It’s been just over five years since the S&P 500 closed at its all-time high on October 9, 2007. Saying “a lot” has happened since then wouldn’t even begin to do justice, but we’ll leave that as it is.

Keeping this information in mind, close your eyes (maybe keep one eye open to read) and imagine a middle-aged hard-working investor who wants to retire on time and put several kids through college.

It’s October 1, 2007, and that investor has exactly $150,000 in his Individual Retirement Account (IRA). The investor decides to hire a financial advisor to help manage his IRA, who happens to also partner with CLS Investments, LLC (CLS). After completing a CLS client profile, the investor scores out to a 70 risk budget. Risk budgeting is CLS’s proprietary methodology for measuring the risk characteristics and volatility of investments. Investors with a risk budget score of 70 will typically be invested in a portfolio with a risk level roughly equal to 70 percent of the risk of a diversified equity benchmark. Assume the investor, with advice from the financial advisor, decides to invest in CLS’s ETF Strategy. At this point, the investor has no idea he just bought in right before the market’s all-time high.

Fast forward one year to October 2008, and the investor’s $150,000 nest egg has been nearly cut  in half. The pain is almost too much to bear, so the investor calls his financial advisor, asking to be pulled out of the market. The financial advisor, with reassurance from CLS, advises the investor to stick with his financial plan and remain invested. Despite obvious anxiety, the investor decides to trust the advice that was given and remains invested in CLS’s ETF Strategy.

Now, it’s the end of the third-quarter of 2012, five years later. How has the investor’s original $150,000 investment performed? Even after all the large market swings, company layoffs, economic hardships, and related financial crisis pains, the account value is now $156,330.

During this entire time, there were no other contributions to the IRA, management fees were removed from the account, and the investor still managed to make back his initial investment plus an additional 4.22 percent.

Following are the composite cumulative returns of the CLS ETF Strategy for each applicable risk budget range. The returns are representative of the time period from 10/1/2007 – 9/28/2012:

RB               Return*

100              -1.64%

87-100        -3.79%

71-86           -1.05%

57-70          8.15%

40-56           13.53%

30-39          N/A

 *Cumulative, 10/1/2007-9/28/2012

What were some other investment options available to the investor? He could have gone to cash at or near the market low, put his money into one of the largest and most popular equity mutual funds available at the time (like the ones below, for example), or decide that active management was no longer appealing and switch his investments to an S&P 500 index fund. The performance for each of these other investment options over the same time period ranged from -21.77% to 13.29%:

Fund                                                             Return*

Fidelity Contrafund                                         13.29%

SPDR S&P 500 ETF (SPY)                              3.82%

Vanguard Index 500 Investor                            3.55%

American Capital Income Builder                     2.29%

Growth Fund of America                                -0.77%

Dodge & Cox Stock Fund                               -9.78%

Fidelity Magellen                                         -15.27%

Vanguard Total International Stock Index      -21.77%

*Cumulative, 10/1/2007-9/28/2012

While a typical investor would not want his or her entire investment placed in equities, many people at this point in 2007 seemed to have forgotten about the bursting of the tech bubble and subsequent market downturn in 2000. Many were convinced that stocks would just continue to appreciate. Conversely, the feeling about the stock market today is generally pretty negative for those who don’t follow it closely.

If you told people today that they would have made just over 4 percent since the market high in 2007 by staying invested in the CLS ETF Strategy, I don’t know if they would have believed you! However, as you can see, those who stuck with it and stayed invested ended up all right.

This information is prepared by CLS Investments, LLC (“CLS”) for general information only. There is no guarantee that any investment program or account will be profitable or will not incur loss. Investors should note that investments may fluctuate and that price or value may rise or fall. Accordingly, investors may receive back more or less than originally invested. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.

CLS assigns each of its clients a Risk Budget and corresponding stock-to-bond ratio based on a client profile. Accounts are grouped into categories based on the risk budget / stock-to-bond ratio and then compared to a Benchmark of a similar risk level. The Benchmark is comprised of a combination of the S&P 500 Index and Barclays Capital U.S. Credit Bond Index. The following composites are listed in order from most aggressive to most conservative.

Risk Budget Composite Name Composite Description Composite Benchmark Inception Date
100-100 Aggressive The 100 Equity Composite contains all discretionary accounts that have a stock-to-bond ratio of 100% equity. 100% S&P 500 Index 4/1/01
87 to 100

Aggressive to Moderately


The 85 to 100 Equity Composite contains all discretionary accounts that have a stock-to-bond ratio of between 85% and 100% equity. 90% S&P 500 Index / 10% Barclays Capital U.S. Credit Bond Index 4/1/01
71 to 86 Moderately Aggressive to Moderate The 66 to 84 Equity Composite contains all discretionary accounts that have a stock-to-bond ratio of between 66% and 84% equity. 75% S&P 500 Index / 25% Barclays Capital U.S. Credit Bond Index 1/1/02
57 to 70



The 50 to 65 Equity Composite contains all discretionary accounts that have a stock-to-bond ratio of between 50% and 65% equity. 55% S&P 500 Index / 45% Barclays Capital U.S. Credit Bond Index 4/1/02
40 to 56 Conservative to Moderately Con­servative The 30 to 49 Equity Composite contains all discretionary accounts that have a stock-to-bond ratio of between 30% and 49% equity. 40% S&P 500 Index / 60% Barclays Capital U.S. Credit Bond Index 7/1/04
30 to 39 Conservative The 19 to 29 Equity Composite contains all discretionary accounts that have a stock-to-bond ratio of between 19% and 29% equity. 25% S&P 500 Index / 75% Barclays Capital U.S. Credit Bond Index 1/1/09
CLS is an SEC registered investment adviser. CLS has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). This composite report is supplemental to the Firmwide Composite Report made available by CLS on an annual basis. The CLS Firmwide Composite Report is provided upon request.
The Standard & Poor’s 500 is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. The Barclays Capi­tal U.S. Credit Bond Index measures the performance of investment-grade corporate debt and sovereign, supranational, local authority and non-United States agency bonds that are United States dollar-denominated and have a remaining maturity of greater than or equal to one year. The returns for the indexes are total returns, which include reinvestment of dividends. The volatility of the indexes may be materially different from the individual performance attained by a specific investor. In addition, portfolio holdings of investors may differ significantly from the securities that comprise the indexes. You cannot invest directly in an index. Past performance is not indicative of future results.
Composite performance results are based on a composite of all managed accounts that fall within the specified stock-to-bond ratios in each of the identified products. Performance results may or may not depict the actual investment experience of any single client due to the timing of investment contributions, with­drawals, trade implementations and client or adviser directed investments. The annual composite dispersion is an equal-weighted standard deviation calculated for the accounts in the composite over the entire year. Composite performance results exclude (i) accounts under CLS management which do not maintain a balance during the entire composite period, and (ii) certain accounts under CLS management that have temporarily been removed from CLS discretion through client initiated actions.
An ETF is a type of investment company whose investment objective is to achieve the same return as a particular market index. An ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An ETF will invest in either all of the securities or a representative sample of the securities included in the index.

Comments provided by guest writer Grant Engelbart, Investment Research Analyst