Understanding Diversification

505 N 210th St.
Omaha, NE 68022
Tel.
Fax
402.330.1166
800.397.1167
402.333.4297
www.manarin.com
Understanding Diversification
by Aron Huddleston, CFA
Fall 2014 Issue
“The only investors who shouldn’t diversify are those who are
right 100% of the time.”
-Sir John Templeton
In This Issue...
Diversification is a cornerstone of Manarin’s investment portfolios. We
believe it is prudent to diversify among asset categories, industries,
and nations. Proper diversification requires an understanding of
correlation. Correlation is a statistical measure of how two assets
move in relation to each other. The correlation measurement
is expressed as a number between -1 and +1. A zero correlation
indicates no relationship between two assets. A +1 indicates an
absolute positive correlation (they always move together in the same
direction). A -1 indicates an absolute negative correlation (they
always move together in opposite directions of each other). The goal
of a diversified portfolio is to include assets that behave differently
(low or negative correlation) from other assets in your portfolio.
Understanding Diversification...... pg 1-2
Words to the Wise.......................... pg 2-3
Firm Offers Presentations................ pg 3
Positive Changes Add Value............ pg 4
Welcome Philip Mead....................... pg 4
Charitable Remainder Trusts........... pg 5
Desk Calendar................................... pg 6
Roland’s Birthday Party.................... pg 6
Closely Followed Funds................... pg 7
Manarin Investment Counsel
offers free Wealth-Building Classes.
For more information or to register,
please call us at:
402.330.1166 (Omaha)
800.397.1167 (Toll Free)
or register online at www.manarin.com
Taxes Defined:
A fine is a tax for doing something wrong.
A tax is a fine for doing something right.
Investment products offered through Manarin Securities Corporation, member FINRA/SIPC. Investment advisory services provided
through Manarin Investment Counsel, Ltd, an SEC Registered Investment Adviser. This newsletter is for educational purposes only and
should not be used as the basis for any investment decision. Past performance is no guarantee of future results.
Diversification can enable you to participate in the
gains when certain sectors are in favor, and it can
lessen portfolio swings, helping to smooth out volatility
and returns. This is important when you understand
that a 100% gain is needed to offset a 50% loss. This
math is central to our motivation for prioritizing riskadjusted, longer-term returns within the portfolios we
construct for our clients.
The media most often talks about the S&P 500 and the
Dow Jones Industrial Average (DJIA) as benchmarks
for the stock market. However, they can actually be
quite misleading as benchmarks for a truly diversified
portfolio. The S&P 500 and the DJIA are comprised
of large, U.S.-based companies. Our portfolios go
well beyond holding only these types of companies.
We diversify into additional areas such as: small
and mid-sized companies; international companies,
including holdings based in developed countries and
emerging market countries; and gold and gold-mining
companies. It would not be prudent to hold all of our
assets in only one area of the market.
Diversification has been and will always be an
integral part of our consistent, disciplined approach
to managing money. We do not plan to change
our approach in order to attempt to outperform any
market benchmark in the short-run. We believe we
are investors for life and make portfolio decisions
based on fundamentals. We allocate capital to
areas identified as undervalued with the potential to
provide above-average, long-term returns relative to
risk. Manarin portfolios are benchmark agnostic in
our quest for value. Our No. 1 priority is to continue
working hard as stewards of your hard earned savings.
CFA® and Chartered Financial Analyst® are trademarks
owned by CFA Institute.
One of Manarin’s Governing Principles is that we will
communicate our beliefs as candidly as possible, because
we believe our clients benefit from understanding our
investment philosophy and approach. This newsletter
intends to offer factual and up-to-date information on
the subjects discussed, but should not be regarded as
a complete analysis of these subjects. Our views and
opinions regarding investment selection, holdings, and
the market are forward looking statements which may or
may not be accurate over the long term. While we believe
we have a reasonable basis for our appraisals and we
have confidence in our opinions, actual results may differ
materially from those we anticipate. We use forward looking
statements like “believe,” “expect,” or “anticipate” or other
similar expressions when discussing our opinions however
we cannot assure future results and achievements. No
party assumes liability for any loss or damage resulting from
errors or omissions or reliance on or use of this material.
It should not be assumed that any of the securities
transactions or holdings discussed were or will prove to
be profitable, or that the investment recommendations
or decisions we make in the future will be profitable or
will equal the investment performance of the securities
discussed herein.
