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The Recession Probability Indicator (“RPI”) is a tool for measuring the strength of the American economy. When the RPI signals the likelihood the US has moved into recession, the investment environment for stocks usually becomes unfavorable, which basically means stocks go down more than up. Sometimes way down.

My firm uses the Recession Probability Indicator to help preserve our clients assets during times of highest risk, and to help us determine when smart investment is most likely to be rewarded.

Using the illustration below, the RPI has been good for +4% per year over the S&P 500 per year compounded since January 2000, or a return-on-investment 195.8% higher than just buying the S&P 500 since January 2000. Scroll down to view the full history.

The August 2017 reading for the RPI (the most current) is 12 which suggests the economy is currently not in recession/in danger of immediate recession and the economic environment for investing is currently STABLE. There is generally about a 2 month lag in the reading. Update coming soon.

To illustrate the potential of the concept compare a $100,000 investment in the S&P 500 guided by the RPI beginning January 2000 versus a $100,000 investment in the S&P 500 simply doing what most brokers and financial salespeople (they prefer “financial advisor”) tell you – “just hold on” over the same period.

For this illustration, the RPI moves to 100% cash in the 2nd month following a move to 20 or above, and invests 100% in the 2nd month following the move below 20. This is a simplified example and should not be used to make buy or sell decisions in your portfolio.  It’s an illustration of a proprietary tool developed to improve the service provided for my firm’s clients, and hopefully it gets you thinking about some of the things the most successful investors do that’s different.


S&P 500 Buy & Hold vs. RPI Guided: Difference vs. S&P Buy & Hold. Data table below illustration.

The first table below summarizes the history of this illustration, the second contains the actual monthly comparisons. CAGR = Compounded Annual Growth Rate, so a +1% CAGR means that the RPI would have returned a 1% higher CAGR than the S&P for each year of the specified period.

Table 1 – Historical Summary Results – January 2000 Beginning Value $100,000

Date S&P 500 Buy & Hold RPI Guided USD$ RPI difference vs. S&P for Period Annual RPI CAGR Difference for Period
Jan 2000 – Aug 2000 high $108,836 $108,836 $0 +0%
Jan 2000 – Sept 02 low $58,466 $97,960 $39,494 +16.9%
Jan 2000 – May 2007 high $109,764 $169,278 $59,514 +7.1%
Jan 2000 – Feb 2009 low $52,715 $147,160 $94,445 +11.2%
Jan 2000 – October 2017 $184,672 $361,515 $176,843 +4.0%
Cumulative ROI 84.7% 261.5% 195.80%

Table 2 – Historical Monthly Data Comparison – January 2000 Beginning Value $100,000
**1-2 Month Lag in Indicator reading due to Fed data release schedule.

