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Not All Indexes Are Created Equal, And Other Stuff!

In this edition of TABR’s quarterly newsletter, we’re presenting research on indexes in the various categories (large stocks, mid-caps, small and international), and some of our findings are interesting. In some areas, you’ll find it really pays to be discerning.

In addition, we’ll touch on the three-year anniversary of TABR’s Dividend Stock strategy, the 2018 COLA for Social Security (cost of living adjustment), the mini bump in the 401 (k) contribution limit, and another installment of “What We’re Doing When No One’s Looking.”

So, sit down, grab some coffee and get to reading!

Some Indexes Matter, And Some Don’t

A little over two years ago, we decided the long term evidence of trying to select actively managed equity funds in comparison to their index peers was too compelling to pass up, and thus we switched virtually all equity exposure in client portfolios to ETFs (exchange traded funds) that represent various indexes and parts of the stock market.  Mind you, we are still tactical in deciding how much exposure to have, but this was about WHAT we should own.

Today, there are more indexes than stocks, and as you will see below, there is a lot of overlap in many areas (large cap, mid cap).  We had to narrow the universe down to a manageable level and eliminate redundancy.  So, we went about the process you will see below, essentially comparing the four largest providers of ETF indexes against one another in each category.

Those providers are Blackrock, Vanguard and Schwab, but note that Blackrock has its own brand called iShares, which use both the Russell indexes as well as the S&P Indices (Standard & Poor’s).  As it turned out, Fidelity Investments, the custodian we use for clients, introduced a list of ETF’s that advisors could trade on behalf of clients with no commissions.  In former days, that might have been a really great incentive, but it is no longer, not when the vast majority of our clients are eligible to trade stocks and ETFs for as little as $4.95 per trade, as long as they are using electronic delivery for their documents.

Nevertheless, if you have ETFs in a category that are the best performing AND you can buy or sell them with no commission, why not use them?  We went about evaluating the choices by looking at just a few metrics, which included the expense ratio, intermediate and long term performance, and size.  The data you will see below is current, and continues to confirm the choices we made in the summer of 2015 in terms of creating our custom matrix.

A Little Bit About Composition

Before we get into the comparisons of large company indexes and others, it is appropriate to talk about the differences in how some indexes are computed.  Most indexes we will be discussing are cap-weighted, meaning that the stocks with the greatest capitalization have the greatest weight in the index.  The most popular of the cap-weighted indexes is the S&P 500, which accounts for about 80% of the market cap of U.S. stocks.  In its case, the top 25 stocks, or 5% of the index, currently account for 32.5% of the index.

Currently, the top five companies in the index and their respective weight are Apple (4.05%), Microsoft (2.87%), Amazon (2.07%), Facebook (1.92%) and Johnson & Johnson (1.65%).

In contrast, the Dow Jones Industrial Average of 30 stocks is price weighted, so the highest priced stock in the index, Boeing at around 240, today has almost 8 times the weight of Cisco (32) and almost 10 times the weight of General Electric (25).  In my view, this is a really dumb way to create an index, but there it is.

Finally, there are equal-weighted indexes, where every stock in the index carries an equal weight.  A great example is the RSP, an equal-weight version of the S&P 500, where each stock has a weight of 2/10th of 1%.  A side note—we’ve owned this ETF in client accounts for over two years now, simply because it has remained at the top of the monthly rankings that we maintain.

Large Company Indexes

Below we summarize data on nine different ETFs, three of which track the S&P 500 Index.  No matter how the indexes are created, though, there’s been very little difference in performance for the past five years, with the exception of the Nasdaq 100.  More on that below.

