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Here’s How to Get Better Investment Returns

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Here’s How to Get Better Investment Returns  April 02, 2017

“Greedy, short-term orientated investors may lose sight of a sound mathematical reason for avoiding loss; the effects of compounding on even moderate returns over years are compelling, if not downright mind boggling.” Seth Klarman (17% annualized returns over more than 30 years)

Today I thought I’d take a break from Markets-in-Minutes and talk a little about loss management. There’s an old phrase that a bull market makes everyone a genius. And to some extent it’s true. It seems almost hard to lose money in a bull market, which is why so many investors get hurt so badly when the bear drives the bull out.

As a professional manager, I’ve been fired a couple times for not keeping up with the market in a given year. Investors that chase the market, and there are many of them, are failing to confront the mathematical reality of investing – it’s more important to protect capital than it is to maximize returns.

Here is a simple illustration.

The chart below tracks 2 investors in the S&P 500 since January 2000.

The red line is the result of an investor buying the S&P 500 and doing nothing but hold it through December 2016. In between were 2 gut wrenching recessionary bear markets, and years and years spent waiting for the account to make it back to break even. “Red” believes if you want ride the rallies you gotta endure the valleys. It’s a neat phrase he heard from his financial advisor.

The green line is an investor that buys the S&P 500, but whenever there is a recession this investor takes the simple precaution of reducing risk by 50%. When the recession goes away, the investor simply takes the cash set aside and buys back into the market. He’s isn’t worried about the gains – his eye is on the losses.

This investor misses the top and the bottom, but his initial investment isn’t any different than Red’s, nor are his initial gains. But in investing, as in football, it’s defense that wins championships.
Let’s compare the two:

RED
Dotcom Crash Loss (initial investment to valley): -41.5%
Time to get back to initial investment: 5 years.
Time account stayed positive between recovery and next crash: 14 months.
Great Recession Loss (initial investment to valley): -47.3%
Time to get back to initial Jan 2000 investment 5 years.
Total gain after 1st 12 years (Aug 2012): 0.9%
Total gain for 16 years (Dec 2016): +60.6%

GREEN
Dotcom Crash Loss (initial investment to valley): -23.8%
Time to get back to initial investment: 23 months
Time account stayed positive prior to next crash: 5 years
Great Recession Loss (initial investment to valley): -6.4%
Time to get back to initial Jan 2000 investment: 5 months
Total gain for 1st 12 years (Aug 2012): 44%
Total gain for 1st 16 years (Dec 2016): +229.2%
 
Wow, right?

What happens if you play defense every month instead of just when a recession hits?

Below is the BXM Index (Green) vs. the S&P 500 Index (Blue) since 1989. The BXM is always partially hedged, meaning that it trades part of the potential upside gain each month to get some downside protection.

From 1989 to 2016 the BXM Index returned +1058.7% vs. the S&P 500 Index at 731.9%, and held gains far better during crashes.

Again, clearly its defense that wins championships.

What if you combined a BXM derived strategy with a recession risk reduction strategy?

If you are a current ACI investor, you are in luck. This is exactly what ACI’s Market Income portfolio does.

If you are not a current ACI investor and would like to learn more about how a solid defense might help you do better with your investments, you are also in luck. Just send an email to updates@aciwealth.com that includes your first and last name, the city and state you live in, and “subscribe” in the subject line. Include your questions.

We’ll add you to the weekly updates newsletter, reserve 2 slots for you our online educational event “Winning on Wall Street in the New NOT Normal,” and answer whatever questions you have.

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To Smarter Investing,

Dak Hartsock
Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

And now for our bonus disclosures. Everyone thank the lawyers in DC. Neither the S&P 500 Index nor the BXM Index can be invested in directly. Past performance does not guarantee future results. The illustration assumes that the portfolio moved to 50% cash when the US moved into recession in 2000 and 2008. This assumption is based on hindsight and assumes that the investment manager both reduced investment as a result of the US entering recession and that the data used to determine the state of the US economy accurately signaled that the US had entered recession. The indicator used to determine the signal in the illustration is the Recession Probability Indicator developed by Stock Market Strategist Dak Hartsock. For additional information on the Recession Probability Indicator please visit: http://www.dakhartsock.com/monthly-features/recession-probability-indicator/
While the RPI has proved to be very accurate in the past, there is no guarantee it will prove to be correct in identifying recession in the future. There are inherent limitations in hypothetical or model results as the securities are not actually purchased or sold. They may not reflect the impact, if any, of material market conditions which could have has an impact on the manager’s decision making if the hypothetical portfolios were real. Historical performance does not take into account either transaction or management fees and is shown for illustrative purposes only – no illustrations contained in this article should be interpreted as an indication of performance of any ACI portfolio.The Chicago Board of Exchange S&P 500 Buy/Write Index or “BXM” has historically displayed less volatility than the S&P 500 and Market Income. There are no guarantees it will continue to do so in the future.

2016 Stock Market: What You Need to Know

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4 Things You Need to Know About Investing in 2016

We’ve seen a lot of headlines recently, most of them pretty alarming to the average person. Hand in hand with those headlines we’ve seen markets make some of the most substantial short term moves in recent history. In the first 5 market days of 2016 the S&P 500 dropped nearly 6%, the biggest 1 week drop we’ve seen since August 2011 (when the S&P dropped about 11% in 5 days).

