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Laid Off By Microsoft — Choices for Your 401(k), Microsoft Stock & Non-Qualified Deferred Compensation

This article was written to help Microsoft employees gain a solid understanding of what to do with their 401(k)s, Microsoft stock, and non-qualified deferred compensation plans when they leave the company.

WARNING:  This is a long article and includes many specifics.  If you already understand everything you need to know about the Microsoft Corporation Savings Plus 401(k) plan, Microsoft stock acquired through options, awards, or the stock purchase plan, and the non-qualified deferred compensation plan and the different choices you are now facing–(keep it at Microsoft, roll it to another 401(k) or to an IRA, tax consequences, the investment choices outside the 401(k), which companies to avoid, how to choose where to move the account, etc.)– this article probably isn’t for you.

It’s geared for the people that need and want answers to clearly understand their choices and are willing to invest some time to make the best possible decisions for themselves and their financial prosperity.    

I’ve included links to your plan documents (at bottom) to help, as well as some illustrations, lists, checklists, etc. to help you understand the bigger picture as it affects your 401(k) savings, Microsoft stock, and any non-qualified deferred compensation.

If you need further explanation after reading this article, simply fill out the form at the right with your question.

My firm sets aside a few hours each week to provide people facing transitions with enough help to get them going in the right direction, at no charge.  A big part of why I chose this business was to help, and I can afford to give away a few hours a week to provide some basic guidance/answer important questions.

Just include a call request in the form at the right or below and we’ll get you heading the right way.

Topics Covered In This Post

  • What You Need to Know NOW.
  • Microsoft 401(k) and Your Microsoft Stock.
  • Reasons to Keep Your 401(k) At Microsoft.
  • Reasons to Move Your 401(k).
  • Problems/Dangers of Target Date Investments in 401(K)s. (Blackrock Lifepath Index Investments).
  • Illustration of BlackRock Lifepath 2030 vs. Alternatives.
  • The Problem with Your Microsoft Stock.
  • What You Absolutely Do NOT Want to Do with Your 401(K).
  • Which Should I Pick, Traditional/Rollover or ROTH Rollover IRA?
  • Should I Roll My Microsoft 401(k) into My New Employer’s 401(k) Plan?
  • What is the Process to Move My 401(k) into an IRA?
  • Choosing a Custodian.
  • How Do I Find Hidden Fees?
  • Does Anyone in the Financial Industry Act in My Best Interest?
  • How Can I Make Sure the Rep/Company Must Act In My Best Interest And That Their Record Is Clean?
  • What About My Microsoft Non-Qualified Deferred Compensation Plan?
  • Companies You Should Consider Avoiding Due T0 Hidden Fees/Commissions Being A Primary Revenue Source In Their Business Model.
  • General Information on Microsoft Corporation Savings Plus 401(k) Including Plan Details, Plan Documents, Contact Info For Some Administrators.
  • Questions Checklist for Choosing A Custodian/Broker.
  • Questions Checklist for Choosing An Investment Advisor.
  • Learn More

 

WHAT YOU NEED TO KNOW NOW

It’s always tough leaving a job and if you are like most Americans, you probably don’t have a clear idea of what to do with your 401(k), company stock or non-qualified deferred compensation (“NQDC”) plan now that you are leaving Microsoft.

The first thing to understand is that your 401(k) and your non-qualified deferred compensation plan are two of the most important financial assets you have.  Do whatever you must to keep yourself from taking money out to live on while you are looking for your next position.  If you own a lot of Microsoft stock, same thing goes.

You really need to make sure you are making solid, well informed decisions about where to go from here with these assets.

If you are going into retirement from here, this article is every bit as important, maybe more so.

For the sake of simplicity, I’m going to address your 401(k) first and then tackle what to do with your non-qualified deferred compensation plan below that.  I will cover Microsoft stock  in the 401(k) section.

 

401(k) & Your Microsoft Stock

The second thing you need to understand is that just because you are leaving Microsoft doesn’t mean your 401k needs to leave with you.  For most of you, moving your 401(k) now that you are no longer with Microsoft is one of the better decisions you could make, provided you do it intelligently.

For a small minority of you, leaving your 401k at Microsoft may be a good decision for the near term or even longer.

We’ll look some pros and cons of keeping your 401k at Microsoft and give you an idea what choices are out there for your 401(k) assets if you move them, and cover the HOW if you choose to do so.

