invested in stocks and therefore would be labeled “aggressive.” And the opposite is true during extended down markets when Horizon™ will likely be 100% invested in bonds and cash which would be considered very “conservative” from an investment risk perspective.

However, there is another risk that we encourage people to consider called Retirement Income Security risk, or how likely you are to run out of money before you die. There are few people who are willing to take an “aggressive” posture here. Because of the significantly higher long-term investment returns that Horizon™ delivers, we can safely say that your risk for running out of money before you die is substantially reduced compared to any other investment strategy.

Horizon™ Adaptive Asset Allocation™ offers the most desirable ratio of investment RETURN to investment RISK resulting in the lowest Retirement Income Security risk because your investments will always be positioned to work with—rather than fight against—the changing tide of market and economic realities.

Horizon™ focuses on the two most important elements for growing and protecting an investment portfolio:

  • Substantially increasing your average annual return, and
  • Preserving more of your portfolio's value in a severe down market.

Studies have shown that the worst thing you can do is NOTHING. Inaction will ultimately yield the lowest result and practically ensure you are taking the maximum risk for running out of money during retirement.

In summary, the Horizon strategy is not focused on "aggressive" growth; it is focused on achieving OPTIMIZED performance.

Is Horizon a "Market Timing" strategy?

No. Market timing strategies have been proven repeatedly to be at best ineffective, and at worst, destructive.

Horizon™ is a market adaptive approach, which analyzes current realities and adjusts portfolio allocations accordingly.

We do NOT "speculate" on which way the market is going or when it might change direction. Horizon™ responds to the conditions at hand and suggests frequent reallocations that best position your portfolio to benefit from current market conditions.

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