Adaptive MFA:  So much for Sci-Fi

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Several times a year I receive notification that there has been another mass password breach with an online database. Whether from a pwned (compromised) website or successful phishing attempts, this proves how insecure simple password access can be. Many of us have been compromised at one point in our life, simple passwords just aren’t cutting it anymore. Where is the technology headed, are we going to need retinal eye scans going forward to access our information?

Multi-Factor Authentication is considered the solution to passwords. In a recent study by Symantec, it was determined that 80% of breaches would have been prevented by including MFA with a password.

A strong password should be the first barrier for access, but proving it is really you, and not someone else, is a stronger defense.

Over the past few years, biometrics has assisted MFA in keeping data secure. Fingerprint readers and retinal scans are now mainstream. So much for Sci-fi.

I remember when I couldn’t buy gas on the east coast for a few days. Long lines at the pumps for the few gas stations that had short supply. According to Bloomberg, the Colonial Pipeline was hacked in April 2021 due to a compromised password allowing VPN access. The pipeline system was not secured with MFA for administrative access. This allowed fraudulent access to shut down the pipeline simply from a password breach.

There are many companies that now require MFA. These include Bank of America, Microsoft, Apple, Google, PayPal, Drop Box, and Salesforce. As more companies increase their security requirements each month, bad players looking to capture your data must adapt to this level of sophistication. This is leading to MFA itself needing to become more robust. So, what should we expect in the months ahead?

The Future:  Adaptive Multi-Factor Authentication

Standard MFA can decrease efficiency when over implemented. Adaptive MFA can reduce the burden of constantly having to prove who you are by 80%. It also helps reduce bad actor login access to near zero. Adaptive MFA bridges the gap between user experience and account security by providing a secondary factor for logins but only prompting for secondary verification when the primary factor login looks suspicious or unusual. Typically, I logon to check certain websites each morning at 8:00 am from a work IP address utilizing the same machine. But what if I was to login at 10:00 pm from a different state? This pattern is new, so it should be challenged. Most likely, I am just traveling. But what if my device was stolen?

Behavioral Analytics can score events, including login attempts at unusual hours, login attempts from unusual locations, or login attempts from unknown devices, etc. Higher risk scores would require additional authentication methods.

My example shows utilizing an approved device, but from a new Geo location and during an odd time of day. Thus, additional Multi-Factor Authentication would be required for this new login attempt.

The future of Authentication will be security driven by artificial intelligence. Adaptive Multi-Factor can be configured to allow low risk patterns to require simply a username and password. Medium risks would require additional authentication, such as that retinal scan. A High-risk AI assessment could deny access all together. Implementing some Adaptive Multi-Factor Authentication could have kept that Colonial pipeline open. Nobody wants another national security risk. The future is being streamlined for user experience, and heightened security. I would call this a win-win.

A Future for Green Currency

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Every time I turn on the news, I hear something about the shift toward clean energy. Electric cars, solar panels, recycling. When a friend or investor asks me about cryptocurrency, I consider its carbon footprint on our planet as criteria. Not because I am an environmental fanatic, I still drive an affordable, non-electric, gasoline powered car. The top reason I don’t own any Bitcoin is due to its load on the power grids, followed closely by its inefficiency in transaction speed and price volatility. Bitcoin consumes more energy than many of the world’s leading countries. “But don’t you want to hedge your portfolio against rising inflation?”  Yes, I do, but in a way that also makes me a good steward of the resources on our planet.

What’s the impact?

According to the most recent estimates from the Bitcoin Energy Consumption Index, a data project headed by Dutch economists, a single transaction of the world’s most popular cryptocurrency uses about 2,157 kilowatt-hours of energy.  So, to purchase a new video game for the kids, one would have to burn enough energy to power one household for about 74 days to send the funds, and have the transaction verified on the network.