Date S&P 500 Price RPI Reading Opinion S&P 500 Buy & Hold RPI Guided RPI Difference vs. S&P 500 Buy/Hold
Oct-17 $2,575     $184,672 $361,515 $176,843
Sep-17 $2,519     $180,663 $353,668 $173,004
Aug-17 $2,472 12 Stable $1,770,242 $346,970 $169,728
Jul-17 $2,470 12 Stable $177,145 $346,781 $169,636
Jun-17 $2,423 12 Stable $173,782 $340,198 $166,416
May-17 $2,412 12 Stable $172,950 $338,568 $165,618
Apr-17 $2,384 12 Stable $170,971 $334,694 $163,723
Mar-17 $2,363 12 Stable $169,431 $331,679 $162,248
Feb-17 $2,364 17 Stable $169,497 $331,808 $162,311
Jan-17 $2,279 17 Stable $163,418 $319,908 $156,490
Dec-16 $2,239 12 Stable $160,547 $314,287 $153,740
Nov-16 $2,199 12 Stable $157,677 $308,669 $150,992
Oct-16 $2,126 12 Stable $152,466 $298,469 $146,003
Sep-16 $2,168 12 Stable $155,487 $304,382 $148,895
Aug-16 $2,171 12 Stable $155,679 $305,758 $149,079
Jul-16 $2,174 12 Stable $155,869 $305,130 $149,261
Jun-16 $2,099 12 Stable $150,509 $294,638 $144,129
May-16 $2,097 12 Stable $150,373 $294,371 $143,998
Apr-16 $2,065 12 Stable $148,103 $289,927 $141,824
Mar-16 $2,060 17 Stable $147,704 $289,146 $141,442
Feb-16 $1,932 17 Stable $138,560 $271,246 $132,686
Jan-16 $1,940 12 Stable $139,135 $272,371 $133,236
15-Dec $2,043 12 Stable $146,571 $286,928 $140,357
Nov-15 $2,080 12 Stable $149,186 $292,048 $142,862
Oct-15 $2,079 12 Stable $149,111 $291,901 $142,790
Sep-15 $1,920 12 Stable $137,690 $269,533 $131,843
Aug-15 $1,972 12 Stable $141,430 $276,855 $135,425
Jul-15 $2,104 12 Stable $150,871 $295,337 $144,466
Jun-15 $2,063 17 Stable $147,950 $289,619 $141,669
May 15: **Reinvest $2,107 12 Stable $151,126 $295,780 $144,654
15-Apr $2,085 12 Stable $149,557 $292,977 $143,420
March 15: **Exit $2,068 17 Stable $148,293 $292,977 $144,684
15-Feb $2,104 27 Reduce Risk $150,919 $292,977 $142,058
15-Jan $1,995 17 Stable $143,065 $277,731 $134,666
14-Dec $2,059 17 Stable $147,649 $286,629 $138,980
14-Nov $2,068 12 Stable $148,270 $287,834 $139,565
14-Oct $2,018 12 Stable $144,719 $280,942 $136,223
14-Sep $1,972 3 Stable $141,438 $274,571 $133,134
14-Aug $2,003 3 Stable $143,666 $278,898 $135,232
14-Jul $1,931 3 Stable $138,453 $268,777 $130,324
14-Jun $1,960 3 Stable $140,573 $272,892 $132,320
14-May $1,924 3 Stable $137,944 $267,789 $129,845
14-Apr $1,884 12 Stable $135,102 $262,273 $127,171
14-Mar $1,872 12 Stable $134,270 $260,657 $126,387
14-Feb $1,859 12 Stable $133,346 $258,862 $125,517
14-Jan $1,783 3 Stable $127,834 $248,162 $120,329
13-Dec $1,848 3 Stable $132,550 $257,318 $124,768
13-Nov $1,806 12 Stable $129,499 $251,395 $121,896
13-Oct $1,757 12 Stable $125,966 $244,536 $118,570
13-Sep $1,682 12 Stable $120,588 $234,096 $113,508
13-Aug $1,633 3 Stable $117,104 $227,333 $110,229
13-Jul $1,686 3 Stable $120,888 $234,678 $113,790
13-Jun $1,606 12 Stable $115,190 $223,617 $108,427
13-May $1,631 12 Stable $116,944 $227,023 $110,078
13-Apr $1,598 12 Stable $114,565 $222,405 $107,839
13-Mar $1,569 3 Stable $112,530 $218,454 $105,924
