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PAS Downside Protection 8 22 2016 .pdf



Original filename: PAS Downside Protection 8-22-2016.pdf
Author: Clifford Walsh

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Downside Protection
Cliff Walsh, CFA
Portfolio Manager
since 01/01/2015

“Life is more risk management, rather than exclusion of risks” - Walter Wriston

What is Downside Risk?
Risk is one of the most important factors to consider when constructing a portfolio. The concept of risk management is especially important when
you are planning for retirement. A good financial planner understands the impact of negative events and does their best to ensure that these events
will not cripple your broad portfolio of investments. Downside risk is best explained by the possibility and magnitude of loss of principal from an investment. To illustrate the importance of downside risk, if the value of a security drops 50%, it must increase 100% to get back to even. That is a
difficult proposition in any market, highlighting the importance of protecting capital.

How we Minimize Downside Risk
At Progressive Advisory Solutions, we are tactical asset allocators and value investors. This means that we structure our portfolios by allocating certain percentages of our portfolio to specific sectors of the financial market. These asset-class decisions drive most of our returns. The nature of a value
investor gears our search for securities that we feel are undervalued or underappreciated in the broad marketplace. We buy when we believe the securities are priced below intrinsic value and then sell them when they are fully and rationally priced. We don’t completely shy away from risk and all
equity positions carry downside risk. We trust in our investment teams rigorous analysis of each portfolio to ensure no client is taking more risk than
they can bear.

The Importance of Asset Allocation
There are many factors that go into creating the optimal portfolio. Proper asset allocation is one of the most important factors when looking to
achieve greater returns and minimize risk. Managing asset allocation is crucial, especially in times of higher volatility. Studies have shown (2000 Ibbotson and Paul D. Kaplan) that asset allocation provides more than 90% of portfolio returns. Asset Allocation can also help protect against downside risk.

Getting Back To Even Is Not A Strategy
Avoiding significant losses, such as those most investors experienced in 2000-2002 and 2007-2009, allow investors to spend more time experiencing
positive returns. From the market bottom in 2002, it took 60 months (to August 2007) to recover to the prior peak in 2000. Unfortunately, September 2007 proved to be the next market peak, which didn’t fully recover until March 2013, and took 49 months to recover from the bottom of 2009.2
Investors that avoided those major drawdowns had more capital to invest at lower prices and spent more time growing their assets than recovering
them.

Models vs. Benchmarks

For Internal Use Only with Registered Broker Dealers and Registered Investment Advisors. Not for Public use or Distribution. Any opinions, information and sources indicated are
that of Progressive Advisory Solutions only. The information being provided by a third party is strictly informational and American Portfolios Financial Services Inc. (APFS) and/or American Portfolios Advisors, Inc. (APA) makes no representation as to the accuracy, completeness, timeliness, merchantability or fitness for a specific purpose of the information provided in
the content and assumes no liability whatsoever for any action taken in reliance on the information contained therein. The respective companies mentioned are not affiliates of APFS or
APA. Securities offered through American Portfolios financial services, Inc. Member: FINRA, SIPC. Investment advisory services offered through PPS Advisors, Inc. A SEC Registered Investment Advisor. Progressive Advisory Solutions is independent of American Portfolios Financial Services Inc.

Disclosures
Performance- Calculations are performed using the Internal Rate of Return (IRR) Calculation method. The Internal Rate of Return (IRR) is used to calculate the true, money-weighted rate of return. Like the Modified Dietz calculation, the portfolio or asset is valued at the starting and ending points of the period. And, cash flows are included based on their timing. The IRR is related to the time-value of money or present
value formula. It calculates the discount rate which will take the starting value and all cash flows to result in the ending market value. Performance returns for time periods longer than 365 days have been annualized,
Investment Advisory services also provided by Progressive Advisory Solutions. Information in this illustration has been obtained from sources believed to be reliable and are subject to change without notification.
The information presented is provided for informational purposes only and not to be construed as a recommendation or solicitation. Investors must make their own determination as to the appropriateness of an
investment or strategy based on their specific investment objectives, financial status and risk tolerance. Past performance is not an indication of future results. Investments involve risk and the possible loss of principal. Any opinions expressed in this form are not the opinions or views of APFS or APA. Opinions expressed are those of the writer only.

Growth & Income
Benchmark-The composite benchmark is allocated in the following manner: 40% Barclays US Agg bond TR USD; 25% Russell 1000 Equal Weight TR USD; 15% Russell 2000 Equal Weight TR USD; 10% MSCI
EAFE NR USD; and 10% Morningstar Long Short AW USD. The returns published for the index are total returns, which includes the daily reinvestment of dividends. Historical performance results for market indices and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing
historical performance results.
The investment strategy and types of securities held by the benchmark may be substantially different from the investment strategy and the types of securities held by the portfolio.
Growth
Benchmark-The composite benchmark is allocated in the following manner: 30% Barclays US Agg bond TR USD; 30% Russell 1000 Equal Weight TR USD; 20% Russell 2000 Equal Weight TR USD; 10% MSCI
EAFE NR USD; and 10% Morningstar Long Short AW USD. The returns published for the index are total returns, which includes the daily reinvestment of dividends. Historical performance results for market indices and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing
historical performance results.
The investment strategy and types of securities held by the benchmark may be substantially different from the investment strategy and the types of securities held by the portfolio.
Income with Moderate Growth
Benchmark-The composite benchmark is allocated in the following manner: 55% Barclays US Agg bond TR USD; 20% Russell 1000 Equal Weight TR USD; 10% Russell 2000 Equal Weight TR USD; 5% MSCI
EAFE NR USD; and 10% Morningstar Long Short AW USD. The returns published for the index are total returns, which includes the daily reinvestment of dividends. Historical performance results for market indices and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing
historical performance results.
The investment strategy and types of securities held by the benchmark may be substantially different from the investment strategy and the types of securities held by the portfolio.
Concentrated Contrarian
Benchmark-The benchmark listed is the S&P 500 TR USD. The returns published for the index are total returns, which includes the daily reinvestment of dividends. Historical performance results for market indices
and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing
historical performance results.
The investment strategy and types of securities held by the benchmark may be substantially different from the investment strategy and the types of securities held by the portfolio.


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