Our application has been built on four important concepts:

1. Low cost and efficient
2. Independence
3. Investment sophistication delivered via technology
4. Personalization of recommendations

Low cost and efficient

We prefer indexed and low cost mutual funds or ETF’s to provide the allocation to asset classes. We do not make claims on selecting the “Best in Class” funds but look to a sensible low cost solution that provides passive or management approach. We look for the most cost effective solution for the consumer given his/her account size, account type, and fund availability. We avoid funds that have transaction fees and try to maintain a least cost program for the consumer. Our investment recommendations are pre-selected to match the consumers’ financial institution.

Independence

We are not a “mutual fund” company. We do not sell a product. We provide a service to the consumer on how to build a sensible investment account. We do not take or receive any revenue from the mutual funds we recommend.

Investment sophistication delivered via technology

There may appear to be many technology driven solutions. However, these solutions will often lack the first two advantages listed above. The investment techniques which are employed in the Invesra engine are used by investment professionals at the most sophisticated asset management companies.

Personalization of recommendations

With Invesra, the consumer has control. He or she can steer clear of being sold expensive and unnecessary products about which they have little knowledge or understanding. The Invesra personalization and recommendation engine maintains a simplicity which is compelling from the most unsophisticated to the more knowledgeable consumer. Investment products, portfolios and analytical recommendations are personalized to the consumer’s personal preferences and life circumstance.

Summary

Invesra’s investment personalization and recommendation engine is simple for the consumer, but sophisticated in its implementation. Invesra gives everyone the opportunity to invest in a sensible and straightforward way. With Invesra, you do not need to have hundreds of thousands of dollars. With Invesra, the small investor can access affordable and personalized investment advice which until now has been the privilege of the affluent.

]]> http://blog.invesra.com/2008/07/29/breaking-down-investment-management-barriers-for-the-mass-market/feed/ http://blog.invesra.com/2008/06/13/when-bad-things-happen-to-great-investors/ http://blog.invesra.com/2008/06/13/when-bad-things-happen-to-great-investors/#comments Sat, 14 Jun 2008 01:06:15 +0000 Invesra Admin http://blog.invesra.com/?p=71 Bill Miller of Legg Mason and famous for his string of calendar years of beating the S&P 500 is having a rough time. Year-to-date through June 12th, Legg Mason Value Trust is down over 23% versus the S&P 500 loss of 8%. His 32 stock portfolio is invested heavily in financial services, home builders, and the consumer services. Most of his holdings experienced severe losses. Bill Miller, a good fund manager over the long run, has had bad things happen to his fund in the short run.

Another very well known investor, Warren Buffet has had his share of bad times. With his value orientation, Warren Buffett was practically pronounced dead when the tech bubble was in full bloom in late the 1990’s. Buffet’s Berkshire Hathaway was a sluggish and stagnant investment while other funds were soaring with hefty technology bets. Thankfully for Buffett’s investors the bubble collapsed and Berkshire Hathaway was once again on top.

So here is the question, what can be expected from the mortal investor?

Miller and Buffett and others like them are paid to manage and to provide superior returns compared to an index. Based on historical data, Miller’s Legg Mason Value fund could be expected to outperform or underperform two thirds of the time by 8 percentage points. This means that if you invest in this type of fund, you will be either very happy or very sad.

Remember that fees for active management are not a guarantee that the fund will provide you a better return. You are simply paying for the POTENTIAL of outperforming an index.

There is an alternative to the angst and emotional upheavals of actively managed funds. You can choose not to play this game of trying to beat the markets by just investing in a low cost index fund and receive roughly the same return as the market. What you get is no additional volatility from outperformance or underperformance, only the pure volatility that the markets deliver.

In fact, many of the most sophisticated and largest pension plans and endowment funds do not spend money, time and energy trying to outperform most of the US equity market. They invest in very low cost index strategies to gain exposure to the asset class. Their funds are large enough to invest in strategies and asset classes that are not available to the average retail investor.

At the Berkshire Hathaway Annual meeting, Warren Buffett said that the single best investment that someone in their 30’s could make would be in a low cost index fund from a reputable firm. Buffett has great investment intelligence and perception. For those who love to hate Microsoft, Buffet ousted his good friend, Bill Gates, as Forbes Magazine’s world’s richest person in 2008*.

As far as investing is concerned, I would take Buffett’s advice any day.

*Side note on Forbes Magazine’s billionaires for 2008: only 2 out of 10 are from the United States.

Stagflation may be the worst of all possible worlds. When you marry “stagnation and inflation”, you get stagflation. Stagflation occurs when inflationary conditions collide with low economic growth. Many current definitions of stagflation make no reference to unemployment but in older definitions, higher unemployment is another hallmark of stagflation.

What causes stagflation has varied opinions. The popular press cites price shocks (rapidly rising oil prices) as the catalyst for stagflation. Others argue that expanding money supply too quickly can create stagflation. Perhaps a combination of these two events can drive an economy towards stagflation. The 1970’s was the first time that the U.S. had seen these two economic conditions collide.