13-Feb $1,515 3 Stable $108,621 $210,865 $102,244
13-Jan $1,498 12 Stable $107,433 $208,559 $101,126
12-Dec $1,426 12 Stable $102,275 $198,546 $96,271
12-Nov $1,416 12 Stable $101,558 $197,153 $95,595
12-Oct $1,412 3 Stable $101,269 $196,593 $95,324
12-Sep $1,441 12 Stable $103,314 $200,562 $97,248
12-Aug $1,407 12 Stable $100,869 $195,816 $94,947
12-Jul $1,379 12 Stable $98,914 $192,021 $93,107
12-Jun $1,362 12 Stable $97,684 $189,632 $91,949
12-May $1,310 12 Stable $93,967 $182,417 $88,450
12-Apr $1,398 3 Stable $100,247 $194,609 $94,362
12-Mar $1,408 12 Stable $101,005 $196,079 $95,075
12-Feb $1,366 12 Stable $97,936 $190,122 $92,186
12-Jan $1,312 12 Stable $94,116 $182,706 $88,590
11-Dec $1,258 3 Stable $90,185 $175,076 $84,891
11-Nov $1,247 12 Stable $89,422 $173,595 $84,172
11-Oct $1,253 12 Stable $89,877 $174,477 $84,600
11-Sep $1,131 12 Stable $81,137 $157,510 $76,373
11-Aug $1,219 12 Stable $87,409 $169,687 $82,278
11-Jul $1,292 12 Stable $92,672 $179,904 $87,232
11-Jun $1,321 12 Stable $94,706 $183,852 $89,146
11-May $1,345 3 Stable $96,467 $187,271 $90,804
11-Apr $1,364 3 Stable $97,788 $189,834 $92,047
11-Mar $1,326 3 Stable $95,078 $184,575 $89,496
11-Feb $1,327 3 Stable $95,178 $184,768 $89,590
11-Jan $1,286 3 Stable $92,231 $179,047 $86,816
10-Dec $1,258 3 Stable $90,188 $175,082 $84,893
10-Nov $1,181 3 Stable $84,660 $164,350 $79,690
October-10 : Reinvest $1,183 3 Stable $84,854 $158,872 $79,873
September-10: Exit $1,141 12 Stable $81,838 $158,872 $77,033
10-Aug $1,049 17 Stable $75,250 $146,082 $70,832
10-Jul $1,102 27 Reduce Risk $78,998 $153,359 $74,360
10-Jun $1,031 12 Stable $73,915 $143,490 $69,575
10-May $1,089 3 Stable $78,124 $151,662 $73,537
10-Apr $1,187 3 Stable $85,100 $165,204 $80,104
10-Mar $1,169 3 Stable $83,863 $162,802 $78,939
10-Feb $1,104 3 Stable $79,206 $153,761 $74,555
10-Jan $1,074 3 Stable $77,010 $149,498 $72,489
9-Dec $1,115 12 Stable $79,966 $155,238 $75,272
9-Nov $1,096 12 Stable $78,570 $152,528 $73,957
October 09: **Reinvest $1,036 12 Stable $74,308 $144,253 $69,945
9-Sep $1,057 3 Stable $75,806 $147,161 $71,355
9-Aug $1,021 15 Stable $73,191 $147,161 $73,970
9-Jul $987 30 Protect $70,815 $147,161 $76,346
9-Jun $919 70 Protect $65,927 $147,161 $81,234
9-May $919 70 Protect $65,914 $147,161 $81,247
9-Apr $873 70 Protect $62,591 $147,161 $84,570
9-Mar $798 75 Protect $57,217 $147,161 $89,944
February-09 – Closing Low Great Recession $735 75 Protect $52,715 $147,161 $94,446
9-Jan $826 75 Protect $59,226 $147,161 $87,935
8-Dec $903 75 Protect $64,774 $147,161 $82,387
8-Nov $896 75 Protect $64,271 $147,161 $82,889
8-Oct $969 75 Protect $69,471 $147,161 $77,689
8-Sep $1,166 75 Protect $83,642 $147,161 $63,518
8-Aug $1,283 75 Protect $91,995 $147,161 $55,166
8-Jul $1,267 70 Protect $90,887 $147,161 $56,274
8-Jun $1,280 70 Protect $91,792 $147,161 $55,369
8-May $1,400 70 Protect $100,425 $147,161 $46,736
8-Apr $1,386 75 Protect $99,364 $147,161 $47,797