The deluge of negative news stories and depressing angles on the global economy and the stock market can be overwhelming and really create the idea that some kind of action has to be taken or something terrible will happen.

Reality, at least at this point, is more than a little bit different.

There are four crucial things serious investors need to understand about the market we face in 2016:
1) The Federal Reserve is less able to suppress market volatility in the short term as they guide to higher interest rates.
2) Market volatility is likely to return to pre-QE levels.
3) Short term market swings in both directions will be larger and occur faster as a result.
4) Bear markets are almost always accompanied by recessions.

#1 answers the “why” of what we are seeing, and #2 and #3 describe the immediate result of #1. #4 is the reason successful investors aren’t going to let the first 3 drive them to take actions that are likely to hurt their investment goals.

As you may have surmised, investors that exited the market in 2011 due to fear missed out on a substantial move up in the market, and a lot more money in their investment accounts.

This is like running out of a building when the lights go on and off for a couple minutes because you are afraid you might die in a fire. Most of the time, lights going on and off don’t mean the building is on fire. Most of the time, smoke means a building is on fire.

Right now, the lights are flickering in the market, but there isn’t any smoke to indicate a recession.

So, how do the most successful investors deal with flickering lights?

According to a recent LPL behavioral finance paper on 5 Common Investor Mistakes, the top 3 things successful investors do differently are 1) They do not react to easily available information (read that as media headlines and the underlying stories, i.e. incomplete information), 2) They basically completely ignore short term performance (including the deluge of messages about short term events in financial markets) and 3) They follow their investment plan, not the herd.

What’s really interesting is that the less successful an investor you are, the more likely you are to act on incomplete information (i.e. headlines and media articles, short term falls in stock prices).

Wealthy, successful investors beat the average investor by a measurable margin year in and year out. They are less likely to panic sell and they maintain long term perspective. That doesn’t mean they buy and hold no matter what, but they are not affected by short term market noise and rarely trade assets for cash except in the face of looming recessionary bear markets and the high probability of serious losses.

Why is that?

The graphic study below was put together by JP Morgan (Bear Markets and Bull Runs). For those that don’t like these graphs and data tables, I’ll put it together for you;

Of the 10 bear markets we’ve seen since 1929;
* 8 included a recession
* 4 saw spikes in commodity prices
* 4 featured an overly aggressive Federal Reserve (2 of those came with recessions)
* 5 had extreme valuation bubbles (3 of which also had a recession)

So, it’s clear the common denominator of bear markets is recession.  Only 2 bear markets occurred without a recession, and they were shorter and shallower than the others.

Bear markets that don’t include recessions last an average of 5 months and drop 30% less. They generally don’t result in catastrophic damage to investment portfolios.

So, where are we now?

As yet;
* There is no recession currently on the horizon
* 1 rate raise in 6 years does not yet make an overly aggressive Fed
* Commodities are crashing
* While valuations are high in some areas they are not in bubble territory in comparison with the past.

So, until one of these situations experiences a material change, the most successful investors will continue to prosper by sticking to their investment plans.

Yes, the lights appear to be flickering. But it pays to wait for smoke before deciding the building is on fire.

Bear Markets and Bull Runs

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Thinking about working with an investment manager at some point? CLICK HERE to learn how my firm and I work with clients.

To Smarter Investing,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLc
Process Portfolios, LLC.

Recession Watch

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images source dreamstime
images source dreamstime
Is 2016 the Year of Recession? This question seems to be on everyone’s mind and even the media talking heads have jumped on it to grab readers & viewers.

Spoiler: As of today, there is no recession on the horizon. The Recession Probability Indicator (“RPI”) scored a 12 at the most recent reading, meaning the economic environment for investment is stable. That is subject to change but as with all things that have to do with investing, it’s better to take direction from facts and not fears. My personal opinion is that the odds of recession are higher in 2016 than they were in 2015, but the fact remains: no recession yet on the horizon.

That doesn’t mean the market can’t go up and down (sometimes a lot), but that history vastly favors those who stay invested despite volatility, as long as there is no recession imminent. Don’t take my opinion, click the title at the right to see the facts– Why Recessions Kill Investment Portfolios.

Here’s some simple and quick proof-in-the-pudding: Pretend you had $200,000 to invest in January 2000. The first block gets invested the way financial salespeople tell you to invest – it’s going to stay invested no matter what because you “have to be in it for the long term.”

The second block of $100,000 is, to be simple, going to move to 100% cash as soon as it looks like there may be a recession coming. Call that the “RPI Guided” for Recession Probability Indicator.

Where are these two investments at the end of December 2015?

As you can see below, it pays to make rational decisions about investments rather than getting caught up in short term volatility or whatever the media clones are spouting off about.

RPI Table Dec 2015

As I observed in one of last month’s articles We May Have a Bump Coming in the Markets (click title to read) it wasn’t clear a Fed rate raise was going to be the positive short term catalyst many market observers & participants thought. It may be that much of what we are seeing as we start 2016 is the holiday-delayed reaction to the Fed raise, mixed in with a liberal dose of alarming headlines arising from a wide spectrum of topics, some of which have no real bearing on investing. Some (me) might say most of which have no real bearing on investing.

Remember, fear helps the media sell advertising and stock brokers earn commissions, but it sure as heck doesn’t help investment portfolios do what they are supposed to do, which is be there for you when you retire, with the assets you need to live the way you want to.

