Creative Indexing

It’s the most wonderful time of the year! Not only does that mean mistletoe and Silent Night, but also that it’s time to make sure our portfolios are ready to ring in the New Year.

Much of the uncertainty that has plagued economic markets for the entire year is now dissipating. We know who the next president will be, we can expect interest rates to rise next year, and we know how our portfolios have performed.

Many people have benefitted from the 7 year old bull market. We have seen many people’s investments achieve their highest values ever.

So what do you do now?  How do you insure your profits for the future?

As you know, I am a big fan of utilizing index funds in our portfolio allocations. There are two primary reasons I feel this way. First, index funds are super-efficient to own as their cost of ownership is far lower than utilizing a managed portfolio strategy. Second, many index funds have performed better over time than their professionally managed counterparts.

But, here’s the thing. As the stock market continued to hit new highs this year, we must begin to think about the fact that this may not go on forever. It is possible the market could have some pretty drastic valleys over the next several years.

A strong argument can be made that it might be time to take a portion of your current assets invested in stocks and mutual funds and protect them from future negative volatility. If only we had an accurate prediction of how things will perform in the future.

Have you ever purchased an investment that lost money over the course of the year and then wished you could go back and purchase it at today’s value instead?

This is where our creative indexing strategies make a lot of sense. Did you know it is possible to invest in index funds inside of fixed asset accounts? These accounts still grow based on the upward movements of the markets, but, if we head into a negative year, you are protected from losses. Then, at the end of the period, you have the ability to “re-buy” at the current levels.

Being that hindsight is almost always 20/20, these strategies allow us to continue to participate in the market if we move into year 8 of the bull market, but if not we can rebalance things again next year without risk of losing any principal.

Depending on how you set these accounts up, there can be additional tax benefits to these strategies as well.

This opportunistically conservative approach has helped many of our clients over the years achieve relatively decent returns without the headaches of paying active managers and experiencing market volatility.

I would be happy to visit with you further about whether these creative indexing strategies might be a fit in your unique situation. Feel free to give me a call or email