Broker Check

October Newsletter


October 5, 2021


“My Advisor Bought Low… Sold High… and Rebalanced”

As our twenty-fifth year of helping clients meet their financial goals nears its end, I am pleased to report that, in spite of the many bumps in the road in 2021, our unique style of investment management has clearly paid off for our entire diverse list of clients. On a year-to-date basis as of September 30th, our aggregate managed equity portfolio (roughly 50% of the total portfolio) returned almost seventeen percent for the nine-month period; and our aggregate managed income portfolio (also roughly 50% of the total) returned almost seven percent for the same period. When combined, the total managed portfolio returned, after fees, almost eleven percent. Looking back over the last twenty-five years, these nine-month returns exceed many of the full twelve-month periods.

Much of our success in this nine-month period came from applying our time-tested rebalancing strategies as the markets reached new highs earlier in the year. Moving money out of equities (selling high) allowed us to add to the income side of the portfolio and protect the hard-earned gains and the underlying principal of the portfolios. That strategy paid off on September 20th when the broad US markets dropped five percent at the low for the day, before recovering some of the losses and closing down almost two percent. Our managed portfolio did not totally escape the tumble from fears over China’s real estate conglomerate’s (Evergrande) debt crisis, as our portfolio declined in value by roughly one percent on the back of the Chinese tremor. That global event, coupled with inflation fears at home (at 30-year highs) and the uncertainty of events in Washington, lead September’s market declines to the lowest one-month returns since the March 2020 Covid declines (the S&P 500 lost 4.8% for the month of September 2021). Although the equity exposure in our managed portfolio is clearly subject to market moves (both up and down), our portfolio slid by less than three percent.

 I only point out these short-term results to drive home the point that our strategy does really work. When we look back at the one-year results as of September 30th, the total managed portfolio returned over twenty percent (after fees), on the back of the equity portfolio returning over thirty-three percent and the income portfolio returning over thirteen percent. If the current valuations hold, our full-year 2021 returns will be in the top five, twelve month returns, from our twenty-five-year history. We are particularly pleased with these returns as our clients in, or near, retirement have added to their nest eggs without incurring any undue risk in the process.


The results for your individual portfolios are being reported for the first time with the help of the new software we have been adapting to for the last two years. I can say with satisfaction, that the new system has made both our management and reporting processes more efficient and more client friendly. In fact, one specific part of the reporting was adopted at the request of a number of clients. The five-year graph illustrates how the portfolio has performed and shows it better than anything I can write about or show with columns of numbers.    

Please use this guide to understand how to review the new enclosed reports:

  • The cover page lists the individual accounts held at TD Ameritrade, that we collectively manage for you, pursuant to your individual Investment Policy Statement.

  • Page 1 summarizes, graphically and with numbers and percentages the overall allocation of the total managed portfolio (Allocation by Asset Class).


  • The bottom half of page 1 includes your Portfolio Summary for the three periods the SEC requires us to report: Last 12 Months; Last 5 years; and last 10 years. If we have managed your portfolio for less than the full reporting periods, the last column reflects the actual total period of management. Please note the significance of the cash flows from dividends and interest receipts; clearly a very important part of how we manage portfolios to meet clients’ needs for distributions.

  • Page 2 reports the Performance by Asset Class for your portfolio for the last five years (or less if you have been with us less than 5 years). Note the projected annual income column which reports a “projection” of the cash flows expected from the portfolio over the next twelve months; also the current annualized yield is represented by the projected cash flows. The far-right hand side of the report reflects the total returns from our management over the last five-year period. Although high due to the last year’s extraordinary returns, the five-year total can be used as “ a guide” for future expectations. Having said that, we are currently telling new clients to not expect long-term returns in excess of the five-to-seven percent annual range for the total portfolio until interest rates once again rise to more typical long-term ranges. This, in spite of our historical average returns exceeding ten percent annually.


