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This is the last portfolio review. Portfolio performance is now updated monthly HERE.

U.S. Satellite Portfolio

August 2009

For the record, the numbers below represent the results of the model investment portfolios to August 31, 2009.

*Average annual total return is a hypothetical rate of return that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period. Average annual total returns smooth out variation in performance. They are not the same as actual year-by-year results, according to Fidelity Investments.

Keep an eye on the trailing 12-month returns because that’s what counts to your bottom line. For ease of comparison, returns for all InVivo model portfolios are based on a “fully invested”, UNHEDGED position with regular re-weighting and does not include gains from our September 24, 2008 call to go to cash and our March 16, 2009 call to return to the market.

August Commentarry

Summer ended on a high note that saw investors come out of their shocked shells. The following article captured the mood perfectly:

Cautiously, Small Investors Edge Back Into Stocks
Like millions of ordinary investors, Cindy and Eric Canup are still recovering from Wall Street’s big downturn. Their portfolio is off by 25 percent. They are mindful of their spending. And their dreams of buying land in Northern California or Oregon have been delayed five to 10 years, until they can rebuild their retirement accounts. Yet with no guarantee they will ever be made whole again, individual investors like the Canups, who live in Oakland, Calif., are sticking with the stock market. Recently, with help from their financial adviser, they nudged some of their cash into mutual funds and took on riskier investments. They have even stopped tossing unopened 401(k) statements into a filing cabinet.

At the same time, people are coming to terms with lost wealth and making the changes necessary to achieve their goals:

Putting the eggs back in the nest
It’s natural when you lose money to want to make it back. Research shows that the pain of financial loss is much more acute than the satisfaction of a gain. Losses of course are particularly hard on retirees, who no longer have the time to recoup them and need regular income from a portfolio.

Pressing needs often lead to unrealistic expectations. “People come to us and say ‘You fix it; I want you to take more risk to get me a higher return,’” said Scott Kays, an Atlanta-based financial adviser.

“Taking too much risk is what got them in trouble,” he added. “Sometimes advisers are tempted to take too much risk to help the client get that money back faster. It’s a trap for clients and advisers. The steps I’m going to take are no different than I would take for someone just building their portfolio.”

Do you really want to know the quickest ways to replace lost wealth? It’s not by pouring money into stocks or other speculative investments. The answer is to follow a financial plan that brings down the cost of your lifestyle.

On the eve of the one-year anniversary of the demise of Lehman Brothers, many reflected on the arc of the stock market and the lessons learned in 2008, most notably:

Watch out for inflation. Price increases have been modest in the past decade, but during that period the dollar has still lost about 23% of its purchasing power.

So investors in the market have really gone backward. Ignoring inflation is a mistake too many are making again now as they keep all their money in bank accounts paying little or nothing. What matters isn’t just your nominal or headline return. It’s your return — after inflation.

Going into September 2009, inflation and the shrinking Dollar loomed large as areas of concern:

Should a Shrinking Dollar Worry You?
Fortunately, it’s not that hard to protect against further erosion in the dollar. And not all investors need to take action. Hedging would be vital, quips Campbell Harvey, an economist at Duke University who edits the Journal of Finance, “if your mortgage is denominated in euros.” But if you make your money in the U.S. and spend it in the U.S., a falling dollar isn’t the end of the world. Thus, the slide in the greenback need not prompt every investor into urgent action, but it is an ideal pretext for asking whether you are globally diversified.

Three cures are most commonly prescribed for investors worried about a weakening dollar: foreign currency, gold or a diversified basket of commodities.

One thing to keep in mind: the Dollar has been in a downtrend for a numbers of years, and those who take sudden action now may find themselves doing so at a sentiment extreme.