“How about Ethereum, that’s a greener cryptocurrency.”   Barely…  Ethereum consumes more energy than Switzerland (63.3 TWh annually) and Israel combined (60.5 TWh annually).

Greener pastures:

There are several cryptocurrencies that offer a smaller load on the power grid. A few examples in alphabetic order are:


In 2021, Algorand declared its blockchain to be completely carbon neutral. This currency has a partnership with Climate Trade, an organization dedicated to helping companies improve their sustainability profiles.


BitGreen was created as a response to Bitcoin, considering the environmental impact it has. It is a 100% community-run project and uses an energy-efficient proof-of-work algorithm. The company was founded in 2017 and has created a non-profit organization to oversee and manage the BitGreen project.


Cardano is inherently more energy-efficient than Bitcoin as it uses a consensus mechanism where those participating in the currency buy tokens to join the network. This helps save a staggering amount of energy, and it is reported to only consume 6 GWh of power.


According to DEVVIO founders, the DEVVIO network uses one-millionth of the energy usage of Bitcoin and generates far less in terms of greenhouse gasses. It was designed specifically to reduce energy expenditure and be a ‘greener’ cryptocurrency.


Nano uses block-lattice technology, which is energy efficient. It is still reliant on a Proof of Work mechanism, but the block-lattice goes beyond blockchain to create an account chain for each user on the network.


SolarCoin is a decentralized and global cryptocurrency that strives to be self-sustainable. This cryptocurrency aims to create 1 SolarCoin for every Megawatt hour generated from solar technology.


Stellar offers a faster and cost-effective mode of transaction and is considered a strong alternative for transaction applications like PayPal. Stellar is environment-friendly and uses a consensus protocol, which may be even better than the proof-of-stake algorithm.

“Proof of Work” vs “Proof of Stake”

Within the Green Crypto alternatives, you hear Proof of Work and Proof of Stake mentioned. Most crypto networks are run as Proof of Work, even the greener currencies. Ethereum is currently operating on a proof-of-work blockchain that requires power and resource-hungry mining hardware similar to Bitcoin. Governments and environmentalists have targeted this in their latest attempts to crack down on crypto, which is why a switch to proof-of-stake couldn’t come at a better time for Ethereum. Instead of using energy-consuming graphic cards to crunch numbers to validate blocks, ETH holders stake their tokens in a smart contract to validate new blocks on the chain. This drops the network’s power demands significantly, keeping the environmental regulators at bay. If the minds behind Ethereum can lower power consumption by 99.95% with the introduction of the Proof of Stake (PoS) paradigm instead of Proof of Work (PoW) energy hog, I would feel more enticed to be a responsible buyer.

So why not just switch Bitcoin from Proof of Work, to Proof of Stake?

Several climate activist groups including Greenpeace and billionaire Chris Larsen have launched a Bitcoin campaign to do just this. “Change the Code, Not the Climate.”  It was estimated that by 2027 Bitcoin would consume as much power as Japan. Although these efforts will mostly be a combination of marketing and millions of dollars in pledging, it is unlikely that it will be enough to invoke change. Typically change involves a blockchain fork, or fundamental change in the code that drives the project. Some would favor a change for Bitcoin to become a greener blockchain, while others (most) would choose the original design. Millions of dollars have been spent on proof-of-work miners to verify the network and these would not be needed in a Proof of Stake design. Many believe proof-of-work and decentralization is more important than the impact on the power grids or environment.

What’s the future?

The future of cryptocurrency will be a currency that is efficient and green. Whether that means blockchain networks adapt the Proof of Stake design, or perhaps a global wind and solar panel network emerges. Green, renewable energy is clean with little-to-no environmental impact that contributes to global warming, the way fossil fuels, or nuclear energy adds to greenhouse gases. There is just too much demand for clean energy to keep the environment of blockchain operating as an energy hog. The future currency winners in this sector will be those that take this into account.