It is not possible to invest directly in an index. Past
performance is no guarantee of future results. Diversification
does not ensure a profit or protect against a loss. All
investments involve risk, including loss of principal.
The Standard & Poor’s 500® Index is a capitalizationweighted index of 500 stocks. The index is designed to
measure performance of the broad domestic economy
through changes in the aggregate market value of 500
stocks representing all major industries. This index is
widely used by professional investors as a performance
benchmark for large-cap stocks. Visit http://us.spindices.
com for more information regarding Standard & Poor’s
indices.
The Dow Jones Industrial Average™, also referred to as
The Dow®, is a price-weighted measure of 30 U.S. bluechip companies. The index is designed to represent large
and well-known U.S. companies which covers all industries
with the exception of Transportation and Utilities. Visit
http://www.djindexes.com/ for more information regarding
Dow Jones indices.
This newsletter intends to offer factual and up-to-date
information on the subjects discussed, but should not be
regarded as a complete analysis of these subjects. No party
assumes liability for any loss or dam­age resulting from
errors or omissions or reliance on or use of this material.
Words to the Wise
by Dave Blair
I believe the words of successful wealth advisors can be
profound, insightful and instructive. So I decided to compile
some memorable quotes focused on a few popular topics
from successful financial advisors, including Peter Lynch,
Warren Buffett, Dave Ramsey and Sir John Templeton.
I hope their words are inspiring to you as well, as you
continue your journey with us.
Investment products offered through Manarin Securities Corporation, member FINRA/SIPC. Investment advisory services provided
through Manarin Investment Counsel, Ltd, an SEC Registered Investment Adviser. This newsletter is for educational purposes only and
should not be used as the basis for any investment decision. Past performance is no guarantee of future results.
2
FALL 2014
On Market Timing:
• “Far more money has been lost by investors preparing for
corrections, or trying to anticipate corrections, than has been lost
in corrections themselves.” — Peter Lynch
• “Our stay-put behavior reflects our view that the stock market
serves as a relocation center at which money is moved from the
active to the patient.” — Warren Buffett
• “I can’t recall ever once having seen the name of a market timer
on Forbes’ annual list of the richest people in the world. If it were
truly possible to predict corrections, you’d think somebody would
have made billions by doing it.” — Peter Lynch
Simply put, successful market timing requires two perfect
decisions and nobody makes two perfect decisions all the time.
People who claim to possess the ability to time the market,
however, do sell a lot of newsletters. We advise our clients to stay
invested in quality ownership positions, cross their arms and wait.
On Planning:
• “Financial Peace isn’t the acquisition of stuff. It’s learning to live
on less than you make, so you can give money back and have
money to invest. You can’t win until you do this.” — Dave Ramsey
• “I would not pre-pay. I would invest instead and let the
investments cover it.” — Dave Ramsey
Keep in mind that high-interest-rate credit card debt often
becomes a cycle very difficult to escape. We advise our clients
to pay off high-interest-rate debt as soon as possible, and keep
the low-interest-rate debt. Financial planning is nothing more than
identifying who you are, where you are, where you wish to go, and
how to best get there.
On Emotion:
• “Be fearful when others are greedy and greedy when others are
fearful.” — Warren Buffett
• “To buy when others are despondently selling and to sell when
others are avidly buying requires the greatest fortitude and pays
the greatest ultimate rewards” — Sir John Templeton
Many people fail because of emotional decisions. Sound counsel
helps to work through the emotion.
On Education:
• “An investment in knowledge pays the best interest.” —
Benjamin Franklin
• “Invest in yourself. Your career is the engine of your wealth.” —
Paul Clitheroe
• “The four most dangerous words in investing are: ‘This time it’s
different.’” — Sir John Templeton
At Manarin Investment Counsel, we believe education is
fundamental to your investment process, providing you with the
tools to make the best decisions for your financial future. Take
advantage of the financial education opportunities we offer.
Attend our free Wealth Building Classes. Listen to our radio
show. Or check out our commentary on our website and blog
at www.manarin.com. And as always, never hesitate to call us at
402.330.1166 or come in to review your situation.