Don’t let short term noise get in the way of a solid plan. Only impending recessions should do that, and if you have a real investment plan, you already know what you are going to do when the next recession comes.

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To Smarter Investing,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

August RPI Update & Business Conditions Update– Is Investing Still a Good Idea?

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Quick update on what the Recession Probability Indicator is telling us moving into the Fall.

The most recent reading (for May 2015) is STABLE with an RPI score of 12 (Below 20 generally favorable, above 20 not so much). The RPI runs on about a 2 month delay due to the Fed’s data release schedule.

To see an illustration of the RPI at work, CLICK HERE and scroll down to the updated table. If you haven’t seen it, take a look at the table. You will be amazed.

For those interested, I’ve also included an excerpt from the American Institute for Economic Research below which provides their view on the Economy, Inflation, Policy Issues, and Investing. Interesting and detailed perspective on where we are, which at this point largely coincides with my view.

You can find the full paper by CLICKING HERE.

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Warm Regards,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios

Monthly summary of August Business Conditions from the American Institute of Economic Research

…THE ECONOMY….

While the latest data confirmed our reading at the start of the year that economic
weakness was temporary, and despite accelerating growth in the second quarter, the
more complete and detailed information released last month show that the recovery
since 2012 has been slower than previously reported. Today’s GDP value is almost one
percentage point lower than earlier estimates led us to believe. This means the current
business-cycle expansion, whether measured by output or employment growth, has
been the slowest in U.S. postwar history.

…INFLATION…

Strong CPI growth in June underlined AIER’s analysis last month pointing to rising
inflationary pressures. The latest scorecard shows that 17 out of 23 indicators support
rising inflationary pressure, compared with 15 in our previous report, indicating a
higher likelihood of future price increases. Anticipated policy firming on interest rates
may moderate rising inflationary pressures.

…POLICY…
Fed policy makers did not provide any new signals on the timing of an increase in
short-term interest rates following their July meeting. and despite the weaknesses
highlighted in the revised report, the Fed continues to indicate that its policy remains
on track for a liftoff this year.

…INVESTING…
With still-modest growth and inflation, bond yields remain very low. However, a slowly
improving U.S. economy and declining unemployment may support the Fed’s first rate
hike in almost a decade. That, in turn, may pressure bond yields higher, but the question
of how high yields may rise remains open.

Weak global growth and a strong dollar have sent most commodity prices tumbling to
multi-year lows. Add to that a price war in crude oil and the decline in demand for gold
as a haven and the environment for commodities remains unfavorable.

Equities around the world have done reasonably well this year—valuations are rising in
many markets. Critical to continued price gains will be better economic growth helping
drive future earnings

If you’d like to read the full summary just CLICK HERE.

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Economy Showing Signs of Wear? — Recession Probability Indicator Update April 2015

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RPI Score Moves to 27 from 12

One of the major components of the RPI has recorded it’s 3rd negative month in a row. This has occurred three times in the last 15 years. Two of those occasions marked the beginning of market declines that ultimately became crashes.

The move above 20 creates a “Reduce Risk” signal for money I manage on behalf of clients.

My personal perspective is that this component will flip positive next month and that the other components of the RPI will not confirm the warning, sending the RPI back below 20. However, no one I can recall was calling for a recession and a market crash in February 2001 or January 2008 either.

The RPI is a tool I developed for measuring the strength of the American economy. It is derived from data provided by the Federal Reserve – things like CPI, GDP, productivity, employment, manufacturing activity, retail sales, etc.

Using a simple algorythm, the RPI scores the investment environment from 3 to 75. A score of 20 or above signals a rising likelihood of recession (usually bad for stocks). A move back below 20 after a recession signals a rising likelihood of favorable investment conditions. Most of the time it putters along between 3 and 17.

For a more detailed description and history of the RPI, take a look at the Recession Probability Indicator page under Monthly Features. It may be an eye-opener for you.

Disclosure: Please see Privacy Policy and Disclosure at the bottom of the page to review the terms and conditions of using this site.

Alternative Ways to Manage Health Care Costs using Inexpensive Term Insurance

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Alternative Ways to Manage Health Care Expense using Inexpensive Term Insurance

It’s widely known that one of the largest costs for Americans is health care. In retirement, many Americans make the often incorrect assumption that Medicare or Medicare supplemental insurance will handle the bulk of their medical expenses. Even those that think more realistically about their long term health expenses are taken aback by the expense of long term health care policies and their limitations.

Is there another way?

First, let’s talk about the big expense items that Medicare doesn’t cover and limits on treatment options.

1. Long-term care (also called custodial care). This is basically long term help with the activities of daily living; bathing, eating, getting dressed. It can happen at any age, but is more likely to occur during the retirement years. This can include long term care provided in your own home or in assisted living situations. These costs can range from $120 to $200 per day for basic home care. Add another $2 – $8 per hour for in home health aid. This assumes an 8 hour day, so it’s easy to see how quickly costs can rise. If you need an actual nurse full time, multiply the cost by 2 or 3.
2. Out-of-pocket expenses including deductible, co-pay, and 20% of the approved fees for dread disease like cancer. Complex treatments = big bills.
3. If you are in a dread disease situation, you may want to see a doctor that doesn’t participate in Medicare. That means you are writing the check, not the government.