Symbol Name Expense Ratio YTD 3 yrs* 5 yrs* 10 yrs* Size
IWB iShares Russell 1000 Index 0.15% 17.93% 9.98% 15.55% 8.57% 19.2B
 SCHX Schwab U.S. Large Cap 0.03 18.3 10.11 15.61 ——- 10.5B
VV Vanguard Large Cap 0.06 18.33 10.10 15.63 8.66 10.9B
MGC Vanguard Mega Cap 300 0.07 18.75 10.39 15.66 ——- 1.3B
SPY SPDR S&P 500 0.09 18.00 10.14 15.57 8.48 252B
IVV iShares S&P 500 0.04 18.08 10.20 15.65 8.52 133.4B
VOO Vanguard 500 0.04 18.07 10.21 15.66 —— 77.9B
RSP Guggenh Equal Weight 500 0.20 14.53 8.47 15.20 9.32 14.2B
QQQ Nasdaq 100 0.20 32.91 15.5 20.66 13.14 57.2B

*represents compound annual returns

A little bit about each index.  The Russell 1000 Index is comprised of approximately 1000 of the largest companies in the U.S. equity market, and is a subset of the Russell 3000 Index.  It represents about 90% of the total market cap of all listed U.S. stocks.

The Schwab U.S. Large Cap ETF tracks the Dow Jones Total Stock Market Large Cap Index, which captures about 2/3 of the U.S. market.  This index holds the top 750 companies by market cap and is rules based.  In contrast, the S&P 500 Index is run by a committee and requires companies to be profitable along with needing at least 50% of their outstanding shares to be in public float (tradeable).  The Schwab index requires just 10% of shares to be in public float.

Then we have the Vanguard Large Cap ETF, which tracks the CRSP U.S. Large Cap Index, which captures the largest 85% of market cap in the U.S.  CRSP stands for Center for Research in Security Prices.  In contrast, the Vanguard Megacap 300 is composed of the largest 275 stocks which represent the largest 70% of the U.S. market.  (Please don’t ask why it is not called the Vanguard Megacap 275!).

The Guggenheim Equal Weight S&P 500 (RSP), as noted above, gives every stock in the index an equal weight.  As a result of this, it acts more like a midcap index than a large cap index.  And, given its size, we felt compelled to include the Nasdaq 100 Index, also known as the QQQ.  This index represents the 100 largest non-financial companies in the Nasdaq Composite, but it really is not representative of the overall large cap segment.  Rather, the index is weighted 50% to technology stocks.  This has paid off in recent years, but it likely will not always be the case.

Finally, as noted above, we looked at three ETFs, all of which track the same index, that of the S&P 500.  What is interesting is that SPY, which has an expense ratio of just over 9 basis points, more than double than the iShares or Vanguard versions, has nearly double the assets of IVV and over 3 times as much as Vanguard.  Mathematically, it cannot do better than the other two because its expense ratio is higher, and one should note it is also organized as a unit investment trust which means it is restricted from reinvesting dividends and also cannot equitize cash with futures or use securities lending revenue to offset expenses.

So, with all those disadvantages, why does SPY have most of the money?  It has to be liquidity, as institutions feel they can move in and out with tens of millions of dollars to increase or decrease exposure, in a more efficient manner than they can in the other two products.  For retail or advisory clients who are buying and mostly holding though, owning IVV or VOO makes more sense.  For every $100,000, one would earn $70 more per year in owning IVV or VOO.  That won’t make you rich, but it will pay for 25 Venti Pike coffees at Starbucks!

With all the subtle differences, you can see that in the past five years, there is very little variation in performance from top to bottom, at 15.55% for the Russell 1000 to 15.66% for the Vanguard 500 and the Vanguard MegaCap 300.  The higher expense ratio of the Russell 1000 ETF explains virtually all of its lag.  The RSP and QQQ aren’t really large cap indexes in the broad sense, and they fall outside those ranges, so it really isn’t an apples to apples comparison when looking at them.

The Mid Cap Indexes

We begin to see much more disparity in performance when we go down the scale in size.  Below is the data on the four midcap ETFs we looked at.

