Money Managers Live

Paragon Wealth Management Received a 2012 Best of State Medal

Paragon won the Utah Best of State Medal for Investment Advisory Services.

Provo, UT (May 24, 2012) – Paragon Wealth Management  received a medal at the 2012 Best of State Awards at the Salt Palace Convention Center in Salt Lake City on May 22.

Best of State seeks to recognize the people, organizations, and businesses that are achieving, innovating, and improving the quality of life in Utah. The Best of State judging criteria is specifically designed to consider factors that don’t necessarily show up on the income statement. Fifty percent of the possible points are for the overall achievement and excellence in service, products, or performance – including financial performance where applicable. Another 30 percent is for innovation, creativity and differentiation, and the remaining 20 percent is for contributions that make Utah a better place to live. In every category, there are numerous ways to show that a nominee measured up to the Best of State motto, “Excelling and Surpassing All Else.”

Utah’s Best of State presented awards in 10 main categories. Paragon Wealth Management was recognized in the Business Services category. They won the Best of State Medal for the investment advisory services subcategory.

Paragon has won the Best of State medal three times. Paragon received the Best of State medal in 2008 for financial Services and in 2011 for investment advisory services.

“We are honored to receive this award,” said Dave Young, Paragon’s president and founder. “It is a privilege to be recognized by the Best of State.”

The winners of the 2012 Best of State Awards were rated and judged on their impact on the community, excellence and achievement, and innovation and originality. The Best of State judges are selected based on their expertise and credibility in their particular fields. Their names are kept confidential.

“It is a privilege to receive this recognition,” said Nathan White, Paragon’s chief investment officer. “I have over 15 years of experience in the investment services industry, and I am impressed with Paragon’s investment strategies and overall business structure.”

Paragon Wealth Management has focused on perfecting their investment strategies for the past 25 years. Young started what is now called Paragon Wealth Management in 1986 when he sold his 12 franchise businesses and wanted to do more with his money. He spent the next year researching investment methods, and later started The Center for Financial Excellence. The name was changed to Paragon Capital Management and was registered with the Securities Exchange Commission (SEC) in 1993. It has since been changed to Paragon Wealth Management.

Paragon’s growth portfolio, Top Flight, generated a total return of 418.55 percent versus 86.96 percent for the S&P 500 from its inception on December 31, 1997 through first quarter 2012. Its compound annual return is 12.32 percent, versus 4.52 percent for the S&P 500 during that same time period (visit paragonwealth.com to see complete track record and full disclosures).

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

 

Paragon Advised Investors To Consider Alternatives to Treasury Bills

Provo, Utah- Paragon Wealth Management’s financial advisers encouraged investors to consider alternatives to treasury bills until rates move back up.

“Treasury bills yield nothing,” said Dave Young, president and founder of Paragon Wealth Management. “Bonds and gold could have significant risk at these levels, which are near all-time highs. Both are owned for safety but ironically carry significant downside risk going forward. A home makes some sense because values are low, but it's hard to get overly excited when a home's 50-year return is half that of stocks.”

Young said it could be better to follow a proven investment strategy that invests in stocks. He said stocks have gotten the best returns long-term, even though the last 12 years have been extremely difficult in the stock market.

“Stocks are currently the most beat up, out of favor and undervalued of the five asset classes, which makes them even more compelling,” said Young.

Paragon’s wealth managers have been investing in stocks since they opened their doors in 1986. Paragon’s growth portfolio, Top Flight, has generated a total return of 418.55 percent versus 86.96 percent for the S&P 500 from its inception on January 1, 1998 through March 31, 2012. Its compound annual return is 12.32 percent versus 4.52 percent for the S&P 500 during that time period. (Visit www.paragonwealth.com to see complete track record and full disclosures).

 “Even the best managers have a tough time staying ahead of the markets,” said Dave Young. “Since the market bottom in March 2009, the legendary Warren Buffett is up only  44 percent versus 80 percent for the S&P 500. Another high profile investor, Jim Cramer of CNBC's actual track record is surprisingly dismal. If you had followed his advice over the past 10 years, you would have earned only 1.68 percent compounded per year.”  

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.  