Firm Offers Presentations in Denver and
Omaha in September
Roland will present “The Good, The Bad and The Ugly” again at
the next series of Workshops @ Manarin presentations, planned
for Tuesday, Nov. 11 at 2 p.m. and 7 p.m. at the firm’s offices, 505
The firm offered two presentations in September, focused on N. 210th Street.
issues that matter to clients and their families.
Call the firm at 402.330.1166 to register today.
On Sept. 15, the firm offered a series of workshops titled “Openness
and Transparency: Understanding the Advantages of Manarin
Investment Counsel’s Model Portfolios,” which were designed
to answer questions and provide insights to clients who hold
these portfolios. During the workshops, which were collectively
attended by about 60 clients, Vice President Aron Huddleston,
Managing Director Brad Grubb and Operations Manager Dawn
Claussen provided an overview of the firm’s investment process;
a description of the Investment Committee; and information about
online access to TD Ameritrade accounts, among other topics.
On Sept. 16, Roland Manarin provided a presentation titled
“The Good, The Bad and The Ugly,” for 21 clients and business
associates at Panzano in Denver. The presentation focused on
issues of concern in today’s political and economic climate,
including government spending, debt, foreign policy, and the
Federal Reserve, and how these issues can affect the stock market
and investments.
More than 20 people attended Roland Manarin’s presentation
on “The Good, the Bad and the Ugly” in Denver at Panzano.
Investment products offered through Manarin Securities Corporation, member FINRA/SIPC. Investment advisory services provided
through Manarin Investment Counsel, Ltd, an SEC Registered Investment Adviser. This newsletter is for educational purposes only and
should not be used as the basis for any investment decision. Past performance is no guarantee of future results.
3
FALL 2014
Positive Changes Add Value for Clients
By Brad Grubb, Managing Director
The former CEO of General Electric Jack Welch once
famously said: “Change before you have to.” Because
change is part of business, it’s part of staying ahead in
business and part of being the best for those you serve.
We’ve gone through a number of changes at Manarin
Investment Counsel over the past few months, nearly
all of which are positive movements for our clients and
firm.
As we move toward the end of the year, I’d like to reflect
back on some of our major changes and share with you
some of our plans for 2015 and beyond!
Major changes during 2014 included:
• Our new team focus. Today, everyone at Manarin sings
from the same hymn notes when it comes to investing
your hard-earned money. Our collective experience
directs our Investment Committee to ensure we select
the money managers and companies that will benefit
you for the long haul. You can rest comfortably knowing
we have a team constantly monitoring the markets,
economy and world events.
• New faces. So far this year, we’ve welcomed three new
advisors to the firm. Our latest addition, Phil Mead, CFA,
brings more than 25 years of experience in the Omaha
financial industry. As a Chartered Financial Analyst
charterholder, Phil will add a wealth of professional
experience to Manarin’s Investment Committee and to
our clients.
• New service offerings: Beginning this month, the firm’s
offerings expanded to include insurance policy reviews,
long-term care and tax savings strategies for you, your
families and your friends. We have partnered with a
nationally recognized agency that works with over 50
insurance companies. This means you have a variety
of choices from which to choose and an added team of
experts who can answer your questions.
Plans for 2015 will include:
• Online access to your accounts. Beginning in the
first quarter of next year, you will have expanded
opportunities to view your consolidated accounts with
Manarin.
• Improved communication. We will continue to
expand our education offerings, providing even more
opportunities for you to hear Roland, Aron and the entire
Team Manarin at events and workshops. Additionally,
you can now hear our radio show, “It’s Your Money”
broadcast every Sunday on 99.1 KMA-FM, in addition
to 9 a.m. on 1110 KFAB. Check www.manarin.com for
more information and past broadcasts.
• Outsourcing brokerage paperwork. In the coming
weeks, you’ll learn more about the next evolution of
Manarin Securities, designed to improve our backoffice efficiency and increase the amount of time we
can spend with clients.
Thank you for your continued loyalty and trust as we go
through these changes – changes that are necessary for
our business and intended to improve your experience
as you continue to plan your financial future.
If you have any questions, please don’t hesitate to
give me a call at 402.330.1166 or email me at brad@
manarin.com
Philip Mead, CFA, Joins Manarin Team
Manarin Investment Counsel is pleased to welcome
Philip Mead, CFA, as the firm’s newest wealth advisor
and member of the Investment Committee. Phil comes
to Manarin with more than 25 years of experience in the
Omaha financial industry.