Symbol Name Expense Ratio YTD 3 yrs* 5 yrs* 10 yrs* Size
 IWR iShares Russell Mid Cap 0.20% 15.14% 8.57% 15.07% 9.13% 16.2B
IJH S&P 400 Midcap 0.07 13.36 10.43 15.36 10.06 41.7B
SCHM Schwab U.S. Midcap 0.05 16.59 10.13 15.93 —— 3.8B
VO Vanguard Midcap 0.06 15.81 8.50 15.30 9.10 20.7B

*represents compound annual returns

There are significant differences in all time frames, likely suggesting that as you move down in the size of market cap, there are fewer and fewer efficiencies.  The Russell Mid Cap Index is created by taking the 800 smallest stocks from the Russell 1000 Index (see above).  Meanwhile, the Schwab Midcap ETF owns about 500 names, which tracks the Dow Jones Total Stock Mid Cap Index.  The Vanguard Midcap ETF owns 330 names, and tracks the CRSP U.S. Mid Cap Index, while the S&P Midcap 400 is determined by a committee, much like its large cap counterpart.  One of the criteria, besides size, for the IJH is that the company must be profitable for the past 4 quarters.

As you can see, there is considerable variability in YTD performance, with the Schwab ETF gaining over 300 basis points more than the S&P 400 Midcap.  Though they have attracted considerable assets, both the Russell and Vanguard ETFs for midcap stocks have lagged the others over 3, 5 and 10 years, with the S&P 400 Midcap gaining nearly 1% more annually during the last 10 years.  An edge like that over 1 year doesn’t mean much, but over 10 years is quite significant.

I can’t prove this, but my hunch is that the screen for profitability that Standard & Poors uses may be the subtle difference in the results.  After all, in the long run, stock prices are driven by earnings growth, so if a company is not earning a profit, why would you want to include it in an index?

The Small Cap Indexes

There are even bigger gaps in small cap index performance, and once again, it is the S&P Index leading the way, while the Russell Index shows the worst long term performance.  Side note—I don’t think this is a coincidence as Barron’s publishes long term rankings of mutual fund families each year, and in the most recent version earlier in 2017, Russell Investments was ranked # 52 out of 52 fund families.  They were also # 52 out of 58 for the last five years.  Yet, they continue to attract significant amounts of money.  Why?  I think it’s because people (both investors and advisors) don’t do their homework.  They are lazy.

Symbol Name Expense Ratio YTD 3 yrs* 5 yrs* 10 yrs* Size
IWM iShares Russell 2000 0.20% 13.03% 10.55% 15.31% 8.98% 43.6B
IJR S&P 600 Small Cap 0.07 11.69 12.48 17.05 10.53 34.2B
SCHA Schwab U.S. Small Cap 0.05 12.79 9.61 15.33 ——- 6.2B
VB Vanguard Small Cap 0.06 13.82 9.50 15.25 9.81 20.1B

*represents compound annual returns

Again, a little bit about each index.  The Russell 2000 Index is made up of the largest companies from # 1001 to # 3000, by market cap.  In other words, the bottom 2000 of the Russell 3000 Index.  It is certainly broader than any of the other 3 we are looking at, but that hasn’t helped its performance.

The S&P 600 Small Cap is determined by committee, and the companies must have a market cap ranging between $450 million and $2.1 billion, and must be profitable.  Higher free float and volume are also important considerations to make the cut.  The Schwab ETF tracks the Dow Jones U.S. Small Cap Total Stock Index, which holds 1750 companies, while there are about 1400 holdings in the Vanguard Small Cap offering, which tracks the CRSP U.S. Small Cap Index.  Those companies must be smaller than the largest 85% by market cap, but larger than the smallest 2% of companies.

As for performance, nothing can come close to the S&P 600 Small Cap in any of the three time frames that matter—3 years, 5 years and 10 years.  And, as noted above, not only does the Russell 2000 Index have the worst performance, it also has the highest expense ratio at 0.20%.  A terrible combination.  Yet, it has the most assets under management.  And you thought institutions and advisors were smart??