These items can add up to tens or hundreds of thousands of dollars in medical bills that will be billed to you, not Medicare. That money won’t be part of your estate.

Consider using an inexpensive term life policy to help you protect you and your estate against these types of expenses. Some term life issuers offer add on options (“riders”) to their term life policies that may be used to address these situations. They are often referred to as “Living Benefit” or “Accelerated Death Benefit” riders. These riders often may be used to address 1 – 3 above by allowing you to access the face value of your policy for these type of expenses.

Term life policies allow policy holders to get a lot of protection for a little money. Millions in coverage can be had for a few hundred a month.

5 Key takeaways;
1. If you don’t need the policy, your heirs will thank you for the extra money they will inherit (assuming you move on before the policy expires). Extra cash is always handy, even if you are already inheriting 6, 7, or 8 figures. They may even be interested in paying some of the premium.

2. Get the longest term policy you can afford and do it before you turn 65. You will not be able to add or renew the policy after age 65. 10, 20, and 30 year terms are the typical options.

3. Make sure the company you obtain your policy from is financially strong and well managed. It doesn’t do much good to get a 30 year policy and see the company go under 15 years from now.

4. Read the fine print. Make sure you are getting coverage that addresses the Medicare gap that concerns you most.

5. Get a fiduciary to help you sort through your options — insurance agents are commissioned and may put you with whatever carrier is paying the biggest commission that month. Ask if they are being paid a commission to recommend a policy and whether they have a fiduciary responsibility to you, to themselves, or to their employer. If they are commissioned and don’t have a fiduciary responsibility to you, their recommendation may or may not be in your best interest. Better to be safe. Ask for full disclosure, including what each carrier pays in commission.

© Copyright 2015
Dak Hartsock

Check out the background of this investment professional on FINRA's Brokercheck --> http://brokercheck.finra.org/
CA Department of Insurance License #OI12504

Investment Management

For ACI, investment management begins with understanding and actively managing risk for our clients and partners.  We do this through smarter investments built on low cost, highly liquid and diversified investments rather than expensive financial products.

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RETIREMENT INCOME PLANNING

Understanding the needs of investors seeking stable results for portfolios greater than $500,000 is a core strength of ACI.  One of the most important things we do is help your investments to create stable income while generating sufficient growth to meet your future demands and the needs of those you care for. 

ACI uses customized planning and software to create retirement income plans to meet the specific needs of each of clients while providing confidence, flexibility, and cost efficiency.

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FINANCIAL PLANNING

Success in any endeavor comes from hard work, vision, and planning. We can help you create a more confident future by working with you, your CPA, your tax and estate counsel to make sure that when the tomorrow becomes today, you are where you want to be.

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Market Income

This portfolio invests in a basket of highly liquid Index or Sector securities and sells off atypical returns in exchange for a premium on a rolling basis. That’s a fancy way of saying we take the bird in hand and let someone else have the two in the bush.  We buy sectors that are undervalued relative to the rest of the market or vs. their historical value ranges which reduces downside risk vs. the broad market.  Typically out-performs in bear markets, neutral markets and mild bull markets.   while under-performs strong bull markets.

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Core Equity

Invests in diversified components of the financial markets and broad economy by targeting sectors which demonstrate the greatest potential for a consistent range of multi-year returns, while offering a risk adjusted investment profile equal to or lower than the broad markets.  Our research tells us which sectors demonstrate the greatest potential for consistent multi-year returns while offering greater risk efficiency than the broad markets.  We invest on an “Outcome Oriented” basis – meaning we have a good idea what the returns over time will be at a given purchase price.

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Durable Opportunities

This portfolio invests in companies possessing a Durable Competitive Advantage.  Such companies are likely to be around for decades, easing the concern of principal return.  DCA companies often suffer less in bear markets and usually lead recoveries.  These companies allow ACI to build portfolios with minimum expected returns that can be in the mid-single digit range over any 3-5 year period which can provide long term stability partnered with long term growth in equity.

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Full Cycle

This portfolio is derived from the ground breaking work in ‘risk parity’ by Ray Dalio, arguably one of the top 10 money managers in history and founder of Bridgewater Associates.  The Full Cycle portfolio is built on the allocation models Ray designed to provide the highest potential risk adjusted returns possible through all phases of the economic cycle.  Bridgewater’s “All Weather” fund was designed for pension funds and other large institutional investors that needed to earn stable returns with stable risk, and has been closed to new investors for years.  At the time the fund closed, the All Weather Portfolio had a minimum required investment of $100 million.

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Equity Builder

This is a risk management overlay which helps build and protect accounts by collecting small premiums against held positions on an opportunistic basis during correcting markets.  EQB seeks to collect an extra 2% – 5% per year against the cost of underlying investments.  While primarily targeted at increasing account equity, EQB gives an extra layer of protection to capital during periods of higher volatility.

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Fixed Income

Diversified, broad exposure to fixed income ETFs and best of breed no load funds including core fixed income components such as Government, Corporate or MBS, municipals, and unconstrained “Go Anywhere” funds.

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ACI Investment Team

 

Dak Hartsock; Investment manager with over 15 years of experience with securities & securities options. Dak has worked full time in the financial markets since 2007. He has more than a decade of operating experience as a business owner & developer, with substantially all personal net worth invested in ACI. He is a graduate of the University of Virginia.