The Search for Yield

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management
Taken from Paragon's 2Qtr 2012 print newsletter.

In an environment where interest rates are at historic lows where does one go for yield?  As the baby boomers start to retire there will be a higher demand for fixed-income type investments of all types.  The effects of the ’08-’09 financial crisis, the European debt crisis, and worries over our fiscal future have caused investors to flood into bonds and out of stocks.  According to data from the Investment Company Institute which tracks fund flows, from 2009 to March of this year investors have put nearly $850 billion into bond funds while withdrawing almost $200 billion from equity funds at the same time.  This data shows that investors are obviously scared by the events of the past two years and are seeking safer or steadier returns.  But might they be making the wrong move at the wrong time?  It depends.  These actions have helped to push interest rates down as investors scour the market yield and have produced some impressive returns in U.S. government bonds in particular.  These good returns influence more investors to go into bonds.  For example, U.S. Treasury bonds were the best performing asset class last year producing 15 to over 20 percent returns.  Not surprisingly this has influenced many to chase these returns as seen by the over $100 billion that has gone into bond funds in the first 3 months of this year compared with $124 million for all of 2011.  Guess what the worst performing asset class for the first quarter of this year.  You guessed it, U.S. government bonds.

The Risk of Low Yields

The worry that we continue to have with bonds is that the yields are so low that they do not compensate for the potential risk or provide enough real return after inflation.  The main difference between bonds and savings instruments versus stocks is that they have a fixed rate of interest and a maturity which on the whole tends to limit their volatility.  Most people define risk as volatility or short-term price movements and therefore most strategies that seek to minimize this type of risk have traditionally been heavily tilted towards fixed-income investments.  However, there is another less visible but in my estimation more significant risk to these types of investments.  An article on March 7, 2012 in Seeking Alpha by William Smead discusses Warren Buffett’s three kinds of investments and their corresponding risks.  He quotes Buffett from his recent shareholder letter as follows:

“Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments.  Most of these currency-based investments are thought of as ‘safe’.  In truth they are among the most dangerous of assets.  Their beta may be zero, but their risk is huge.  Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments of interest and principal.  This ugly result, moreover, will forever recur.  Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation.  From time to time such policies spin out of control.”     

At current prices bonds are very susceptible to interest rate risk and inflation.  Interest rate risk is the effect that rising rates have on bond prices and it is measured by a term called duration.  As interest rates rise bond prices go down and the lower rates are the more exposure they have to this risk.    Duration indicates how much a bond price will change for a 1 percent change in the interest rate.  For example, the 10 year Treasury currently yields just over 2 percent and has a duration of about 7.5. If interest rates rose one percent the bond could drop in price by 7.5% and it would take over three years to recoup the loss when earning just 2%.  Imagine if rates were to rise by more than a percent!  Duration also increases with the maturity of a bond making long-term bonds an especially risky bet when rates are low.  Insert inflation and you add insult to injury.

“Inflation is taxation with legislation”…  Milton Friedman 

Right now is a difficult time to be a saver.  By savings, I mean the money put into traditionally “safe” mediums such as bank deposits and savings accounts, money markets and other short-term instruments.  This money is usually set aside for safety and emergency buffers or for near-term expenditures. The interest rates available on these instruments are basically zero.  Check CD rates and you won’t find much better.  In an attempt to stimulate the economy after the 2008-2009 financial crisis the Federal Reserve has enacted extraordinary easy money policies such as lowering interest rates to near zero and purchasing massive quantities of bonds.  In addition they have indicated that they intend to keep rates low through 2014.  While the beneficial effect of these actions is debatable (and something I’ve much discussed) it has had a significant negative impact on savers.   At the same time inflation has been running at about 2.5 to 3 percent.  That means in real terms your money is buying 3 percent less stuff each year.  After only three years, that equates to about an 8.5 percent loss in purchasing power.    John Maynard Keynes said it poignantly, “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens”.

In our more conservative accounts we have been avoiding Treasuries for some time now and prefer to allocate towards corporate bonds as they offer better yields to better offset potential risks.  We are also keeping these maturities on the short to intermediate side to minimize interest rate risk.  To hedge against inflation we prefer exposure to REITs and dividend focused stocks.  An important question to ask is how many investors in their actions to protect against short-term risk actually increase their long-term risk?  