PLAN SUMMARY:  The Microsoft Corporation Savings Plus 401(k) Plan is pretty good as 401(k)s go.  The selection of funds is a bit limited (this is typical) and includes a couple separately managed account choices.  As you probably know, you are 100% vested after 2 years, the employer match is competitive, borrowing is allowed, and up until 2016 the plan had a nice ESOP to go with it (Employee Stock Purchase Plan).

It’s in the top 15% of plans nationally in terms of benefits for participants.  In your next position, it would be a good idea to look for many of the same features particularly the short time period to 100% vesting of employer contributions and an ESOP option if the company is publicly traded.

Here are the investment options offered in the Microsoft 401(k) plan at the date of Microsoft’s most recent 11k filing.  As you can see, choices are limited.

 

Quick Summary of Reasons to Keep Your 401(k) at Microsoft:

  • This is the simplest option. If you are just too overwhelmed with what has happened right now, then leave things as they are until you are feeling steady again. It is always a bad idea to make investment decisions when you are emotional.
  • The BlackRock LifePath Index choices most of you probably selected are large, diversified funds. They are about as solid a bet as you can get for target-date investments and are brainless.  If you flat out don’t want to ever think about your investments and couldn’t care less about how well (or poorly) your accounts do over time, this is a good option.   
  • For those of participating in the ESOP, your Microsoft stock will continue to pay dividends and get reinvested according to plan parameters without you needing to give it a moment’s thought.
  • If you are planning on borrowing against your 401(k) for an allowable loan (primary residence purchase, home renovation, etc.) then you should leave enough in the plan to make sure you can borrow what you need to.

Some fees in the program are paid by Microsoft, but it doesn’t look like the fund fees are.  This isn’t great given the lack of choice. 

Quick Summary of Reasons to Move Your 401(k) from Microsoft.

  • 401(k) plans are inherently very limited in terms of investment choices. The Microsoft plan is no different. 
  • Moving your account will give you vastly superior investment choices versus what’s available in the plan.
  • The investment choices in the plan, especially the LifePath Index choices, are cookie cutter investments that are one size fits all.  It’s highly likely that the investments you have in the plan don’t fit your life and financials goals. 
  • Custom Portfolios based on your specific goals and needs are likely to serve you far better moving forward – without employer matching, most 401(k) plans are pretty weak investment vehicles. Once the matching is gone, the best thing you can say about them is “it’s better than nothing.”
  • Target date plans, like the BlackRock Lifepath Indices, do not take prevailing conditions into consideration and may expose your investments to the consequences. For example, in a rising interest rate environment, those of you in the LifePath Index 2020 Trust (and maybe the Index 2030 Trust) may find that your bond principal dwindles rapidly as rates rise, and that the income levels you are locked into fail to keep up with your income needs. 
  • If you were to avoid the LifePath Indices, the choices are very limited and can be risky held on their own. For example, the Vanguard S&P Index Trust choice, while a reasonable & inexpensive choice for long term growth, has low expected returns for the next few years because of current market valuations.  There isn’t anything built into the Vanguard S&P Index Trust to slow down losses if the economy slows down or the market crashes, either.  This is a problem. 
  • Investment portfolios work best when the assets help balance risks against one another. It’s tough to do that effectively with the choices available inside the plan.  Most choices outside the LifePath Indicies are either “growth” oriented (Fidelity Growth Company Commingled Pool) or “safety” oriented (Vanguard Short Term Bond Index Fund).  There are no choices for Growth & Income, or multiple sector choices like Consumer Staples (for steadiness) and Technology (for growth) to build a portfolio better at managing risk with higher expected returns.     
  • If your 401(k) is not big enough to keep your attention, you may forget about it for years. It happens more than you think. It’s better to consolidate all your old 401(k)’s into an IRA.  

Here’s an article from the Wall Street Journal, one of many to expose the weakness in Target Date Fund investing:   Click here — > Missing the Target or copy and paste this link into your browser:  http://online.wsj.com/article/SB10001424127887324049504578541831083543670.html

Below is an illustration of the Lifepath Index 2030 versus a vanilla Vanguard 60% stocks/40% bonds portfolio.  As you can see, even a vanilla portfolio is likely to do better for you both in terms of return and risk. 

As an example of a customized portfolio, I also included a custom 60/40 portfolio my firm designed (ACI Wealth Advisors) for risk efficiency, more income and potential higher performance.