International Indexes (Developed Markets)

If you think trying to decide what exposure to have in U.S. stocks is difficult, adding foreign exposure just makes things more complicated.  How broad should one be?  For more accurate comparisons, we are breaking our analysis in this area into two parts—Developed Markets and Emerging Markets.  What are those?  In investing, a developed market is a country that is most developed in terms of its economy and capital markets.  The country must be high income, but this also includes openness to foreign ownership, ease of capital movement, and efficiency of market institutions.  Examples would include most of Europe, Canada and Australia, to name a few.

In contrast, an emerging market is a country that has some characteristics of a developed market, but does not meet the standards to be a developed market.  The economies of China and India are considered to be the largest emerging markets.

Symbol Name Expense Ratio YTD 3 yrs* 5 yrs* 10 yrs* Size
EFA iShares MSCI EAFE 0.32% 22.08% 5.80% 8.66% 1.86% 81.8B
IEFA iShares MSCI Core EAFE 0.08 23.30 6.94 9.54 —— 39.6B
SCHF Schwab Int’l Equity 0.06 23.06 6.16 8.54 ——- 12.4B
VEU Vanguard FTSE AllWorld Ex-U.S. 0.11 25.17 6.27 8.04 2.26 21.6B
VEA Vanguard FTSE Developed Mkts 0.07 23.97 6.98 9.34 2.37 65.7B
VXUS Vanguard Total International 0.11 22.99 6.06 8.60 2.02 9.6B

*represents compound annual returns

Despite the almost identical names, there is a significant difference between EFA and IEFA.  The former owns over 900 stocks in developed markets, and its large cap tilt steers it to large multi-national firms.  The benchmark excludes South Korea and Canada, which accounts for about 8% of indexes in its peer group, and the most exposure is in Japan at 23% of the fund.

The IEFA fund goes across 21 developed markets and owns more than 2500 stocks, so it is much more diversified.  The Schwab entry owns 1100 stocks and does include South Korea and Canada.  The Vanguard FTSE (Financial Times Stock Exchange) All World Ex-U.S. fund owns more than 3600 stocks and is 22% weighted in Japan.  The Vanguard FTSE Developed Markets fund represents more than 86% of the market cap outside the United States and owns more than 2500 stocks.  In an interesting twist, the index includes a 17% weight to Emerging Markets.  Finally, the Vanguard Total International Index Fund owns stocks in over 40 countries.

Regarding performance, first notice the 10 year numbers compared to the U.S. indexes above.  Roughly, you are looking at about 9% compounded for domestic stocks versus just over 2% for international.  We’ve written about this topic in earlier newsletters, and won’t delve further in this one, but we prefer to use relative strength comparisons to determine whether to own foreign equities (or not), not some fixed formula that says you should always own foreign in some certain percentage.

Both the IEFA and VEA offer a combination of the lowest expenses and best long term performance, though the former does not yet have a 10-year track record.

Emerging Markets

Once again, when we look under the hood in this area, we find that the fund with the most assets has produced the least return, in this case, the Vanguard MSCI Emerging Markets Fund (VWO).  Its low expense ratio does not explain everything, since two of the other three competitors have similar ratios.  The fund does own 3000 stocks, though South Korea is excluded.

Symbol Name Expense Ratio YTD 3 yrs* 5 yrs* 10 yrs* Size
IEMG iShares Core MSCI EmerMarkets 0.14% 35.64% 7.11% 5.85% —— 40.3B
EEM iShares MSCI EmergingMarkets 0.69 35.92 6.62 5.20 1.84 37.7B
VWO Vanguard MSCI EmerMarkets 0.14 29.99 5.09 4.94 1.67 64.9B
SCHE Schwab Emerging Markets 0.13 30.34 5.58 5.40 —— 4.3B

It would be quite easy to get confused, learning the difference between IEMG, the iShares Core MSCI Emerging Markets Fund, and EEM, simply the iShares MSCI Emerging Markets Fund.  The former offering is the broadest of the choices here, owning 1800 stocks which cover 99% of the universe and spans 24 markets.  China represents 28% of the fund.