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.  

 

Market In Rally Mode (Continued)

Written by Dave Young, President of Paragon Wealth Management
Taken from Paragon's 2Qtr 2012 print newsletter

Secrets to Building Wealth

Building Wealth is difficult.  It's somewhat like a gauntlet.  According to Sports Illustrated 60% of NBA athletes and 80% of NFL athletes are broke within five years of retiring.  I've seen similar stats for beneficiaries of life insurance policies, lottery winners and trust fund recipients.    

Even the best managers have a tough time staying ahead of the markets.  The legendary Warren Buffett  only generated a 6.2% for the first quarter versus 12.6% for the S&P 500.  Since the market bottom in March 2009, Buffett is up roughly 44% versus 80% for the S&P 500.

 Jim Cramer of Smart Money is one of the most outspoken, well known market guru's out there. His actual track record is surprisingly dismal. If you had followed his advice religiously over the past ten years you would have only earned 1.68% compounded per year. 

A basic rule of investment success is to give yourself a fighting chance by playing in the right sandbox.  In other  words, invest in the right asset class.  Let's look at the performance of five primary asset classes over the past FIFTY years.

• Median Home prices have increased at a rate of 4.8% per year since 1962.  Home prices increased fairly steadily until about 2005 when they took a tumble.
• Treasury Bills gained 5.4% compounded over the fifty years and had the smoothest ride.  Currently they are essentially returning nothing because interest rates are so low.  Until interest rates move higher it seems pointless to own Treasury Bills.
• Treasury Bonds are in the middle of the pack and have returned 7.5% over last 50 years.  The bond chart shows that bonds trended gently upward for the first 20 years and then moved sharply higher over the last 30 years.  Bonds have performed phenomenally over the past 30 years as interest rates went from about 17% to 3%.  During this time, because interest rates have steadily trended down it has created an illusion that bonds are always safe.  With rates currently pushed to the floor it is highly unlikely that we will see returns approaching their 7.5% long term average any time soon.  It is much more likely that bondholders may see significant losses if interest rates move back up toward their long term averages.
• Gold returned 8.1% over the past 50 years.  That sounds great on the surface until you realize what you would go through to get that return.  First,  you have to buy the gold without getting fleeced by the super high commission firms who sell it.  Then, for the first 13 years your  gold it went nowhere.  Then the next 10 years, amidst significant volatility,  it went straight up from $35 to $850 an ounce.  Just two years later it cratered back down to $307 an ounce.  It didn't get back to $850 an ounce until 28 YEARS after it first hit $850. Over the past four years gold has doubled in price.  It is possible to trade gold successfully but it can be very difficult.
• Stocks had  the best returns over the time period at 9.4% per year.  The first fifteen years, amidst significant volatility, stocks doubled.  The next 24 years the stock market moved steadily up creating one of the easiest environments ever to be a stock market genius.  The last twelve years stocks there have been two huge bear markets with stocks effectively going nowhere.

In my opinion, it currently makes no sense to invest in Treasury Bills, which yield nothing,  until rates move back up. Much worse than T-Bills are bonds or gold which are at all time highs.  Both are owned for safety but ironically carry significant downside risk going forward.  A home makes some sense because values are low but it's hard to get too excited when a home's 50 year return is half that of stocks.

I believe that it makes the most sense to follow a proven strategy that invests in stocks.  Even though the last twelve years have been extremely difficult,  stocks still have the best returns.  Even more compelling, stocks are currently the most beat up, out of favor and undervalued of the five asset classes.

Investing in stocks can be a positive or negative experience, depending on whether or not you follow the rules. 

Rule one is to determine your risk tolerance so that you are not taking unnecessary risks. 

Rule two is to follow a flexible strategy that allows you to protect wealth and capitalize on opportunities when they present themselves. 

Rule three is to be very patient.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.  