This is an illustration. See additional disclosures regarding illustrations/models at the bottom of the page.    

Portfolio 1(Blue) is the Blackrock LifePath Index 2030.

Portfolio 2 (Red) is the vanilla 60% Stock/40% Bond portfolio by Vanguard.  

Portfolio 3 (Orange) is a custom 60% Stock/40% Bond portfolio built of low cost, no commission funds and ETFs just like the Vanguard offering.

CAGR = Compounded Annual Growth Rate – basically your average annual return.

Stdev = is a measurement of risk.  The higher the number the higher the risk, as you can see when you compare the worst year and the max drawdown. 

It’s clear there are better ways to invest than target date funds.  These alternatives are likely to manage risk to your nest egg more effectively, even if it’s just a vanilla model portfolio from a firm like Vanguard or Schwab.

For those of you serious about building wealth, custom portfolios based on your specific investment and retirement income goals are probably a good direction.  That means getting a financial plan together to define your investment portfolio.  Get in touch at the right or below if you’d like to explore that idea. 

The Problem for with Your Microsoft Stock

For those with significant stock acquired through options, awards or the stock purchase plan, you may have far too much of your wealth concentrated in Microsoft stock, especially if you’ve been with Microsoft for 5 years or more.  In most cases, if Microsoft stock represents more than 5% of your portfolio, you should take action.  

This wealth should be protected by either reducing your overall position, or by taking steps to protect your stock from an unexpected downturn in the stock or the economy.  

Remember – in the DotCom crash Microsoft stock fell -62% and didn’t return to the pre-crash price until 17 years later, in December 2016.  In the 2008 Crash, the same thing basically happened again with Microsoft stock falling over -60%.  So be smart – either reduce the shares you own, or take steps to protect those dollars from an unexpected event in the stock or the economy. 

You should consider the cost basis of your shares when you are making the decision of reduce vs. protect. 

If you don’t know how much Microsoft stock to sell, or want to keep it all but don’t know how to protect it, get in touch.  You can use the form at the right or below. 

WHAT YOU ABSOLUTELY DO NOT WANT TO DO WITH YOUR 401(k)

Don’t cash it out and don’t roll it into a regular taxable investment or brokerage account.  This will trigger taxes and penalties.  For 99% of you, these dollars need to be kept in a tax deferred account so they can continue to compound without taxes. 

If you are retiring rather than seeking a new position, you really want to keep your money in a deferred account so you can control the taxes you pay on withdrawals.  The way your portfolio is put together is now really important.    

The account choices to keep the benefits of tax deferral are a traditional or rollover IRA (“Individual Retirement Account”) or a ROTH IRA. 

Moving your 401(k) into these account structures will keep your investments compounding tax deferred while greatly increasing your investment choices.  This gives better options for managing risk while getting a portfolio that fits YOU rather than you and the other 110,000 Microsoft employees.

Which Should I pick – Traditional/Rollover IRA or ROTH IRA?

Pay attention here – get it wrong and you get a big tax bill.

For most of you, rolling your 401(k) into a Traditional/Rollover IRA is a great idea.  There are no tax consequences and some of the investments you currently have may simply transfer over (like your Microsoft stock).  More on this process below.   

Once your assets are in the IRA, you will be able to start investing in the investments that fit your needs and goals.  If you are retiring now it will allow you to control the rate you take income from the account (and therefore the taxes) until you reach 70 ½, at which point the government is going to force you withdraw a certain amount every year (and pay taxes on it). 

For a limited group, rolling your account into a ROTH IRA may be a better fit.  Here is the thing with Roth accounts – you must pay the IRS as it counts as a withdrawal from your 401(k). 

So, why would you even consider this?  Once your assets are in the Roth, they and whatever income they create are tax free FOREVER, assuming you are over 59 ½ and the assets have been in the account at least 5 years. 

If your time horizon to retirement is long enough, it may make sense to pay the tax now and escape taxes forever.  This is a scenario that needs to be thought about carefully before making a move as it’s irreversible.  The IRS will not allow you a freebie because you changed your mind. 

In some instances, rolling some of the 401(k) into a Rollover IRA and some into a ROTH may also make sense, but anything that triggers taxes needs to be thought about very carefully.  Maybe with the help of an expert. 

Get in touch if you want a little direction.  Form at the right or below. 