Robert Hartsock; MBA. Bob has over 30 years of senior management experience in diverse markets, products and businesses. He brings an exceptional record that includes management roles in two Fortune 500 companies and leadership of 7,500+ employees. Bob’s career features a specialization in identifying and fixing management and operational problems for multiple companies including leading over a dozen acquisitions, private placements and a public offering. He is uniquely positioned to provide ACI with highly relevant C-Level management perspective. Bob provides operational & macro perspective on investments ACI undertakes for client portfolios. Bob holds degrees from University of Illinois and University of Washington.

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Privacy Policy & Disclosures

Privacy Policy & Disclosures

DakHartsock.com has a STRINGENT PRIVACY POLICY.

My Commitment to You

I will not share your email address or contact information with unaffiliated third parties under any circumstances except as required by law or at my discretion if information is requested by law enforcement.

DakHartsock.com protects the security and confidentiality of the personal information you supply to the site and makes efforts to ensure that such information is used for proper purposes in connection with your interest in the site or the published materials on www.dakhartsock.com I understand that you have entrusted us with your private information, and I do everything possible to maintain that trust. As part of protecting your privacy, subscribing to updates from dakhartsock.com requires you to opt-in twice: once when you complete the opt-in form on the site, and again via the email address you provided.

This is not a contract, but a clear statement of good intent.

Email dhartsock@aciwealth.com if you have additional questions or concerns regarding the site’s privacy policy or use the form provided on the contact page.

This web site reflects the opinions of Dak Hartsock and is not intended to offer personalized investment advice. Information regarding investment products, strategies, and services is provided solely for educational and informational purposes. Other information provided on the site, including updates on the Recession Probability Indicator (“RPI”) are presented for educational purposes and are not recommendations to buy or sell securities or solicitation for investment services.

Dak Hartsock does not provide personalized investment advice over the internet, nor should any information or materials presented here be construed as personalized investment or financial advice to any viewer. Mr. Hartsock is not a tax advisor and investors should obtain independent tax advice regarding investments. Neither Dak Hartsock, ACI Wealth Advisors, nor any affiliated persons or companies accept any liability in connection with your use of the information and materials provided on this site.

Dak Hartsock is a Series 65 licensed and registered Independent Advisor Representative with ACI Wealth Advisors, LLC (“ACI”). ACI is a Registered Investment Advisor (“RIA”), registered in the State of Florida and the State of California. ACI provides asset management and related services for clients in states where it is registered, or where it is exempt from registration through statute, exception, or exclusion from registration requirements. ACI is in no way responsible for the content of DakHartsock.com nor does ACI accept any responsibility for materials, articles, or links found on this site. A copy of ACI’s Form ADV Part 2 is available upon request.

Market data, articles, blogs and other content on this web site are based on generally-available information and are believed to be reliable. Dak Hartsock does not guarantee the accuracy of the information contained in this web site, nor is Mr. Hartsock under any obligation to update any information on the site. Information presented may not be current. Any information presented on this site should not be construed as investment advice or a solicitation to buy and sell securities under any circumstances.

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Model & Performance Disclosures

Disclosures Regarding Investment Performance Reporting in compliance with Rule 206(4)-1(a)(5).

Visit http://www.dakhartsock.com/process-portfolios-historical-performance/ for historical performance of ACI’s Process Portfolios.

Market Income Portfolio
1. The performance of the broad market over the same time periods is included for both model and live portfolio to help investors understand market conditions present during the period examined by the model and during live investment.
2. Listed Index models and graphs do NOT include transaction, fund or Advisor Management fees as the index model is not available for investment. Live portfolio results include all fees, including Advisor Management fees.
3. Model results do NOT reflect reinvestment of dividends or other earnings. Actual results reflect limited reinvestment of dividends and other earnings, but do not reflect the impact of any applicable taxes which vary by investor and account type (deferred account vs. taxable, etc.).
4. Investing involves risk, including risk of loss and/or principle. While the Index model has historically shown reasonable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that will continue into the future. Market Income is designed to provide reasonable returns for less risk than the broad market on a risk adjusted basis, and while the firm believes model portfolios are capable of continued outperformance on this basis, there is no guarantee they will do so. Comparisons with the S&P 500 are included to help the average investor understand how an investment in Market Income may differ from investment in an index fund such as an S&P 500 index fund.
5. The model for Market Income is the Chicago Board of Exchange S&P 500 Buy/Write Index or “BXM.” BXM has historically displayed less volatility than the S&P 500 and Market Income. BXM cannot be directly invested in. Market Income does not exactly follow the BXM index model – the mechanics of closing and opening positions differ – BXM opens, closes or rolls positions on the same day every month regardless of the profit or loss in a position – Market Income generally, but not always, waits until after expiration before transacting. Market Income will also close or roll ahead of expiration if the position has a high percentage of profit present in order to capture that gain. Options are generally sold again within a week of the closure of the prior position, but not always, and often new position may be opened the same day the prior position is closed.
Benchmark and index comparisons are made on a best available basis – meaning that both the index model and live performance are believed to be compared with market and the closest possible benchmark for simplicity of comparison. However, there is no guarantee future volatility will be either less than, equal to, or greater than the volatility experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500.
6. The model portfolio (BXM) utilizes the S&P 500 as its basis. Market Income differs from BXM in that the underlying securities are primarily selected on the basis of “relative” value. This simply means that sectors are compared with one another and Market Income generally invests in the sector or sector(s) trading at the greatest discount or the smallest premium relative to its historical average valuation. Other factors are also considered including sector earnings growth and expected return versus other available sector instruments. Advisor believes this gives Market Income a higher margin of safety than repeatedly investing in the S&P 500 on a rolling basis without regard to value or prevailing economic conditions, while preserving liquidity.
7. The BXM model on which Market Income is based is a non-traded index. As such, results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees.
8. Market Income also differs from the BXM model in that Market Income seeks to reduce investment during recessionary economic periods while BXM stays invested regardless of economic or market conditions. Advisor believes this will better protect capital vs. BXM model but is materially different than staying invested in all market conditions. This action may cause Market Income to have reduced participation in markets that continue to move up despite Advisors reduction in investment.
9. Advisor clients have experienced results that exceed the performance of the model to date. There is no guarantee Market Income will continue to outperform BXM in the future regardless of Advisor efforts to do so.

