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Next Level Investment Management

Buy and Hold the S&P 500?

Here is one question we like to ask our clients before investing. "On January 1, 2000, if someone offered you an investment that promised to generate a CAGR (compound annual growth rate) of +6.14% over the next 22 years ending on December 31, 2022, would you make that investment?". Usually, the client's response is "yes.” If we throw in, "please know periodically you would have to lose half your money in order to make that +6.14% return." The client's response then changes to "That doesn't sound very good." We then explain that we are describing the S&P 500 Index performance since Jan. 1, 2000.

During those 22 years, the S&P 500 Index generated a CAGR of +6.14% and dropped more than -50% at least once. It has dropped -40% during that time and numerous times dropped over -20%.

In most cases, this is not the type of risk someone near retirement needs to take.

A younger person can possibly wait out a long, protracted bear market because they have many years in front of them. But someone near retirement needs to ensure their capital is there when needed.

At VMG we believe there is a better way for all investors. 


No one should be left in the dark. With a market that is perpetually changing, clear communication with our clients is paramount to success.

What does a VMG portfolio consist of?

VMG strives to create portfolios tailored to client's goals and risk tolerance 

When choosing investments people tend to focus on the return aspect more than they do the risks associated with the investment. At VMG we look at both.

Step 1:

What are Uncorrelated Asset Types?

So how does someone achieve a reasonable return without taking as much risk? To answer that question we need to discuss diversification.

When investors think about diversification they tend to picture holding multiple assets within their portfolio. While that can create a diversified portfolio it depends on what sectors of the market their holdings are in. 

Let's say someone's holdings were primarily in tech funds and they wanted to diversify. If they decided to add stock-based ETFs from different sectors of the stock market they would not be as diversified as they think. The reason is that during bear markets 3 out of 4 of all stocks fall. Bank stock fall, transportation stocks fall, energy stocks fall and medical and drug stocks fall as well. ​So during a bear market in stocks, there's really no place to hide. 

There is a way to achieve stronger diversification:

Seek uncorrelated asset types

Simple Example:

Gold, Equities, and Treasuries

If gold increases in price, equities and treasuries may go up or down in price. If equities increase in price, gold and treasuries might go up or down.

These assets over time are truly uncorrelated to each other. There are times when they become correlated but then after a period of time will become uncorrelated again. 

Using this simple example our research shows that if a person invested in these three asset types equally during the period from 1/01/2000 through 12/31/2022, they would have outperformed the S&P 500 Index and had a significantly lower drawdown for the period. 

Investing in uncorrelated asset types will help an investor truly achieve diversification.

Step 2:

What is Trend Line Analysis?

In addition to the utilization of uncorrelated assets VMG employs the use of long-term Trend-Line Management. Long-term Trend-Line Management is an analysis that is used to help investors identify the trends in the markets and what sectors they should be in. A trend-line is an indicator that tracks the price movements of securities. This analysis helps identify price direction and sector strength.


So how would someone use a trendline to their advantage? 

To put it in simple terms, if the long-term trend is trending downward, then that sector should be avoided. ​

Trend line analysis is a very simple tool, but very effective. It helps investors not be subject to huge, long term bear markets.

So how does this apply to someone’s portfolio?

If someone has a portfolio consisting of uncorrelated asset types, they may get the diversification they desire, but might not achieve the return needed for their retirement or financial plan. By pairing trend line analysis with uncorrelated assets, they may be able to achieve the return needed with less overall risk. 

This is what VMG tries to do for its clients. 

We create unique portfolios tailored to a client's risk tolerance and use uncorrelated asset types coupled with long-term Trend-Line Management to create a strong risk-to-return ratio.

Schedule a Free Consultation Today

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