Summary: The market volatility is at unprecedented levels.  For our personal and client portfolios, we’re recommending a market exposure of about 30%.  This way, even if the market goes down another -50%, the loss in your personal portfolio will only be about -15%.  On the other hand, if the market rebounds, you'll have enough meaningful market exposure to take advantage of the recovering market and can increase your market exposure along the way.  Please remember, nobody can predict the bottom of the market.  Our model portfolios are meant to model the equity portion of your portfolio.  We need to keep the model portfolios almost entirely invested in the market at all times to compete with the indexes over short time periods (otherwise excess cash would cause a drag on the performance in a recovering market).  If you look at our September recommendations, we bought SPY (S&P 500) and EFA (international market) to keep exposure in the market in case of a market rally but with a bearish outlook.  In this type of market environment, it is difficult to screen for new funds because there is no rhyme or reason to the market.  You can't make smart decisions because the market is completely irrational.  There is a daily tug of war in the market between fear and greed.  The funds we have in the model portfolios are good and we are watching them on a daily basis.  In general, the volatility index (VIX) must go down before rational decisions can be made in the market.  Until that time, there is a 50% chance that any fund (or the market) will go up or down on a daily basis.  Therefore, we are holding our positions with less activity at this time until the market volatility diminishes and we can make rational assessments of the funds we own compared to all the other funds that exist in the marketplace.  Please keep communicating and feel free to send us an e-mail if you have any questions.

On average, the Kinetic Financial Model Portfolios returned 10.9% in 2007, -33% year-to-date, and -16.5% since inception (Oct 1, 2006). The Model Portfolios fell, on average, -39% from peak on Oct 31, 2007 to their bottom on October 27, 2008.  They are currently about -37% from the October 31, 2007 peak.

The US large capitalization market, as measured by the S&P 500 TR index, returned 5.5% in 2007 and -39% year-to-date. The S&P 500 index fell -45% from its peak on Oct 9, 2007 to its bottom on October 27th, 2008. It is currently -43% below its Oct 9, 2007 peak.

The US small capitalization market, as measured by Russell 2000*, returned -2% in 2007 and -41% year-to-date.  The index fell -47% from its peak on July 9, 2007 to its bottom on October 27, 2008 and never recovered from the July 2007 downturn. It is currently -46% below its July 9th, 2007 peak.

The international market, as measured by MSCI EAFE* index, returned 10% in 2007 and -47% year-to-date. The index fell -55% from its peak on October 31, 2007 to its bottom on October 27, 2008. It is currently -50% below its Oct 31, 2007 peak. 

The emerging market, as measured by MSCI Emerging Market* index, returned 33.1% in 2007 and -55% year-to-date. The index fell -65% from its peak on October 31, 2007 to its bottom on October 27, 2008. It is currently -60% below its Oct 31, 2007 peak. 

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* Performance metrics are derived from Exchange Traded Funds that track the index and assume the reinvestment of dividends and distributions.  SPY is used for the S&P 500; IWM is used for the Russell 2000; EFA is used for MSCI EAFE; EEM is used for MSCI Emerging Market.