Spectrum is not recommending cryptocurrency to our clients or prospects. This blog is intended to give information to the “consumer” that may not be known. At Spectrum Financial, our goal remains to provide our investors with the best risk-adjusted returns possible that fits their individual suitability. We believe cryptocurrency remains a highly speculative investment, with many different layers that can affect a specific crypto coin or the whole crypto sector. This blog highlights just one factor that can affect price movements. Furthermore, this currency alternative is still highly unregulated. Our goal remains to understand the market, its sectors, and opportunities and proceed accordingly with risk-adjusted returns in mind, not to blindly expose our investors to speculative investments.

A New Normal?

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What is normal? 

It seems like the markets are always moving from one crisis to the next and trying to define the “new normal”.  Perhaps we can blame the media for promoting drama in attempts to attract viewers.  That may occasionally be true but no doubt that legitimate societal stresses are commonplace: wars, high profile corporate or even municipal bankruptcies, terrorist attacks, and natural disasters are just a few reoccurring events or conditions.  AND YET…markets have historically rallied back to eventually make new highs.

There are numerous examples on the internet of historical charts showing notable world events and the market’s reaction in price and duration. 

TradingView is the source of this chart, originally published 7/4/21 and is one of the more extensive compilations I have seen.

Updating for recent price action (but using the S&P 500 Index), note the significant influences to the recent decline in the chart below.

Created with TradeStation. © TradeStation Technologies, Inc. All rights reserved

The objective or bottom line of most articles, blogs, news stories, charts, etcetera that tie negative news to the stock market tends to be a message that investors should be calm and have hope, with a focus on a brighter future.  That advice has been correct for 100% of all pullbacks, corrections and bear markets since stocks began trading under the Buttonwood tree in lower Manhattan, and up through early January of this year.  That advice may be oversimplistic as the devil may be in the details.

The Fluidity of Indexes

Historical charts of indexes should be viewed with a grain of salt in that indexes periodically change components and weightings.  For example:

  • The Dow Jones Industrial Average has removed/added members 57 times since 1896.
  • The S&P 500 Index is rebalanced on a quarterly basis.

A committee establishes criteria and companies are added and subtracted.  This is a common practice for indexes.  Therefore, index charts most often are strung together performances of individual stock constituents held at that time.  The all-time highs made in early January by the S&P 500 Index and the Dow Jones Industrial Average were not set by the same stocks within the indexes during the bear market of 2008.  Investors that were holders in those particular stocks during the 2008 bear could have been given hope that the indexes should come back eventually.  Well – the indexes did but perhaps not with the down and out names held by some investors.  Is that idea a pitch for indexing, as in, should investors focus on just owning index investments?  No, not necessarily. There is a difference, however, between blind faith in a generalized market recovery in futures versus what companies may participate or be left out.

Let’s shift focus to why.

Again, through January of this year, all negative market periods over the last 100+ years have “recovered”.  This view is based on understanding and embracing the foundational economic principle that supports capitalism or at least market driven economies – profit motive.  Companies are often started by determined individuals, betting on themselves, looking to enrich their lives which often aligns with the betterment of other lives as well.  A lack of product demand and/or a lack of profit will eventually lead to a company’s failure.  In the context of this discussion, investors can choose to be a part of a company’s success or failure through stock ownership.  There is an individual and corporate drive to succeed in a free market system. 

Success is often determined on how a company responds to challenges and crisis.  New challenges come with each crisis.  New solutions are found and assumed to be rewarded.  At the onset of the pandemic, the equity markets fell sharply as questions were brought up regarding how the economy would be affected.  Generally speaking, the market then moved higher as answers came to light.  Again, some companies have not come back but many have and have done so transformed as evolved versions of themselves.        

Now that we have covered topics of optimism, warning, and back to optimism, let’s return to warning. 

The duration and depth of crisis have never been consistent.  Exhibiting faith in an eventual recovery is one thing, but it should not be blind faith as the pain of the crisis is endured.  Active management of investments, adjusting portfolios to changes in risk is not in opposition to the idea of market recovery.  The two can be symbiotic.    