Should I roll My 401(k) into my new employer’s 401(k)?

It’s almost always best to roll your 401(k) into an IRA.  IRA’s are typically less expensive than 401(k) plans, and more importantly give you a much wider selection of investments. This allows you, or your investment advisor, to build a more risk efficient portfolio – meaning that you are likely to get a better return for the same level risk you would take in your 401(k).  It also means you have the potential for greater diversification, which also helps to manage risk. 

Microsoft has a top 15% 401(k) plan — that means that 85% of employers have inferior plans, so it’s unlikely you are going to find yourself with a new 401(k) that is so great you should roll your Microsoft 401(k) into that instead of an IRA. 

What Is the Process to Move My 401(k) Into an IRA?

It may seem intimidating, but it’s straightforward once the decision is made. 

  • Choose a new Custodian (this is the company that holds your funds for you) and open a rollover account.
  • Contact your plan administrator to get the rollover package.
  • Transfer your account to the new custodian.
  • Determine your risk tolerance and choose an investment model (or get help understanding your risk tolerance and help in either choosing a model portfolio or building a custom portfolio specific to your needs/goals).

CHOOSING YOUR NEW ACCOUNT CUSTODIAN

First, you need to choose a new custodian. There are a lot of choices and each have their pros and cons. 

Custodians are companies like Charles Schwab, Vanguard, Merrill Lynch, Fidelity, eTrade, Interactive Brokers, etc. 

However, not all custodians are alike.  The biggest difference is price.  But they all also have one major problem in common I will share below.  SCROLL DOWN TO SEE LIST OF CUSTODIANS YOU SHOULD CONSIDER AVOIDING.  

Interactive Brokers is the least expensive custodian and has the same financial strength as the better-known brokers, including all the same protections for client accounts (SIPC, etc.).  Transaction charges are so low they are almost meaningless.  But Interactive Brokers is a custodian only.  They aren’t going to help you build a portfolio that fits you, nor are they going to check in with you to make sure it’s doing what you want it to do.   

Schwab and Vanguard are one stop shops that are both trying to be low cost leaders.  They are very low cost compared to the Merrill Lynch’s of the world, and are also have their own funds available at a discount or even commission free – meaning you won’t pay to buy or sell.  This is a big deal – every dollar you save is one that gets a chance to grow and help pay for your future.

Schwab and Vanguard also provide portfolios models that you can either select yourself or talk to one of their “advisors” who will basically put you into the same cookie cutter model, but you get to talk to a human. 

Their model portfolios are basically cookie cutter, and the financial planning tools don’t really integrate well into their model portfolios, so the specialization is limited.  The other problem is that their model portfolios, like Vanguard’s Core Series or Schwab’s Portfolio Solutions/Intelligent Advisory aren’t particularly well constructed and it’s arguable they aren’t sufficiently diversified.  Vanguard’s 100% Equity portfolio in their Core solution has 2 funds in it.  That’s right.  2

The larger problem that Schwab and Vanguard share with Merrill Lynch, Edward Jones and just under 90% of the financial industry is that the people there, the “financial advisors,” that answer the phone when you call don’t work for you.  They are really salespeople that are responsible for generating fees.  They are not legally required to do what’s right for you, they are held to what is known as a “suitability” standard. 

That’s industry jargon.  It means their job is to figure out how many dollars in both overt and hidden fees they can get by you with “suitable” investments, which creates money for them and for their employer.  Edward Jones, Ameriprise, Primerica, Merrill Lynch are particularly known for this, but nearly 9/10 “financial advisors” are the same—commission driven.  Suitability just means that they can put you in any investment they want IF it’s “suitable,” regardless of how much it costs.  Schwab and Vanguard are lesser offenders, and Interactive Brokers doesn’t give access to front loaded funds (commissioned) at all. 

So, if you want an S&P 500 Fund, the guy at Merrill or Edward Jones could recommend a mutual fund where they get a 5.5% commission (which comes out of your money) instead of a low-cost index fund or ETF which costs you no commission. 