“We are thrilled that Phil has joined our growing team,”
said Managing Director Brad Grubb. “His knowledge
and experience will add tremendous value to our
Investment Committee and our clients.”
For the past 14 years, Phil served as the Chief
Investment Officer at Feltz WealthPLAN. In this role,
Phil was responsible for portfolio development, client
communication, strategic investment management and
businesses development. Prior to working at Feltz, Phil
was a portfolio manager for CLS Investments, LLC.
Throughout his career, Phil has been actively involved
in the CFA Society of Nebraska, serving as its president
from 2008-2009, and on the board of directors for seven
years. In addition to an MBA and a Chartered Financial
Analyst (CFA) designation, Phil holds Series 7, 24, 65
and 66 securities licenses.
Phil and his wife live in Blair, Neb.
They have a daughter who attends
the University of Nebraska-Lincoln
and a son who attends high school
in Blair.
Phil can be reached on the firm’s
main line, 402-330-1166, or at phil@
manarin.com.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
Investment products offered through Manarin Securities Corporation, member FINRA/SIPC. Investment advisory services provided
through Manarin Investment Counsel, Ltd, an SEC Registered Investment Adviser. This newsletter is for educational purposes only and
should not be used as the basis for any investment decision. Past performance is no guarantee of future results.
4
FALL 2014
A Good Time to Consider Charitable
Remainder Trusts (Part II)
By Dennis Peatrowsky, J.D.
In the summer issue of The Quarterly, I wrote a piece
on charitable remainder trusts (CRTs), which included
a definition of what they are, a review of how they are
structured and reasons why a CRT should be considered
for estate planning. As you might recall, a CRT is created
when a donor transfers securities or other appreciated
properties to a trust. With a CRT, the donor retains an
income stream for the rest of his life, and the remaining
assets and property that were contributed (i.e., the
remainder) pass to a charity of the donor’s choice at his
death.
In this issue, I will offer “Part II” of this discussion, which
will include an explanation of the potential benefits of
a CRT and some examples of when a CRT should be
considered.
Potential benefits of a CRT include:
1. An acceptable return on investment. Studies show
that the average age of an individual creating a CRT
is 68 years old. At this point in life, many investors are
experiencing significant capital gains on their property
and investments. Since CRTs generally last about 15
years, they often provide acceptable investment returns.
2. Exclusion from taxable income.
The money that is given to
charity via a CRT doesn’t
pass through the donor’s
taxable income. Also, the
charitable portion of the trust
payments may not be subject
to any deduction limitations on
traditional charitable gifts, apply
to recently proposed adjusted
gross income limits, maximum
limits on tax brackets, or existing
Pease reductions.
3. Tax benefits. CRTs offer a way to make testamentary
charitable gifts, while providing lifetime tax benefits.
CRTs also work with other traditional tax planning
measures, such as deductions, tax-free diversification,
professional asset management and some asset
protection vehicles.
While CRTs shouldn’t be considered by everyone, they
can be a positive solution for specific situations. A few
of these situations include:
• A 60-year-old who needs income for a 10-year period
before making mandatory withdrawals from a retirement
plan. A CRT with a fixed-percentage payout rate for a
period of 10 years offers both inflation protection and a
natural “stop” if a significant erosion of principal occurs.
• A young, disabled individual. A CRT provides an income
interest for a younger person with disabilities that prevent
him from working for the rest of his life.
• An owner of a rental property or an investor in stocks with
large capital gains. A CRT can be used to reduce or avoid
the surtax and the incremental 5% capital gains tax by
smoothing out income and trying to keep income below
the threshold amounts.
• A farmer with a large crop. Farmers can place their assets
into a CRT in exchange for tax deductions, stability
of income and legacy gifts to their favorite charitable
organization.
The availability of fiduciary services to assist trustees and
charities with CRTs has continued to increase over the
past couple of decades. Individuals and their advisors
now have access to more advanced software and
automated tax tools to help them through the process.
In addition, proponents are hoping that Congress will
take action to help donors even more through vehicles
such as the Camp Proposal for
tax reform. This proposal, which
was introduced in February,
didn’t include any provisions
that would place direct limits
on CRTs or other split-interest
charitable gifts.
