August 28, 2013


We are confused! That was our first reaction when we saw the performance numbers for the U.S. stock market for the first six months of the year and compared it to that of our portfolios. So we dug deeper and this is what we found:



Per the chart above:     

U.S. Equities                            +14.1%

            Non U.S. Equities                     + 3.1%

            Emerging Market Equities         - 8.0%

            U.S. Bonds                              - 2.4%

            REITS                                      + 2.0%

            Commodities                            -10.5%


Now check this out:

            A BALANCED INDEX PORTFOLIO            +2.1% (royal blue on chart)


So, during the first six months of 2013 you were “penalized” for having a “balanced” portfolio. Crystal ball gazers and cable TV pundits would have had you invested 100% in the U.S. Equity market this year. However, neither we, personally, nor any of our clients are ever invested 100% in U.S. equities.


Had you done this you would have been taking full market risk and exposing yourself to the full market downside when (not if) it occurs. So we emphasize diversification across many markets and many asset classes because this provides significantly less risk, with smoother and better risk adjusted returns. As you can see, the chart shows that over the 10 year period ending June 30, 2013,  a Balanced portfolio showed an average annual return of 6.9% vs. 7.8% for the all U.S. equity portfolio.


During the last few weeks for the stock market the road has gotten bumpier as we have recently seen seven straight days of losses on the Dow. The bond market has suffered losses since early May as the 10 year Treasury bond has seen its yield rise from 1.5% to almost 2.9%, and as interest rates rise, bond values drop.


What should we do now?


We are entering a difficult time in the markets. We still believe in global diversification. You should never “chase” the winning asset class, which so far this year has been U.S. Equities.


Don’t totally abandon bonds. Bonds will most likely stabilize between now and the end of the year. When interest rates rise over the next few years, as is likely, bond managers can adjust their portfolios. Therefore, bonds can still mitigate risk.


As we meet with each of you we will be introducing additional “alternative” investments which are not correlated with either the stock or bond markets. This will further mitigate risk in your portfolio.


Remember, the most important issue is that you are on track to meet your goals, not your performance relative to the markets. Don’t let short-term returns potentially dictate long-term investment decisions.


We will be in touch further as we navigate these turbulent times.

Enjoy the rest of the summer!


Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA
Edward J. Kohlhepp, Jr., CFP®, MBA

Please contact us whenever there are any changes to your financial situation, personal situation or investment objectives.

Investment Advisory services offered through Kohlhepp Investment Advisors, Ltd., a federally registered investment advisor. Securities offered through Cambridge Investment Research, Inc., a Registered Broker/Dealer, member FINRA/SIPC. Kohlhepp Investment Advisors, Ltd. and Cambridge Investment Research, Inc. are not affiliated.


Source: Russell Investments


The Value of Underperforming Assets
A Long-Awaited European Recovery?

Archived Newsletters

Investment Updates

Newsletters Sign Up

Account Login

Contact Info

Kohlhepp Investment Advisors, Ltd.
3655 Route 202, Suite 100
Doylestown, PA 18902
Phone: 215-340-5777
Fax: 215-340-5788

Securities offered through Cambridge Investment Research, Inc. a Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services offered through Kohlhepp Investment Advisors, Ltd., a Registered Investment Advisor. Kohlhepp Investment Advisors, Ltd. and Cambridge Investment Research Advisors, Inc. are not affiliated.

Due to various state regulations and registration requirements concerning the dissemination of information regarding investment products and services, we are currently required to limit access of the following pages to individuals residing in states where we are currently registered. We are licensed in the following states: AZ, CA, CO, DE, FL, GA, IN, KY, LA, MA, MD, NC, NJ, NY, OR, PA, RI, SC, TX, VA, VT, WA

Check the background of this firm on FINRA's BrokerCheck