If you decide to either go it alone or take the advice of a salesperson masquerading as a “financial advisor” you are probably better off opening your IRA at Schwab or Vanguard.  Fees are very low, and the “recommendations” will cost you far less than at Merrill Lynch, Edward Jones, AXA Advsiors, Ameriprise and the like.  SCROLL DOWN TO SEE A LIST OF COMPANIES WHERE MUCH OR MOST OF THEIR BUSINESS IS DRIVEN BY HIDDEN FEES (“COMPANIES TO CONSIDER AVOIDING…”)

There is another standard in the industry called the fiduciary standard.  This means that the person you are dealing with MUST put your best interests ahead of his/her own and ahead of their company.  They can’t put you in a mutual fund with a sales commission if there is a similar low cost fund or ETF available.  This is a BIG deal.  You need to be careful that you don’t lose a big hunk of your savings to needless (and mostly hidden) fees. 

Let’s say you lost 5% to hidden fees in your first year with your new broker in a million-dollar account.  Let’s pretend you only get 7% per year on your investments (the market averages about 9% including dividends long term).  How much did that 5% hidden fee really cost you?

10 years – $98,357 gone due to lost compounding.

20 years — $193,484 gone.  That’s enough to buy a vacation home in many places, or a heckuva nice boat.  Or to cover your expenses for a year or more once you are retired.  Or maybe put a kid or grandkid through college. 

These dollars should stay with you, not be lost to commissions from hidden fees.   

How do I find hidden fees?

The simplest way is to go to www.morningstar.com and put in the symbol of the fund.  Then look under the expense tab. If you see any kind of “Load” or an expense ratio over 0.5%, you should ask some hard questions of the person that told you to buy it.  The “Load” is basically the commission the Fund company pays to the person/company that recommends the purchase.

DOES ANYONE IN THE INDUSTRY ACT IN YOUR BEST INTEREST?

Yes, there is a small group of industry professionals that are required to act as fiduciaries.  Their title is very specific and so is their licensing.  They are called Registered Investment Advisors or Independent Advisor Representatives, NOT “financial advisors.” 

They and their firms have Series 65 licenses and ONLY Series 65 licenses. If you are dealing with a Registered Investment Advisor (not just a “financial advisor”) that person is legally required to put your best interest first. 

That means no expensive funds or investments that take dollars from your nest egg to pay commissions to the salesperson.  Many investment advisors (not “financial advisors”) are also very good at building portfolios.  This means you may do substantially better following their investment advice vs. a cookie cutter portfolio from Schwab/Vanguard/Merrill/etc. 

Registered Investment Advisors do not Custodian your funds – that would be the fox guarding the henhouse – like Madoff.  Instead, they use large, nationally recognized custodians like Interactive Brokers, LLC, Charles Schwab, TD Ameritrade to act as custodians for their clients. 

Do your homework though – some firms have gotten clever. They hire a couple representatives that are Series 65 licensed, but the firm has other people that have Series 7s or 66 or 6 or whatever.  So, they put the person with the 65 on the phone with you, then they use the other guys to pick up commissions.  So, the 65 rep might recommend a couple low cost index ETFs, but has a “specialist” in the firm they work with to help select funds.  That “specialist” may sneak a couple commissioned funds into your account.  That’s his/her specialty.

HOW CAN I MAKE SURE THE REP/COMPANY MUST ACT IN MY BEST INTEREST AND THAT THEIR RECORD IS CLEAN?

Go to  www.brokercheck.org Put in the company and the person and look up their license type.  Anything other than a Series 65 you must understand what you are dealing with and be on your guard.  You might get a nice person that doesn’t try to sneak any hidden commissions through, but you might get a rep/firm that does it all time. 

While you are on Brokercheck, look up the reps Disclosure background. This is the list of the times the person (or company) has been in trouble with the SEC (Securities Exchange Commission) or with FINRA (Financial Industry Regulatory Authority).  If you see any serious violations, like fraud, walk away.  The right person for you is out there.  Keep looking. 

Same if you see a long list of Disclosures, however minor.  Keep looking. 

If you need some help, you can also call the BrokerCheck Help Line at (800) 289-9999.

You can also ask the person you are dealing with.  Find out what license the person you are speaking with holds and ask them if they are acting in a fiduciary capacity for you.  Almost 9 in 10 will tell you no, will try to dodge the question or make it seem like that doesn’t matter.  Don’t buy it. 

If they hold any license other than a Series 65, they are not fiduciary investment advisors – they are brokers (“financial advisors”) that earn commissions for themselves or for their company.  That’s okay, BUT you need to carefully question each investment they recommend and do some research to make sure they are not legally sneaking money out the back door of your account in the form of sales loads or high fund management fees (some portion of which are often paid to the broker or the firm in return for recommending the fund be purchased).  