Why is stagflation such a dreaded economic foe? No matter what the cause, stagflation renders our economic tools suboptimal. To combat either inflation or recession (stagnation), the Fed may raise or lower interest rates. In either case, the Fed is inflating or deflating the economy. How do you revive an economy that is sluggish without fueling inflation?

If you are lucky enough to not remember the 1970’s, here are the key similarities:

• rapidly rising oil prices,
• rising unemployment,
• highly stimulative monetary policy, and
• stimulative fiscal policies to finance the Vietnam War (substitute Iraq).
• Fashionistas from the 70’s and today will note the return of platform and wedge heeled shoes!

So what is to be done? In a stagflationary environment, look to reduce costs and save more if you can. If you are in a position to borrow for a first time home, this may be a good time provided you are comfortable with your job stability and the monthly payments are affordable.

Take a financial inventory to see how much you have set aside, how much exposure you have to equities and bonds, and how much consumer debt is riding on your shoulders. If you suspect you could be an employment casualty of a slowing economy with rising prices, it pays to have PLAN B.

PLAN B is an indirect strategy. It is what you do before you lose your job. It is also what you should do on a regular basis no matter what the economy is doing.

1. Network with friends and old colleagues. Do not cutoff your social and business outlets just to save money. That kind of money is well spent if you truly believe you could be laid off.
2. Research businesses that can withstand varied economic cycles. These companies may be able to hire during this period.
3. Learn new skills that may help you through a period of unemployment with temporary work.
4. Don’t panic if the equity markets falter during this period. These are the risks of investing and to time the ups and downs is much more difficult than it would seem.
5. If you do not have retirement goals and a plan to meet those goals, establish a savings plan and a long term asset and income goal.
6. Focus on the things you can control such as entertainment expenses, dining out unnecessarily, movies. Spend time doing items 1, 2, and 3.

Remember: the only economy that should concern you is YOU:

• your job (source of cash),
• your cost of living (use of cash) and
• your financial health (assets vs. debts).

The recent negative economic news and market uncertainty is on center stage right now. Information overload hits you day after day. Noisy data: The Fed lowering or raising interest rates, the very weak dollar, oil and other commodity prices rising, food prices jumping, food shortages, weak GDP, inflation rising, employment weakening, climate change, a Democrat or Republican as next President, not to mention climate change. All this noise can be harmful to your investment well being.

When that news is at its loudest, you may think you need to take action. The worst thing to do is to give in to that urge to make major changes to your portfolio, particularly if you have a long term horizon for those funds, such as 20 or more years.

Why reacting to this noise is not a good idea

If you change your asset mix based on what is happening today, when will you know to tinker again? What noise will trigger another change? The situation as it exists today will change and change again. You may find yourself asking yourself and others what you should do next . Assuming your portfolio is diversified within and across asset classes, there are two questions to ask: 1. Am I taking on unintended risks within my equity and bond funds? and 2. Does my asset allocation between stocks and bonds still make sense?

Your stock portfolio: are you as well diversified as you think you are?

Stocks have the highest potential for losses. Market risk is always there. The second type of risk is sector and stock risk. The more weight that is placed in a particular industry sector, the more “active” risk you are assuming relative to the inherent risks from the market. If you own a collection of actively managed equity funds, you need to look beyond the names of the funds to understand the risks that you are taking. For example, by looking at the underlying holdings and combining all the holdings of your funds as one portfolio, you might uncover unintended sector bets such as an overweight to oil or financial stocks relative to the size of those two sectors of the market. Also, you might think you have exposure to the very largest U.S. companies only to learn that you are significantly underexposed to this market. To gain the most diversification within equities, a well structured portfolio of index funds can eliminate stock and sector risk relative to the overall markets.

All bonds are not equal

Not all bond funds are the same. Bond funds can invest in US Treasuries, corporate bonds, mortgage backed and asset-backed securites. As with stocks, these segments create different kinds of risk. All fixed income securities carry inflation risk as inflation erodes the buying power of the currency. Other risks are interest rate risk and credit risk. There is no risk to loss of capital with U.S. Treasuries since these are backed by the U.S. Government. Corporate bonds are more sensitive to economic activity and carry credit risk. Investors in corporate bonds get compensated for this additional risk in the form of a higher income yield. When looking at your bond funds, you should know how exposed you are to these various types of securities.

Risk in asset allocation

Asset allocation is simply about finding the right mix of assets that provide the appropriate level of risk and return for you. Although stocks provide potential gains, the risk of losses has greater importance when you are closer to retirement. Bonds carry the least upside and the least downside potential. If you incur a loss just as you begin drawing on your nest egg, your assets may not recover from the reduction in capital and may not last as long as you had hoped. To reduce the likelihood of this happening, you can create more certainty in your portfolio by increasing your allocation to bonds. It’s not a very exciting story but you will sleep better.

What is to be done about the noise?

Don’t let yourself be swayed by headlines and information overload. Just plug into your portable media device and tune it out.

Hand wringing and bad news make for great headlines. Meanwhile the smart money is looking for buying opportunities as evidenced by a sharp run up in the beaten down financial stocks. Financial stocks rose 7.5% on April 1st. This was not an April Fools joke.