March-08: **Exit $1,323 51 Protect $94,854 $147,161 $52,307
8-Feb $1,331 26 Reduce Risk $95,423 $147,161 $51,738
8-Jan $1,379 26 Reduce Risk $98,859 $152,461 $53,601
7-Dec $1,468 12 Stable $105,300 $162,393 $57,094
7-Nov $1,481 12 Stable $106,216 $163,806 $57,590
7-Oct $1,549 3 Stable $111,110 $171,353 $60,244
7-Sep $1,527 12 Stable $109,487 $168,851 $59,364
7-Aug $1,474 12 Stable $105,703 $163,016 $57,312
7-Jul $1,455 17 Stable $104,361 $160,945 $56,585
7-Jun $1,503 12 Stable $107,809 $166,263 $58,454
May -07: Pre-Crash High $1,531 17 Stable $109,764 $169,279 $59,514
7-Apr $1,482 17 Stable $106,304 $163,942 $57,638
7-Mar $1,421 17 Stable $101,893 $157,140 $55,247
7-Feb $1,407 12 Stable $100,886 $155,587 $54,701
7-Jan $1,438 3 Stable $103,140 $159,062 $55,922
6-Dec $1,418 3 Stable $101,710 $156,857 $55,147
6-Nov $1,401 12 Stable $100,442 $154,902 $54,460
6-Oct $1,378 12 Stable $98,815 $152,393 $53,578
6-Sep $1,336 12 Stable $95,797 $147,738 $51,941
6-Aug $1,304 12 Stable $93,500 $144,196 $50,696
6-Jul $1,277 12 Stable $91,552 $141,192 $49,640
6-Jun $1,270 12 Stable $91,089 $140,478 $49,389
6-May $1,270 12 Stable $91,081 $140,465 $49,384
6-Apr $1,311 12 Stable $93,987 $144,947 $50,960
6-Mar $1,295 12 Stable $92,855 $143,202 $50,346
6-Feb $1,281 3 Stable $91,839 $141,634 $49,795
6-Jan $1,280 3 Stable $91,798 $141,570 $49,773
5-Dec $1,248 12 Stable $89,518 $138,054 $48,537
5-Nov $1,249 17 Stable $89,603 $138,186 $48,583
5-Oct $1,207 17 Stable $86,558 $133,489 $46,932
5-Sep $1,229 12 Stable $88,121 $135,900 $47,779
5-Aug $1,220 12 Stable $87,513 $134,962 $47,449
5-Jul $1,234 12 Stable $88,506 $136,494 $47,988
5-Jun $1,191 17 Stable $85,433 $131,755 $46,322
5-May $1,192 12 Stable $85,445 $131,774 $46,329
5-Apr $1,157 17 Stable $82,960 $127,942 $44,981
5-Mar $1,181 12 Stable $84,663 $130,567 $45,904
5-Feb $1,204 17 Stable $86,313 $133,112 $46,799
5-Jan $1,181 12 Stable $84,712 $130,642 $45,931
4-Dec $1,212 12 Stable $86,910 $134,032 $47,122
4-Nov $1,174 3 Stable $84,177 $129,818 $45,641
4-Oct $1,130 3 Stable $81,049 $124,994 $43,945
4-Sep $1,115 3 Stable $79,929 $123,267 $43,338
4-Aug $1,104 12 Stable $79,188 $122,123 $42,936
4-Jul $1,102 17 Stable $79,007 $121,845 $42,838
4-Jun $1,141 12 Stable $81,812 $126,171 $44,359
4-May $1,121 12 Stable $80,367 $123,941 $43,575
4-Apr $1,107 3 Stable $79,407 $122,462 $43,055
4-Mar $1,126 12 Stable $80,763 $124,553 $43,790
4-Feb $1,145 12 Stable $82,106 $126,624 $44,518
4-Jan $1,131 17 Stable $81,116 $125,097 $43,981
3-Dec $1,112 17 Stable $79,738 $122,973 $43,234
3-Nov $1,058 17 Stable $75,886 $117,031 $41,145
3-Oct $1,051 12 Stable $75,349 $116,203 $40,854
3-Sep $996 3 Stable $71,423 $110,149 $38,726
3-Aug $1,008 3 Stable $72,287 $111,481 $39,194
3-Jul $990 3 Stable $71,017 $109,523 $38,506
3-Jun $975 3 Stable $69,884 $107,775 $37,891
3-May $964 12 Stable $69,101 $106,568 $37,467
3-Apr $917 12 Stable $65,754 $101,407 $35,652
3-Mar $848 12 Stable $60,825 $93,804 $32,979