Verify with Brokercheck.org or give them a call.  Number above and below.

 

WHAT ABOUT MY NON-QUALIFIED DEFERRED COMPENSATION PLAN?

Unlike 401(k) balances, non-qualified deferred compensation programs are generally considered corporate assets from the standpoint of legal creditors –if there is a lawsuit or if Microsoft goes bankrupt creditors can go after those assets. That means employees can end up with nothing. 

Is Microsoft going to go bankrupt or face a lawsuit so large creditors attach the non-qualified deferred compensation assets?  I can’t see it happening, but that doesn’t mean it’s impossible.  Enron, Lehman Brothers, Chrysler, Bear Sterns, about a million DotComs. 

The European Union is suing Apple for $15 Billion. Who is to say Microsoft isn’t next?  It’s a risk.    

In a smaller, less successful company the answer would be absolutely get your money out of the company even if you must pay taxes, but with Microsoft the question is tougher.  It should still be thought about carefully.

There is sometimes variation in how non-qualified deferred compensation plans are structured even within the same company, so it’s important to talk with the plan administrator. 

Here is what you should do:

  1. Call your plan administrator.  Find out if your plan allows the option to roll your non-qualified deferred compensation into a ROTH IRA. 

 

If it does;

  1. Find out if you can roll over your deferred assets according to an annual schedule rather than in a lump sum (this will allow you to stretch out the tax liability).
  2. Determine your taxes if you roll the plan over to a ROTH. https://taxfoundation.org/2017-tax-brackets/
  3. Determine if you are better off paying taxes later when Microsoft begins paying out your compensation per the agreement or if you will benefit more by paying taxes now and letting the after-tax assets compound in a ROTH tax free.

If the plan doesn’t allow a ROTH rollover should compare long term projected investment gains within the plan vs. a portfolio customized to your goals/needs outside the plan to see which is likely to work better for you over time.  If your plan doesn’t invest those dollars on your behalf, or the returns are miniscule, you really need to make that comparison to understand what’s best for you.       

If you need help in determining which action is likely to benefit you the most, get in touch.  We can do a quick ROTH conversion analysis to help you with the decision.  Form at the right or below.

We’ll also check to see whether you are better off paying the taxes on your dollars and then putting the money into tax friendly investments such as exempt municipal bonds, or whether a long-term investment plan that avoids tax triggers might work better than leaving the dollars in the plan. 

 

COMPANIES YOU SHOULD CONSIDER AVOIDING DUE TO HIDDEN FEES/COMMISSIONS BEING A PRIMARY REVENUE SOURCE IN THEIR BUSINESS.

  • Edward Jones
  • AXA Advisors
  • Ameriprise
  • Merrill Lynch
  • Morgan Stanley
  • Prudential Advisors
  • Wells Fargo Advisors
  • Transamerica Retirement Solutions
  • State Farm Financial
  • Farmers Financial
  • Primerica
  • Brighthouse Financial (Metlife)
  • Raymond James
  • John Hancock
  • Fidelity
  • Waddell & Reed
  • There are others…

General information on Microsoft Corporation Savings Plus 401(k), copy of plan documents.

Specific Details on plan in form 11k provided to the SEC https://www.sec.gov/Archives/edgar/data/789019/000119312517216340/d361122d11k.htm

General information on plan including some administrator contacts https://www.brightscope.com/form-5500/basic-info/396662/Microsoft-Corporation/401899/Microsoft-Corporation-Savings-Plus-401k-Plan/2015/

Microsoft Corporation Savings Plus 401(k) plan documents including description, terms, clauses http://corporate.findlaw.com/contracts/compensation/savings-plus-401-k-plan-microsoft-corp.html//

 

Questions Checklist for choosing a Custodian

  • Transaction fees buy stock?
  • Transaction fees to buy mutual funds?
  • Minimum transaction charges?
  • What are the annual fees on my account?
  • What other fees are there for my account?
  • SIPC covered?
  • Supplemental insurance? (Lloyd’s of London, etc.)
  • What are my choices in terms of reporting/statements? Are there fees associated with these documents?
  • What hours are customer service or account support available?
  • Is investment advice provided?
  • If so, is the person providing advice a Series 65 fiduciary investment advisor or a Series 6, 66, 7, etc., broker / financial advisor? (remember to double check investments recommended by brokers/financial advisors for hidden fees)
  • Does this person receive a commission or a fee when I buy or sell stock? (if yes, it’s a broker, no fiduciary duty to you).
  • Does your firm receive fees from mutual fund companies for putting me in their products?