With Bernanke using the “r” word now, recession seems to be a foregone conclusion. Many say it’s a not matter of how long but rather how severe the recession will be.

Despite all the bad news, Fed Chairman reminded us that we will work through this economic downturn. Bernanke told the Senate Banking Committee, “But among the strengths of our economy is its ability to adapt and to respond to diverse challenges.” We hope he’s right.

For a little more reading on the first quarter of 2008, click here: Market Summary

Looking back, it was a logical prediction given the fact that we were experiencing our first energy crisis. Oil prices spiked, gas lines grew long and the rationing of fuel was happening right before our eyes. Unlike our parents who lived through the Great Depression, we baby boomers asked, “These things aren’t supposed to happen here in the U.S., are they?”

But lessons are often taught more than once because we don’t “get it” the first time. While 1973-1975 was a painful time, we put it aside as simply a lesson about the evils of wage and price controls. It was obvious that an oil shock could cripple us and yet we failed to face that simple truth.  Our dependence on oil continued without any meaningful commitment to the development of alternative energy sources.

Due to converging problems, too many and too complex to enumerate here, we now face a second lesson. We may have a chance to change our patterns of behavior.  Oil remains abundant in Russia and the Middle East. We can buy it. But the game is different now. The number of consumers has increased dramatically as the developing giants, China and India, compete for the same nonrenewable energy source.

What does this have to do with retirement savings? Intellectually, the average person knows that a lack of savings today will impact the quality of life at retirement. Sadly, that average Joe fails to act in the face of the obvious.  Just like the crisis in 1973, the U.S. government and private industry failed to initiate a meaningul plan for the development of alternative energy sources It’s about foresight and action. It’s about the ability to look ahead and to take actions today that can create a better future.

Spending tomorrow’s money today will bite us when tomorrow’s money is no longer there. We have begun to see that tomorrow’s money (i.e. home equity) is drying up. As for oil, we still have access, but the end of tomorrow’s oil may now be within sight. The world needs viable alternatives to fossil fuels. Consumers need to save more.  The time for change is today, not tomorrow.

Get foresight. Get saving today.

We have summarized some of the information on their positions. While this is by no means comprehensive, it is a  side by side comparison of the candidates’ basic views.   The Candidates and Taxes

Regardless of who gets elected, the inherited economy for the next President will challenge even the brightest  mortals as they use fiscal and monetary tools to unwind the consequences of the subprime mess and at the same time, prevent the economy from inflating. The looming national debt creates more issues that will not easily be corrected.

The capital markets are reacting with a great deal of volatility to the recession that may have arrived today or will wake us up tomorrow. According to Bill Gross, manager of the largest fixed income mutual fund in the world, the policies that are being put into place to prevent a recession will  be of little consequence. In his latest written commentary for February, he writes, “To provide a stable recovery path, government spending needs to fill the gap – not consumption. Public works programs, badly needed infrastructure repairs, as well as spending on research and development projects should form the heart of our path to recovery.”  For more reading from the guru of interest rates and economic outlook, go to Read the full article here.

With recession looking more and more likely, the Fed took an aggressive posture with a 75 basis point rate cut on January 22nd and again another 50 basis points on January 30th.

The Fed’s action sparked a rebound from those mid-month lows, but the S&P 500 still ended January with losses across the board.  Financial stocks posted gains as these were immediately boosted by the Fed’s actions.  In particular, banks and REITs gained for the month.

Technology stocks were hurt and one of the main drivers was Apple which fell over 31%. But Apple’s decline is a mere fraction of this past year’s increase, which resulted in its market cap exceeding that of both Citigroup and IBM.

The other news is that Congress put party lines aside to approve the President’s $150 billion fiscal stimulus package aimed at putting money back in the hands of the consumer.  The Senate now needs to approve the package. This also helped boost the markets higher at month end.

So far, 2008 has been bumpy ride for investors. Fasten your belts.

What the Experts are Saying

Does it feel like the ‘hair of the dog that bit you’? We got into this mess with easy credit and low rates with the home and credit card as the cash machines to support the consumption. There is a notion that more and more spending will avoid a recession. That is probably true, however, sustainable growth needs more than just a shot in the arm to the consumer. The U.S. cannot have a growing economy with a large debt hangover in our homes and in our government. There is the short term and there is the long term. Unfortunately, we seem to manage only to the short term.

Let’s hope this juggling act of boosting the economy while keeping inflation under control does not produce longer term undesirable consequences.

Flashback to WIN

The 1970’s was a period when higher energy prices led to inflation but also recession was in the waters too. At that time, the Fed’s focus was to prevent a recession and meanwhile, inflationary pressures continued. While inflation continued to be a problem, unemployment was rising to levels above 10%. Inflation was so bad that President Ford crafted a whole grassroots campaign with WIN buttons: “Whip Inflation Now”. There is a button for sale on eBay for $3.99 (not including shipping costs). Assuming the lucky seller bought it in 1974 for a dime and he sells it today, he will have really whipped inflation with an estimated 11.5% annualized rate of return over the past 34 years!