3-Feb $841 3 Stable $60,321 $93,027 $32,706
3-Jan $856 3 Stable $61,364 $94,636 $33,272
2-Dec $880 12 Stable $63,094 $97,304 $34,210
November 02: **Reinvest $936 12 Stable $67,145 $103,551 $36,406
2-Oct $886 12 Stable $63,520 $97,961 $34,441
September 02: DotCom Low $815 3 Stable $58,466 $97,961 $39,495
2-Aug $916 22 Protect $65,694 $97,961 $32,267
2-Jul $912 22 Protect $65,374 $97,961 $32,586
2-Jun $990 22 Protect $70,982 $97,961 $26,979
2-May $1,067 22 Protect $76,527 $97,961 $21,433
2-Apr $1,077 22 Protect $77,228 $97,961 $20,732
2-Mar $1,147 22 Protect $82,282 $97,961 $15,678
2-Feb $1,107 27 Protect $79,366 $97,961 $18,594
2-Jan $1,130 55 Protect $81,049 $97,961 $16,911
1-Dec $1,148 46 Protect $82,332 $97,961 $15,629
1-Nov $1,139 70 Protect $81,713 $97,961 $16,247
1-Oct $1,060 70 Protect $75,999 $97,961 $21,961
1-Sep $1,041 70 Protect $74,649 $97,961 $23,312
1-Aug $1,134 75 Protect $81,292 $97,961 $16,668
1-Jul $1,211 70 Protect $86,860 $97,961 $11,100
1-Jun $1,224 70 Protect $87,806 $97,961 $10,154
1-May $1,256 70 Protect $90,059 $97,961 $7,902
1-Apr $1,249 70 Protect $89,602 $97,961 $8,358
1-Mar $1,160 70 Protect $83,210 $97,961 $14,751
February 01: **Exit $1,240 46 Protect $88,920 $97,961 $9,041
1-Jan $1,366 75 Reduce Risk $97,961 $97,961 $0
Dec-00 $1,320 50 Reduce Risk $94,680 $94,680 $0
Nov-00 $1,315 12 Stable $94,298 $94,298 $0
Oct-00 $1,429 12 Stable $102,506 $102,506 $0
Sep-00 $1,437 12 Stable $103,016 $103,016 $0
August 00: Pre-DotCom Crash High $1,518 12 Stable $108,836 $108,836 $0
Jul-00 $1,431 12 Stable $102,608 $102,608 $0
Jun-00 $1,455 12 Stable $104,313 $104,313 $0
May-00 $1,421 12 Stable $101,875 $101,875 $0
Apr-00 $1,452 12 Stable $104,157 $104,157 $0
Mar-00 $1,499 12 Stable $107,467 $107,467 $0
Feb-00 $1,366 12 Stable $97,989 $97,989 $0
Jan-00 $1,394 12 Stable $100,000 $100,000 $0

Additional Details: Using a scoring algorithm, the RPI rates the investment environment from 3 to 75. A score of 20 or above signals a rising likelihood
the US has moved into recession (bad for stocks). A move back below 20 signals a rising likelihood recession has ended (good for stocks). Most of the time it putters along between 3 and 17.

The RPI is derived from data provided by the Federal Reserve–things such as CPI, GDP, productivity, employment, income, manufacturing activity, etc.. It has demonstrated itself to be effective at sounding the alarm on failing investment conditions, and is about equally effective at spotting the the point when conditions begin to favor investment again.

The RPI has been accurate for the last 37 years, as long as the datasets utilized have been available.

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Dak Hartsock

 

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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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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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