 

Questions Checklist for choosing an Investment Advisor

  • What license do you hold? (Anything other than a 65 means they have no duty to put your interests first – the fiduciary duty of Series 7, 6, 66, etc. is to their employers – meaning their primary motive and responsibility is profit).
  • Is that the only license you hold?
  • Does anyone in your firm receive a commission for any investments you or you firm recommend?
  • How long have you been in this business? (look for a at least 5 years)
  • Have you ever had any Disclosure events with FINRA or the SEC? (Verify with brokercheck.org)
  • Do you provide personalized planning?
  • Are your investment recommendations personalized to fit my specific situation?
  • What are your fees? (fees should be fixed based on account size and can range from 0.75% for a multimillion dollar portfolio to as high as 2.5% for small accounts. Suggest you walk from anything over 2.5% as the fees start to eat up the performance differential you may get from customized portfolios)
  • Do you ever recommend private equity investments? (If yes, be very careful).
  • Do you ever recommend the use of leverage? (This is when you borrow to make investments. Generally, it’s a very bad idea).
  • How do you manage risk to my accounts?
  • Do your recommendations change if the economy moves into recession or if the market falls a certain amount? If so, how would you protect my account? 
  • Who is your custodian? (If it’s not a national brand and/or a public company so you can make sure they are financially solid, be very careful and do your research– remember Madoff – he owned his clients’ custodian through a front, which is how he stole their money).

CONCLUSION

There is a minefield of mistakes you can make with your Microsoft 401(k) now that you are leaving the company.  The information in this article will help you avoid most of them if you take the time to do things right.  

If you need or want some help, my firm is a fiduciary investment advisor.  That means we have to put your best interest first.  We do this by focusing on transparency, communication, and risk management.  No hidden fees EVER, custom portfolios designed for your specific needs, updated as needed.  Get in touch if you have questions or if you think my firm or I can help you with this transition.  

Please share with a friend or colleague if this has been helpful.  Share buttons at bottom.   

LEARN MORE

Use the form at the right or below if you have any questions.  My firm sets aside a few hours each week to help people get started in the right direction without charging fees.  If you think I can help, get in touch. 

My firm, ACI Wealth Advisors, is a Registered Investment Advisor with a fiduciary obligation to clients.  Neither the firm nor I accept any kind of commission from mutual fund companies in return for investing client dollars into their products. 

My firm specializes in investment management and provides retirement income & financial planning. 

I regularly publish educational articles on investments and finance. If you’d like to receive updates, please email updates@aciwealth.com to be added to the newsletter.

About ACI Wealth Advisors, LLC.

ACI is a fiduciary Registered Investment Advisor and FINRA member.  According to Cerulli Associates, an independent research firm, only about 10% of the financial industry has accepted a fiduciary responsibility to their clients.  As a fiduciary, ACI has the legal obligation to put the best interests of our clients ahead of our own interests.  This is a responsibility we are happy to have.  To learn more about ACI, click Learn More.  

About Dak Hartsock

I got into this industry because I saw an opportunity for a fascinating career and a way to help others improve their lives, not to get rich by selling expensive financial products for a big brand broker. In 2008, I saved the retirements of two family members, and that pretty much hooked me on this business. I graduated from the University of Virginia and have over 15 years of experience with securities and securities options.

I am the Founder and Chief Market Strategist of ACI Wealth Advisors and a nationally cited investment/financial expert.
You can learn more about me by clicking DakHartsock.com

 

Disclosures:  (The Firm and I are heavily regulated, so this is a LONG list.  Having trouble sleeping?  Here is your cure – just bookmark this page and scroll down to this section).

Please see Privacy Policy & Disclosures as well as Model & Performance Disclosures at bottom of the page.  Just click the buttons. 

Additional Disclosures:

This article 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. No information presented here should be considered a recommendation to buy or sell securities or solicitation for investment or insurance services. 

Please see full disclosures regarding model and portfolio performance at www.dakhartsock.com

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 here.

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, and member FINRA. ACI is a fiduciary for investment management clients, a responsibility accepted by less than 15% of the financial services industry according to Cerulli Associates. 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.

© 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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