The EEM tracks the market cap weighted MSCI Emerging Markets Index, and owns 800 large and midcap stocks also spanning 24 markets.  The two funds are almost identical in size, yet the EEM charges 0.69% annually in expenses, making one wonder why anyone would buy it over IEMG.  Indeed, in the last 3 and 5 years, that difference in the expense ratio is what gives IEMG the edge in total return.

Conclusions

As hopefully the above has shown, there is a lot more to indexes than one would think.  Being the cheapest isn’t necessarily the best, and being the biggest doesn’t always correlate with the best performance.  Yet, when you have the highest expenses, such as with the Russell Indexes or the EEM, it has definitely contributed to lagging performance.  Schwab has been a late entrant to this field, and they have tried to make up for that by having the lowest expenses across the board, but that hasn’t really translated to assets yet.  They have a really solid midcap offering, but apparently it is hard to get people to change.

Overall, the iShares S&P Index offerings have several compelling choices in every area, and that is why we are using them for clients.  It is just a bonus that many of them come with no trading commissions on the Fidelity platform.  Vanguard is competitive in most areas except in Emerging Markets, yet they run the largest fund in that category.  Go figure.  All in all, it pays to do your homework.

The 2018 Social Security COLA and Medicare Benefits

Just as there is more than meets the eye with indexes, so it is with Social Security benefits.  It was announced last month that the COLA (cost of living adjustment) for 2018 would be 2%.  But approximately 70% of Medicare enrollees will not see this increase.

This has to do with the complex rules that govern Medicare Part B premiums.  These premiums will remain at $134 per month in 2018, but many enrollees are still paying $109.  That is due to the “hold harmless” provision.  This provision prohibits annual increases in Medicare Part B premiums from exceeding the dollar amount of Social Security annual cost-of-living adjustments to prevent a net decline in Social Security benefits from one year to the next.

In 2016, there was no COLA increase for Social Security, and it was a tiny 0.3% in 2017, so many retirees Medicare premiums remained at $109 per month.  Now, the government is playing catch up.  For example, if your monthly benefit is currently $1700 monthly, it will rise to $1734 in January 2018.  That is a $34 increase.  However, if your Medicare Part B premiums are at $109, they will rise to $134, which is a $25 increase.  The net benefit in this example will be an increase of $9 per month.

This is very much like the rules that govern property taxes in California.  Under Proposition 13, taxes cannot rise more than 2% per year starting from the purchase date of the house.  But with the big decline in home prices beginning around 2008, the property tax bills of many homeowners went down.  Now that home prices have recovered in many areas and are at or above 2008 levels, their property tax bills have risen significantly in the past two years, in some cases over 30%, as the various counties play “catch up,” as long as the tax rate does not exceed the 2% increase per year from inception.

2018 401 (k) Contribution Limits And Washington Tax Talk

At present, the maximum contribution to a 401 (k) retirement plan is $18,000 annually, with a $6000 catch-up max for those over 50.  This limit will be increased to $18,500 for 2018, so the total max will now be $24,500.  This also applies to 403 (b) plans and most 457 plans.  However, there is no increase to the limit for IRA contributions (both regular and Roth), which remain at $5,500, plus a $1000 catch-up for those over 50.

As for the tax plans which are in Washington (the House has approved theirs, the Senate will vote soon on theirs), there is nothing really to do but sit and wait to see if anything becomes final.  There’s no way to know the impact, because some of the items being heavily debated may pass, and some may not.  The ability to deduct state income taxes and property taxes on one’s federal returns, if eliminated, may cause a large number of residents in New York, California and New Jersey to pay more in taxes than currently, depending on how much tax rates are actually lowered.  We’ll just have to see how it all shakes out.