Core Equity Portfolio
1. The performance of the broad market over the same time periods is included for both model and live portfolio to help investors understand market conditions present during the period examined by the model and during live investment.
2. Model is a historical back test and includes brokerage and fund fees but does NOT include Advisor Management fees which vary by account size, but in general reduce annual performance by approximately 1.5%. Live portfolio results include all fees, including Advisor Management fees.
Historical back-test means the model portfolio has been tracked on a backwards looking basis prior to the beginning of live investments in order to establish historical risks and results for investment in this portfolio. Back testing has certain inherent limitations as detailed in item #7 below.
3. Model results reflect regular investment of dividends or other earnings. Actual results reflect limited reinvestment of dividends and other earnings.
4. Investing involves risk, including risk of loss and/or principle. While the back tested Core Equity model has historically shown desirable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that will continue into the future. Core Equity is designed to provide reasonable returns for the same or less risk than the broad market on a risk adjusted basis, and while the firm believes model portfolios are capable of continued outperformance on this basis, there is no guarantee they will do so. Comparisons with the S&P 500 are included to help the average investor understand how an investment in Core Equity may differ from investment in an index fund such as an S&P 500 index fund.
5. The model for Core Equity is built of highly diversified, highly liquid sector and index securities, most frequently low cost ETFs. Core Equity live portfolios do not exactly follow the Core Equity model – variances in investor contributions, withdrawals, and risk tolerances result in measurable drift from the model. Over time, client accounts come closer in line with the Core Equity model.
Core Equity live portfolios may differ from the Core Equity model in an additional material way; when valuations on certain sectors become overly stretched versus their historical average valuations, the Advisor may reduce exposure to those sectors in favor of a sector position which is priced in a more reasonable range in comparison to it’s typical historical valuation. Periodically, Core Equity may allocate a small but measurable percent of assets (up to 5%) in volatility linked instruments in an effort to better manage the portfolio.
These factors may result in greater or less than model performance over time.
Benchmark and index comparisons are made on a best available basis – meaning that both the index model and live performance are compared with market and other benchmarks the
Advisors believe to be suitable for simplicity of comparison. However, there is no guarantee future volatility or performance will be either less than, equal to, or greater than the volatility or performance experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500.
6. Core Equity invests in diversified components of the financial markets and broad economy by targeting sectors or indices which demonstrate potential for a consistent range of multi-year returns, while seeking a risk adjusted investment profile equal to or lower than the broad markets. These sectors contain a range of equity stocks with an equally broad range of characteristics – some sectors are present in the Core Equity portfolio due to their historically defensive nature, some are present due to their historical growth characteristics, some are a blend of the spectrum between. The intent is to provide a balanced equity portfolio suitable for most investors as an S&P 500 index fund replacement but which seeks lower risk while experiencing, on average, a greater return than an S&P 500 index investment.
7. The Core Equity model results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees as detailed above in item #2.
8. Core Equity live portfolios also differ from the Core Equity model in that Core Equity seeks to reduce investment during recessionary economic periods while the Core Equity historical model stays invested regardless of economic or market conditions. Advisor believes this will better protect capital vs. model but is materially different than staying invested in all market conditions. This action may cause Core Equity live portfolios to have reduced participation in markets that continue to move up despite Advisors reduction in investment.
9. Advisor clients have experienced results that slightly lag the performance of the model to date. This lag is due to a number of factors, primarily the fact that different clients allocate different dollar amounts to Core Equity at different times. In general, the longer a client has been fully allocated to the Core Equity portfolio, the closer it is to model performance.
The benchmark for Core Equity (The S&P 500) has historically displayed greater volatility (risk) than the Core Equity model or live Core Equity portfolios. This may or may not be the case in the future.