  • Page 3 includes the graph referred to above, again represented as a five-year graph. The black line is the amount of money you have entrusted us with (your principal), less any distributions out of the portfolio to you. The blue line reflects the real time value of the managed portfolio. The end axis reflects the absolute difference (or change in value) between what your account is currently worth and the remaining invested principal. A picture is clearly worth a thousand words!


  • The bottom of page 3 includes a donut graph of the various account components that we collectively manage, or Allocation by Account.


  • Beginning on page 4, we report in the Asset Reconciliation all of the details of the individual investments included in your portfolio, for the last 12 Months. When combined, the details add up to the summary amounts reported on the Portfolio Summary on page 1, for the last 12 months.


  • The last pages of the report reflect the details, by fixed income position, of the ladder of maturing bonds, notes and CDs that we rely on to ensure that cash is available for all planned-for distributions.


Our thought process in designing this new report was to report both graphically and by numbers.  We sincerely hope you like what you see. Our goal is to both manage your money to meet your goals AND to communicate to you the results in a meaningful fashion. I hope we have been successful!

As I am writing this letter, Congress is busy debating and analyzing new broad sweeping legislation that will require increased taxes to pay for the numerous new programs. At this point, we do not know how it will all shake out. What we do know, is that the bulk of the new taxes will be borne by taxpayers with incomes exceeding $450,000 annually. Clients in that income range will see their federal tax rates on ordinary income rise to 39.6 percent, taxes on long-term capital gains rise to 25 percent; and an additional tax on net Investment income of 3.8 percent. I am pointing out these proposed changes as the increased rate on capital gains is scheduled to be retroactive to September 13th. All-in-all, we suggest that you discuss your individual tax situation for both 2021 and 2022 with your tax advisor.  To aid in that process, we have enclosed (where appropriate, for your taxable accounts) year-to-date reports of both your capital gains and your dividend and interest income for your taxable accounts to give to your tax advisor. As we have said many times: “We do not want the tax tail to wag the investment dog”. This time may be an exception to that advice.

As we rebalance all accounts to achieve the best investment results, we will attempt to do so within the tax-advantaged accounts of each client’s total portfolio. For clients without that option, we need your concurrence with how you want us to take gains, or not, for the balance of 2021. Please get back to us as soon as possible. With the current market volatility, taking gains to preserve principal may be more prudent than saving a few percentage points of tax.  With those thoughts, let’s turn to something (anything!) more pleasant than taxes.

Our Firm was started twenty-five years ago with clients from my CPA practice asking for my help with their investments as the traditional stock broker approach to investing was not working as hoped. Gambling on cocktail conversation tips and commission-based stock brokers was always a “crap-shoot”.  So I agreed to manage investment portfolios on an independent and fee-only basis.  It worked out so well for all involved that I transitioned out of the CPA business and into the investment management business on a full-time basis. In the process, Jeannie agreed to manage the operations office and we hired one assistant to work with her. We then added James Brost to the mix as a new Certified Financial Planner™ to take on the growing client load. Along the way, we added both Laura Vaughan as our Firm Administrator and now Helen Gregory to assist Laura with the growing workload. In addition, we are now talking to a promising future CFP® to join us as we continue to grow.

During the growth process, we have noticed the increasing number of women that are coming to us for help with their financial planning needs. And our practice now includes a significant number of female clients; independent individuals who want to be informed about how we manage investments, the need for long-term financial planning and how to achieve financial security in their retirement years.  The talented and professional women in our Firm have been planning an educational event for women about investing. The event had been scheduled for early November (which is now delayed due to Covid 19 concerns).  Please look for upcoming announcements about this event in spring of 2022.   

In closing, I hope that you are getting out to enjoy this special time of year. My granddaughter and I spent a day the last weekend of September driving up to Silverton to take in the change of seasons and the beautiful display of yellow, orange and red leaves that are now covering the mountain sides. It was a special time for both of us!


Intelligent Investment Management, LLP