Honest measurement as to how your monies are managed

In the last 35-plus years we have experienced a great "bull" market in both stocks and bonds. The stock market as measured by The Dow Jones Industrial Average has gone from 1000 in 1982 to over 25,000 today. Interest rates as measured by the 30-year U.S. Treasury have declined from over 12% in the 1980s to under 3% today ,causing a great bull market in the bonds also.

There is a saying, "don't confuse brains with a bull market." The honest measurement as to how well your monies under management are doing is most difficult in great bull markets.

First, asset allocation decisions are much more important than the choice of a money manager. Research studies show that between 70% and 90% of portfolio return is attributed to asset allocation decisions1. Only 10% to 30% is attributed to money manager selection. Therefore, the selection of an asset allocation is 3 to 10 times more important than money manager selection.

Beware when your consultant/asset allocator compares your performance against other similarly allocated portfolios or against similarly invested funds! In these cases the consultant is managing you, the client.

Compare your results against all balanced portfolios' net of fees and expenses adjusting for risks over at least 10 years. Make sure your consultants/managers have a verifiable composite (SEC compliant).

It's the bottom line that counts. You should be looking at the safest portfolios that give you the most return net of fees and expenses.

If you try to isolate fees, expenses, and other things you will lose track of the bottom line.

The most skilled area of the investment business is asset allocation. How much weighting do you give to the various investment options such as bonds vs. stocks, domestic vs. international, growth vs. value, preferred, absolute return etc. How are those changes implemented? Automatically or when you get around to it? Are the asset allocation decisions generated bottom up?

For example, municipal bond funds were so cheap last year that we included them in fixed income accounts that do not pay taxes such as IRAs, pensions, and endowments. This inclusion of 25% of municipal bond funds rebounded so much as to add nearly 1% of extra total return to the fixed income portions of these accounts in the first calendar quarter of this year.

It is very difficult to add an extra ˝ of 1% net of fees and expenses to a well-diversified portfolio of a 10-year time period. However, it can mean a lot of extra money.

The only way to compare your results is against all balanced portfolio net of fees and expenses on a risk adjusted basis over at least a 10-year time period.


George W. Karpus is Chief Investment Strategist and Chairman of the Board of Karpus Investment Management, an independent, registered investment advisor that manages assets for individuals, corporations and trustees. Offices are located at 183 Sully's Trail, Pittsford, NY 14534 (585-586-4680).

Published: Tue, Jun 11, 2019