The TABR Dividend Stock Strategy

We unveiled this strategy in the summer of 2014, so it is just finishing up its third full year.  We’ll have a complete recap in the 2018 first quarter newsletter, but since there has been such a disparity this year between value and growth stocks, I thought it would be appropriate to touch on the subject.  We created the strategy as an addendum to our core stock market work, and took our back-testing back to 1973 to cover a wide variety of good and bad market environments.

The premise is to own stocks within the S&P 500 Index with high dividend yields and high earnings yields, which have proven to be a good combination in the past.  Many of the names are familiar to clients, and one analogy I’ve used is to compare it to having a real estate rental without the hassle.  You get your rent pretty regularly, and over time, with bumps along the way, you’d expect the property to increase in value (in this case, your principal).

As a result of focusing on higher dividend yields, the screen we use tends to produce “value” stocks, which are shares of companies with mostly solid fundamentals that are priced below those of its peers, based on the analysis of several fundamental factors.  Current names in the portfolio include IBM, General Motors, Verizon, Target, Harley Davidson and Xerox.                                           .

Though profitable year-to-date with a gain of 6.37% through November 24, this is quite a bit behind the S&P 500 Index, which is up 18.20%.  This is not surprising, since the whole value category is out of favor at present in comparison to growth stocks (stocks that tend to increase in capital value rather than yield a high income).  Year-to-date, the S&P 500 Value Index is up 10.08% while the S&P 500 Growth Index has surged 25.32%.  A ratio chart of those two indexes is shown below, courtesy of www.stockcharts.com.  A rising ratio shows Growth doing better than Value.

 

 

 

 

 

 

 

 

 

 

 

 

There was a sharp bump in Value during the 4th quarter of 2016, but that was quickly reversed in early 2017.  According to Jim Paulsen of the Leuthold Group, value stocks usually do better relative to growth stocks once financial liquidity diminishes.  With the chart at recent new highs but momentum nowhere close to confirming, and with the Fed in a slow motion tightening mode, better times may lie ahead for our process, at least in relation to the growth edge currently happening.

What We Do When No One’s Looking (Another Installation)

About two years ago, we introduced this section to tell stories, in response to our daughter Caroline’s query of, “Daddy, what do you do at work?”  The following is a great example of how a fiduciary advisor is supposed to act.  By having the correct wisdom and simply doing the right thing, we’ve considerably enhanced the future for the children of one of our clients.

We started to serve this particular client a tad over seven years ago.  At that time, she had an IRA, an individual brokerage account and a variable annuity that had purchased from another advisor in the summer of 2001.  She had invested about $270,000 into the annuity, had taken withdrawals of $12,000, and the contract value when we met was about $224,000.  The policy had suffered investment losses of over $49,000 during the nine years she had owned it.  All in all, not such a great experience at that point.

It would have been easy for an advisor who was compensated by commissions to convince this client that they had been taken advantage of, and that they would be better off terminating the contract and putting the money into another product (who knows—even another annuity or real estate partnership that would pay the broker a 7% commission).  But that is not what we did.  First, we’re not compensated by commissions, so there was no incentive to do that anyway.  Second, the contract still had a surrender charge of over $2700, so if it was cashed out, the client would have been paying about a 1% penalty that would have been unnecessary.  Third, though it was apparent the money had been managed pretty poorly, we realized we could take over management of the annuity using our existing process and hopefully do a much better job.

But, here’s the kicker and why we advised the client to leave the annuity in place and let us take over management of it.  There was a guaranteed minimum death benefit at the time of $479,000, and under the terms of the contract, it was likely going to keep growing each year, depending on whether the client made withdrawals of a certain amount.  In other words, back in 2010, had our client died, even though the contract was only worth $224,000, it would have paid out to her beneficiaries $479,000.

Not even Superman could make up that difference.  All we did was read the contract so we could fully understand what the benefits were to our client.  After that, it is all wisdom and experience.  We simply did the right thing.  Today, that contract is still in force, and worth about $241,000.  In the past 7 years, our client has withdrawn an additional total of $25,500 and the guaranteed death benefit has grown to $710,000, an increase of $231,000 in the past 6 1/2 years.  Though our client won’t personally benefit from this, you can bet she appreciates that we’re looking out for her children as well as for her.