Trustees should be aware that
CRTs often include trust asset
portfolios that are managed by
investment advisors. Therefore,
trustees
should
carefully
consider
their
investment
and risk parameters when creating their CRT. These
parameters must be clearly understood and agreed to
by asset managers. Working together, all parties can, in
good faith, achieve results that overcome any seemingly
conflicting goals.
Please feel free to contact me at 402.330.1166 or
[email protected] if you have any specific questions
about charitable remainder trusts or how they might
impact your situation.
Investment products offered through Manarin Securities Corporation, member FINRA/SIPC. Investment advisory services provided
through Manarin Investment Counsel, Ltd, an SEC Registered Investment Adviser. This newsletter is for educational purposes only and
should not be used as the basis for any investment decision. Past performance is no guarantee of future results.
5
FALL 2014
2015 Desk Calendars Available at the Office in December
A limited number of 2015 desk calendars will be available to clients at the Manarin Investment
Counsel office starting the first week of December.
The firm decided to discontinue mailing the desk calendars to all clients around the holiday season
this year because several clients have indicated they use online or mobile resources for their
calendar needs.
Clients who are still interested in receiving a Manarin desk calendar should call the office at
402.330.1166 to reserve their calendar. They may pick it up at the office or request mail delivery
to their home. Supplies are limited.
Join Roland for his 70th Birthday Celebration!
All clients are invited to join Roland Manarin for his 70th birthday celebration, planned for Saturday,
Nov. 1 at Il Palazzo, 5110 N. 132nd Street, the new home of the American Italian Heritage Society.
The evening will begin at 6:30 p.m. with cocktails, and will be followed by dinner catered by Pasta
Amore. The celebration will end with dancing featuring The Rumbles.
Please RSVP by calling the Manarin office at 402.330.1166 by Oct. 15. Seating is limited, so clients
are encouraged to call early to guarantee their seats. Happy Birthday, Roland!
HAPPY
BIRTHDAY!
Investment products offered through Manarin Securities Corporation, member FINRA/SIPC. Investment advisory services provided
through Manarin Investment Counsel, Ltd, an SEC Registered Investment Adviser. This newsletter is for educational purposes only and
should not be used as the basis for any investment decision. Past performance is no guarantee of future results.
6
FALL 2014
CLOSELY FOLLOWED FUNDS
Information Source: Morningstar Direct Additional performance information can be found at manarin.com
Disclosures: Return information through September 30, 2014. Please read prospectus carefully before investing. The performance data
quoted represents past performance. Past performance is not an indication of future returns. Investment return and principal value of an
investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. The information
provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance
that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have
not been repurchased. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a
small percentage of an account’s portfolio holdings. It is not possible to invest directly in an index.
Investment products offered through Manarin Securities Corporation, member FINRA/SIPC. Investment advisory services provided
through Manarin Investment Counsel, Ltd, an SEC Registered Investment Adviser. This newsletter is for educational purposes only and
should not be used as the basis for any investment decision. Past performance is no guarantee of future results.
7
FALL 2014
505 N 210th St.
Omaha, NE 68022
Wealth-Building Classes
It’s Your Money
Omaha’s longest-running radio talk show on
financial matters, since 1986. You may also listen
to the latest four radio shows online anytime on our
web site at: www.manarin.com/radio-show or on
iTunes by visiting http://podcast.manarin.com
Each class is an excellent source for financial planning information
and has helped many people plan and provide for their future
by learning how to build and maintain wealth. For more
information or to register, please call us at: 402.330.1166 (Omaha),
800.397.1167 (Toll Free), or register online at www.manarin.com.
Manarin Investment Counsel
Where/When
Station ID/Dial
Nebraska/Iowa
Sundays at 9 a.m.
KFAB
1110 AM
505 N. 210th St.
Omaha, Nebraska 68022
(3 Part Class)
Thursdays, October 30th, November 6th & 13th
Courtyard Marriot, Aksarben Village
The opinions contained herein
are those of Manarin Investment
Counsel, Ltd., and are subject to
change at any time based on market
conditions.
For additional commentary and to
sign up for monthly e-mail updates,
visit our blog at:
www.manarin.com/our-blog
QUARTERLY
PRSRT STD
U.S. POSTAGE
PAID
OMAHA, NE
PERMIT NO. 1634
1625 S 67th St.
Omaha, Nebraska 68106
(1 Part Class)
Saturday, October 18th