Market Momentum Portfolio
1. The performance of the broad market over the same time periods is included to help investors understand market conditions present during the period covered by live investment.
2. Listed comparison Index graphs and statistics do NOT include transaction, fund or Advisor Management fees. Live portfolio results include all fees, including Advisor Management fees.
3. Actual results reflect limited reinvestment of dividends and other earnings, but do not reflect the impact of any applicable taxes which vary by investor and account type (deferred account vs. taxable, etc.).
4. Investing involves risk, including risk of loss and/or principle. While the closest benchmark for Market Momentum has historically shown reasonable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that Market Momentum that will continue such performance into the future. Market Momentum is designed to provide reasonable returns for less risk than the broad market on a risk adjusted basis, and while the firm believes the portfolio is capable of outperformance on this basis, there is no guarantee it will do so. Comparisons with the S&P 500 are included to help the average investor understand how an investment in Market Momentum may differ from investment in an index fund such as an S&P 500 index fund.
5. The closest benchmark for Market Momentum is the Chicago Board of Exchange S&P 500 Buy/Write Index or “BXM.” BXM has historically displayed less volatility than the S&P 500 and Market Income. BXM cannot be directly invested in. Market Momentum differs in key ways from BXM – the mechanics of closing and opening positions differ – BXM opens, closes or rolls positions on the same day every month regardless of the profit or loss in a position – Market Momentum targets closing or rolling positions based on technical factors including trend support and resistance. Market Momemtum will also close or roll ahead of expiration if the position has a high percentage of profit present in order to capture that gain. Options are generally not sold again until the underlying investment has moved into an area of resistance but not always; new position may be opened the same day the prior position is closed.
Benchmark comparisons are made on a best available basis – meaning that live performance is believed to be compared with the closest possible benchmark for simplicity of comparison. However, there is no guarantee future volatility will be either less than, equal to, or greater than the volatility experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500. Market Momentum , like BXM, is an options writing strategy seeking to reduce investment volatility and improve risk adjusted returns for investors.
6. The model portfolio (BXM) utilizes the S&P 500 as its basis. Market Momentum differs from BXM in that the underlying securities are primarily selected on the basis of “relative” value. This simply means that sectors are compared with one another and Market Momentum generally invests in the sector or sector(s) trading at the greatest discount or the smallest premium relative to its historical average valuation. Other factors are also considered including sector earnings growth and expected return versus other available sector instruments. Advisor believes this gives Market Momentum a higher margin of safety than repeatedly investing in the S&P 500 on a rolling basis without regard to value or prevailing economic conditions, while preserving liquidity.
7. The BXM model on which Market Momentum is compared is a non-traded index. As such, results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees.
8. Market Momentum also differs from the BXM model in that Market Momentum seeks to reduce investment during corrective or recessionary economic periods while BXM stays invested regardless of economic or market conditions. Advisor believes this will better protect capital in comparison to BXM but such action is materially different than staying invested in all market conditions. This action may cause Market Momentum to have reduced participation in markets that continue to move up despite Advisors reduction in investment.
9. Advisor clients have experienced results that exceed the performance of the benchmark to date. There is no guarantee Market Momentum will continue to outperform BXM in the future regardless of Advisor efforts to do so.

Durable Opportunities Portfolio
1. The performance of the broad market in the form of the Dow Jones Industrial Index over the same time periods is included for live portfolio comparison to help investors understand market conditions present during the period covered by live investment.
2. The Index results do not include brokerage, transaction, or Advisor fees. Live portfolio results include all fees, including Advisor Management fees.
3. Actual results reflect limited reinvestment of dividends and other earnings.
4. Investing involves risk, including risk of loss and/or principle. Portfolios compromised of companies matching the profile of those selected for including in Durable Opportunities have historically displayed superior risk adjusted performance to the Index, but there is no guarantee that will continue into the future. Durable Opportunities is designed to provide investment in companies that firm believes meet a stringent set of criteria firm believes reduces the likelihood of permanent capital impairment while allowing investors to participate in investment in companies firm believes will stand the test of time and provide superior long term returns. While the firm believes the portfolio is capable of outperformance on this basis, there is no guarantee it will do so. Comparisons with the Dow Jones are included to help the average investor understand how an investment in Durable Opportunities may differ from investment in a concentrated index fund such as a Dow Jones Industrials index fund. Durable Opportunities is not restricted to investment in industrial companies or in companies with a specific level of capitalization, unlike the Dow Jones.
5. Durable Opportunities is primarily a value driven strategy; when valuations in holdings become overly stretched versus their historical average valuations, the Advisor may reduce exposure to those holdings by either liquidation or hedging, and may re-allocate funds into a holding which is priced in a more reasonable range in comparison to it’s typical historical valuation. Periodically, Durable Opportunities may allocate a small but measurable percent of assets (up to 5%) in volatility linked instruments in an effort to better manage the portfolio.
Benchmark comparisons are made on a best available basis – meaning that live performance is compared with the benchmarks the firm believe to be suitable for simplicity of comparison. However, there is no guarantee future volatility or performance will be either less than, equal to, or greater than the volatility or performance experienced in the Dow Jones Industrials although the firm invests with an eye on reduced volatility vs. the Dow Jones Industrials Index. 6. Durable Opportunties invests in companies firm believes to possess a Durable Competitive Advantage. Such companies are likely to be around for decades, easing the concern of principal return. DCA companies often suffer less in bear markets and usually lead recoveries. These companies allow ACI to build portfolios with minimum expected returns that may be in the mid-single digit range over any 3-5 year period which may provide long term stability partnered with long term growth in equity. There are no guarantees the strategy will be successful in this endeavor.
6. The Durable Opportunities portfolios also differ from the benchmark comparison in that Durable Opportunities reduce investment by hedging or raising cash during recessionary economic periods while Dow Jones Industrial Index reflects 100% investment at all times regardless of economic or market conditions. Firm believes this will better protect capital vs. model but is materially different than staying invested in all market conditions. This action may cause the Durable Opportunities portfolio to experience reduced participation in markets that continue to move up despite Advisors reduction in investment.
7. Advisor clients have experienced results that have lagged the performance of the benchmark to date. This lag is due to a number of factors, primarily the fact that the current high valuation investing environment has made it difficult to identify companies that fit the parameters of Durable Opportunities at a desirable valuation level. Different clients allocate different dollar amounts to Durable Opportunities at different times, which has also impacted the performance of the overall portfolio.