Market In Rally Mode

Written by Dave Young, President of Paragon Wealth Management
Taken from Paragon's 2Qtr 2012 print newsletter

Stock markets around the world rallied strongly during the first quarter of 2012. After the extreme volatility last year, many investors abandoned ship and headed for the hills...just in time to miss this entire rally. The irony is that selling to "protect" actually cost them dearly.

This rally has confounded many.  Market experts have called for a selloff ever since last November.  In the face of all their pessimism this market has steadily trended up.  Every attempted selloff has been met with new buyers coming into support the market. 

In unusual fashion, surprisingly, the market trended up, even as large amounts of money moved out of stocks and into bonds. Unbelievably, against that backdrop, the broad stock market indexes had their best first quarter performance in 14 years.

Why?

According to the sentiment models that we track, last fall the majority of investors were very negative and believed the market was headed down again. Often, when investor sentiment gets that negative,  everyone who is likely to sell has done so.  At that point, the market is like a powder keg waiting for a spark to set it off.  Once the selling is exhausted and you start to see some positive news , then the market will usually take off.

The good news that ignited the market was that our economy was stronger than expected, Europe didn't go down in flames after all and corporate earnings continued to be strong.  Market volatility declined and consumer confidence came in the highest it had been since 2007.

 What's Next?

While nobody really knows what will happen next...there is a good case to be made that this market has more room to the upside.  Market indexes are still below where they were twelve years ago while corporate earnings are about three times higher than they were then.

As the market moves up, it has a wealth compounding effect on the economy.  Investors cash out some of their market returns to replace an older car, buy a new house, remodel their home, make other large purchases or go on vacation.  This money from stock gains goes into the economy further benefitting the expansion.

As investors gain more confidence in the economy they will likely become weary of earning virtually nothing on their money markets, bank CD's and bonds.  The ICI reports that there is currently $2.6 trillion invested in money market mutual funds alone.  Much of that money will likely start to move into equities in search of higher returns if the market keeps moving up.

Housing prices declined for the fifth consecutive year in 2011. This economic recovery has occurred without any help from the housing industry. Industry experts are currently forecasting flat housing prices for 2012. A stabilization in housing prices should have an extremely positive impact on the stock market.

Our models indicate that this current move up potentially still has room to go.  As this is being written, the first week of April, the market seems to be taking a break.  We are getting close to the previous market highs which usually provide significant resistance.

 Sentiment has moved down from the extremes high's of a couple of weeks ago.  Ideally, the market will continue to move sideways or slightly down while sentiment continues to weaken.  That could set up a positive environment for the market to start another leg up.

To be continued next week...

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.  

Investing In REITs

Over the last few years a popular investment has been what are called nontraded or private REITs. These have appealed to investors seeking a stable return in the aftermath of the financial crisis. The reality is that, as with many investments of this type, there can be more that meets the eye.

visit Investment News to view the complete article

Nontraded REITS should be a nonstarter for clients: Green Street

Forget the new breed of nontraded REITs, says Green Street Advisors Inc. Investors are far more likely to be better off with publicly traded REITs, the research firm said in a report released Wednesday.

Regulatory scrutiny has forced sponsors of nontraded REITs to address issues surrounding valuations, illiquidity, high fees, dividend payouts and conflicts, the report said.

One crucial change: the introduction of daily net-asset-value estimates by several sponsors, as better pricing transparency might end the illusion of share-price stability, Green Street said.

“Since the shares don't trade, the share price investors see on their statements every quarter doesn't fluctuate,” the company said. That stability has been “one of most bizarre ‘advantages' touted by nontraded-REIT sponsors.”

In addition, “egregious” upfront costs of 7% to 10% on nontraded REITs should come down to 1% to 3%, the report said, and management fees of around 1% will drop, as well.

Questionable dividend yields of 5% to 10% are likely to fall closer to the 3.3% yield for publicly traded REITs.

Green Street said nontraded REITs have gotten something right, however: low leverage.

“Very few of them were forced into [taking on] expensive debt [or] selling properties on the cheap [or] issuing equity on an NAV-dilutive basis” during the financial crisis, the research firm said.

Nevertheless, “for most investors under most circumstances, publicly traded REITs will represent a superior investment vehicle, compared to even the ‘new breed' nontraded REITs,” the report said.