An ironic note on this.  A couple of months ago, our client received a letter from the insurance company that had issued the annuity offering to buy her out of the contract at a substantial increase over its current value.  You see, they realized they had created a really stupid guarantee (stupid for the insurance company, pretty good for the client).  They wanted to try and limit their obligation, but I told her it was an easy decision to just ignore the letter.  It is best to keep the policy in force.

I wish I could tell you that all of the situations we come across such as this are salvageable and have good endings, but that is not the case.  Unfortunately, sometimes there are really bad products coupled with really bad salespeople who are masquerading as advisors, and the crap is so high there isn’t a shovel big enough to dig out of it for many years.

 

As we reflect on this past week’s Thanksgiving holiday, I’d like to express our gratitude for being our client, or friends of TABR, or both.  Without you, as the ballad from the rock group Kansas sings, “all we are is dust in the wind.”

Sincerely,

bkargenian_signature

Bob Kargenian, CMT
President

TABR Capital Management, LLC (“TABR”) is an SEC registered investment advisor with its principal place of business in the state of California.  TABR and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisors by those states in which TABR maintains clients.  TABR may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements.

This newsletter is limited to the dissemination of general information pertaining to our investment advisory/management services.  Any subsequent, direct communication by TABR with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of TABR, please contact TABR or refer to the Investment Advisor Disclosure web site (www.adviserinfo.sec.gov).

The TABR Model Portfolios are allocated in a range of investments according to TABR’s proprietary investment strategies. TABR’s proprietary investment strategies are allocated amongst individual stocks, bonds, mutual funds, ETFs and other instruments with a view towards income and/or capital appreciation depending on the specific allocation employed by each Model Portfolio. TABR tracks the performance of each Model Portfolio in an actual account that is charged TABR’s investment management fees in the exact manner as would an actual client account. Therefore the performance shown is net of TABR’s investment management fees, and also reflect the deduction of transaction and custodial charges, if any.

Comparison of the TABR Model Portfolios to the Vanguard Total Stock Index Fund, the Vanguard Total International Stock Fund and the Vanguard Total Bond Index Fund is for illustrative purposes only and the volatility of the indices used for comparison may be materially different from the volatility of the TABR Model Portfolios due to varying degrees of diversification and/or other factors.

Past performance of the TABR Model Portfolios may not be indicative of future results and the performance of a specific individual client account may vary substantially from the composite results above in part because client accounts may be allocated among several portfolios. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable.

The TABR Dividend Strategy presented herein represents back-tested performance results. TABR did not offer the Dividend Strategy as an investment strategy for actual client accounts until September/October 2014. Back-tested performance results are provided solely for informational purposes and are not to be considered investment advice. These figures are hypothetical, prepared with the benefit of hindsight, and have inherent limitations as to their use and relevance. For example, they ignore certain factors such as trade timing, security liquidity, and the fact that economic and market conditions in the future may differ significantly from those in the past. Back-tested performance results reflect prices that are fully adjusted for dividends and other such distributions. The strategy may involve above average portfolio turnover which could negatively impact upon the net after-tax gain experienced by an individual client. Past performance is no indication or guarantee of future results and there can be no assurance the strategy will achieve results similar to those depicted herein.

For additional information about TABR, including fees and services, send for our disclosure statement as set forth on Form ADV from us using the contact information herein.  Please read the disclosure statement carefully before you invest or send money.

A list of all recommendations made by TABR within the immediately preceding one year is available upon request at no charge. The sample client experiences described herein are included for illustrative purposes and there can be no assurance that TABR will be able to achieve similar results in comparable situations. No portion of this writing is to be interpreted as a testimonial or endorsement of TABR’s investment advisory services and it is not known whether the clients referenced approve of TABR or its services.

By Bob Kargenian | Quarterly Newsletter