Full Cycle Portfolio
1. The performance of the broad market over the same time periods is included for both model and live portfolio to help investors understand market conditions present during the period examined by the model and during live investment.
2. Model is a historical back test and includes brokerage and fund fees but does NOT include Advisor Management fees which vary by account size, but in general reduce annual performance by approximately 1.5%. Live portfolio results include all fees, including Advisor Management fees.
Historical back-test means the model portfolio has been tracked on a backwards looking basis prior to the beginning of live investments in order to establish historical risks and results for investment in this portfolio. Back testing has certain inherent limitations as detailed in item #7 below.
3. Model results reflect regular investment of dividends or other earnings. Actual results reflect limited reinvestment of dividends and other earnings.
4. Investing involves risk, including risk of loss and/or principle. While the back tested Full Cycle Portfolio model has historically shown desirable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that will continue into the future. Full Cycle Portfolio is designed to provide reasonable returns for the same or less risk than the broad market on a risk adjusted basis in all phases of the economic cycle by holding risk weighted non-correlated assets, and while the firm believes model portfolios are capable of continued outperformance on this basis, there is no guarantee they will do so in the future. Comparisons with the S&P 500 are included to help the average investor understand how an investment in the Full Cycle Portfolio may differ from investment in an index fund such as an S&P 500 index fund.
5. The model for the Full Cycle Portfolio is built of diversified, liquid sector and index securities, most frequently low cost ETFs and low cost funds. The live Full Cycle portfolio does not follow the Full Cycle model exactly – variances in investor contributions & withdrawals result in measurable drift from the model. Over time, client accounts come closer in line with the Full Cycle model.
Full Cycle live portfolios may differ from the Full Cycle model in an additional material way; when valuations on certain sectors become overly stretched versus their historical average valuations, the Advisor may reduce exposure to those sectors in favor of a comparable position which is priced in a more reasonable range in comparison to it’s typical historical valuation.
These factors may result in greater or less than model performance over time.
Benchmark and index comparisons are made on a best available basis – meaning that both the index model and live performance are compared with market and other benchmarks the
firm believes to be suitable for simplicity of comparison. However, there is no guarantee future volatility or performance will be either less than, equal to, or greater than the volatility or performance experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500.
6. Full Cycle invests in diversified components of the global financial markets and broad economy by balancing risks with non-correlating or reduced correlation assets in opposition to one another each of which is designed to prosper in some phase of the economic cycle and intended to offset reduced or poor performance in other portfolio holdings.
7. The Full Cycle model results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees as detailed above in item #2.
8. Full Cycle live portfolios also differ from the Full Cycle model in that the live portfolio may be rebalanced more or less frequently depending on prevailing market conditions. While firm believes this difference positions portfolio for improved risk adjusted performance, it is not clear that this difference results in clear over or under performance versus the Full Cycle model.
9. Advisor clients have experienced results that slightly outperform the performance of the model to date. This outperformance may or may not persist. In general, the longer a client has been fully allocated to the Full Cycle portfolio, the closer it is to model performance.

Fixed Income Portfolio
1. The performance of the broad bond markets over the same time periods is included to help investors understand market conditions present during the period covered by live investment.
2. Listed comparison Index graphs and statistics do NOT include transaction, fund or Advisor Management fees. Live portfolio results include all fees, including Advisor Management fees.
3. Actual results reflect limited reinvestment of dividends and other earnings, but do not reflect the impact of any applicable taxes which vary by investor and account type (deferred account vs. taxable, etc.).
4. Investing involves risk, including risk of loss and/or principle. While the closest benchmark for Fixed Income has historically shown reduced volatility and reasonable performance versus many classes of fixed income investments, there is no guarantee that Fixed Income that will continue such performance into the future. Market Momentum is designed to provide reasonable returns for less risk than the broad market on a risk adjusted basis, and while the firm believes the portfolio is capable of outperformance on this basis, there is no guarantee it will do so. Comparisons with US Aggregate Bond Market and PIMCO Total Return are included to help the average investor understand how an investment in Fixed Income may differ from investment in an alternative index or fixed income fund.
5. The closest benchmark for Fixed Income is the Pimco Total Return Fund. Fixed Income differs in key ways from BOND – including selection of underlying investments and reduced diversification. Benchmark comparisons are made on a best available basis – meaning that live performance is believed to be compared with the closest possible benchmark for simplicity of comparison. However, there is no guarantee future volatility and performance will be either less than, equal to, or greater than the volatility and performance experienced by the benchmark although the firm invests with an eye on out performance.
6. The benchmark may include securities not contained in Fixed Income, and vice versa. Fixed Income currently holds significantly more cash than PIMCO Total Return Fund, a situation likely to continue in the near future. This action may cause Fixed Income to have reduced participation in markets that move up despite Advisors reduction in investment.
7. Advisor clients have experienced results that lag the performance of the benchmarks to date. There is no guarantee Fixed Income will continue to outperform benchmarks in the future regardless of Advisor efforts to do so.

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