Green Street counts approximately 70 public nontraded REITs that own $85 billion in assets.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. 

How Can Conservative Investors Survive in this Low Interest Environment?

Paragon Wealth Management advised conservative investors to think twice when investing in CDs or money market funds.

“Investors who save money in CDs and money market funds don’t have a lot of options right now,” said Dave Young, president and founder of Paragon Wealth Management. “With inflation rates at 3 to 4 percent and interest rates between 0.5 and 1.9 percent, savers are actually losing money in their "conservative" accounts.”

Ben Bernanke, chairman of the Federal Reserve, said they’ll keep interest rates this low until sometime in 2014.

“Savers can either stay ultra conservative, and watch their savings go down each year or take a little more risk in order to get higher returns,” said Young. “On a one to ten risk scale, with ten being the most risky, I believe that many investors would benefit by slightly moving up the risk scale.  If they move from a level of one to a three or a level of three to five they could potentially, significantly increase their earnings.

Young said, "On the other hand, investors shouldn’t jump from very low to very high risk.  That is usually when you see problems. Sometimes investors get tired of earning one percent, so they quit and move over into something extremely aggressive that promises a 20 percent return. He cautioned investors not to get extremely aggressive and invest in things they don't understand, because that is often when they lose everything."

“It is important for investors to determine their asset allocation based on their individual risk tolerance,” said Young. “This will help them stay invested over the long-term and optimize their investment choices.”

Making sure your portfolio is structured properly is more important than ever with interest  rates this low.  

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Watch this video to learn more about how to invest when interest rates are low.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. 

Debt Limit - A Guide To American Federal Debt Made Easy

Our national debt is a very serious matter but because it is such a large number it takes it out of the realm of reality and makes it difficult to understand. This short video helps put it into perspective.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. 

The First Break?

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management

Is this the first move in the long awaited end to the bond bull market or just a short-term blip? Treasury yields shot up yesterday after comments by the Federal Reserve seemed to indicate that since the economy is picking up there would not be a need for another round of bond purchases.  Interest rates have been pushed to historic lows due to slow economic growth, central bank purchases, flight to safety moves (i.e., European credit fears), and general investor aversion to equities. Due to these factors the U.S. government has had an easy time financing its large budget deficits which has pushed debt levels up drastically. Eventually these government actions could lead to significant inflation and/or a fiscal crises such as Europe is experiencing which would be significant negatives for bonds.

Massive amounts of investor money has been flowing into bonds and they posted stellar performance last year. Many (including us) have been calling for the end of the 30 year bull market in bonds because with rates at near zero they simply can’t get any lower. The difficult part is trying to call when rates will start moving back up. Over the past 3 years many have placed unprofitable trades trying to time the end of the bond bull market.  The idea is right but the timing (as always) is difficult to pull-off.  Just because rates are low doesn’t mean that they will jump back up drastically.  Many factors (i.e., baby boomers retiring, continued central bank action, credible deficit reduction actions, etc.) could keep a lid on rates for a while to come.  Perhaps it will just be a slow inexorable climb. So has the tide started to shift?....stay tuned.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. 

 

Paragon’s Top Flight Portfolio Increased 410.7% Over 14 Years

Paragon Wealth Management’s growth portfolio, Top Flight, increased 410.7 percent from January 1998 through February 2012.

“We are happy to see these numbers over a 14-year time span in our growth portfolio,” said Dave Young, president and founder of Paragon Wealth Management.

Young designed Top Flight in January 1998 to be a dynamic, overall solution for the growth portion of a portfolio. It is specifically for the growth-oriented investor.

“Top Flight’s objective is to generate superior absolute returns while attempting to protect against downside volatility,” said Young. “While we cannot guarantee Top Flight will meet this objective, we manage the portfolio with this goal in mind.”

Top Flight invests primarily in exchange-traded funds (ETFs) that cover a wide range of asset classes, which provides investors’ portfolios with focus and flexibility.

The portfolio is managed using two unique groups of quantitative models. The first group of models is proactive in nature and determines which areas to invest in. The second group is protective in nature and determines how much of the portfolio will be invested and how much will be in cash at any point in time. 

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.