As investors, we should not be expecting the market to settle into a “new normal”.  It will never come if defined as an extended period of a “lack of concerns”.  We must accept that “normal” is a constant pursuit of new innovations and ideas and we can participate by way of the markets while dodging and parrying the dangers.

At Spectrum Financial, we continue to pursue risk adjusted opportunities that the market presents and manage life altering risk for our clients. 

March Madness is Here!

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It’s that wonderful time of year again. The NCAA Basketball Tournament is upon us. The seeds are set and the madness is ready to begin. One team will win six straight games against the best teams in the country. Teams are seeded 1-16 in four regional brackets based on their end of season rank. Gonzaga, Baylor, Kansas and Arizona are the top seeds this year.

Since the tournament was expanded to 64 teams, a 1,2 or 3 seed has won the Championship 30 of the last 32 years. That is almost a 94% chance that one of the top 12 teams will win the whole thing! Only Connecticut in 2014 (a 7 seed) and Arizona in 1997 (a 4 seed) have blemished this amazing run of top seeds. Why do the other 52 teams even show up?

They show up because, even though the champion is usually a top 12 team, the other 11 best teams lose somewhere along the way. The first two rounds of the tournament are the most exciting. There are ALWAYS a few major upsets, one of the reasons it is called March Madness. I’ll be rooting for the #2 seed Duke Blue Devils, as this is coach K’s last tournament before he retires.

The basketball tournament every March isn’t the only exciting thing this time of year. The stock market, both this year as well as years in the past, can be filled with madness in March. The stock and bond markets have experienced negative returns across the board this year, with no end in sight. At the time of this writing, the Russia-Ukraine crisis has pushed the price of oil futures to over $130/barrel, twice the price they were just a year ago. Consumers are feeling it at the gas pump as many states now seeing $4-5/gallon prices. Wheat futures have risen over 40% this year alone. I paid $3.49 for a loaf of bread last week that was $1.99 six months ago.

In March 2000, the S&P 500 hit new multi-year highs. That was the top as the market rolled into multi-year bear market. That bear market ended in March 2003, which started a steady 4+ year bull market. The 2008 bear market ended in March 2009 as the market finally found a bottom after a vicious 16+ month slide that saw major stock indices fall over 50%. As recently as March of 2020 we all remember how the market went into a freefall as COVID became a quick reality and oil drillers couldn’t give oil away.

We are seeing market volatility this March that we haven’t seen in thirty years. The market ups and downs can drive you mad if you are watching your investments every day or if you don’t have risk management as part of your investment strategy. At Spectrum our clients let us manage the day-to-day volatility of the markets in their portfolios so they can do other things. We want you to spend your free time watching some exciting basketball this time of year. Relax with family, go on a vacation, go see a movie, sleep well at night.

We have been managing client investment portfolios for over 30 years, through all sorts of March madness. Let us take some of the madness out of your buy and hold investment portfolio. Our clients use various actively managed mutual funds based on their individual risk profile. Call us today at 1-888-463-7600 and speak with our Investor Services team about what makes us different from other advisors.

Dear Millennials: I hate to burst your bubble, but speculative Investing shouldn’t be your only investment.

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With my husband and I, and most of our friends, in our early to mid-thirties we all finally have some sort of investment accounts. Whether they are 401(k)s, Roths, joint savings accounts or IRA Rollovers we are all starting to take the shape of a grown-up. So instead of talking about whatever we used to talk about in our twenties at a dinner party, the new topic is investing (after the debate on vaccine mandates and when the Britney Spears documentary will come out). My greatest concern from these conversations is that it seems the majority of everyone’s portfolio is in some uber hot meme stock or crypto. Bottom line? New investors with their new life savings are as wide open to major risk as any of the wide receivers on the Cowboys offense (let’s not talk about the Broncos game). Don’t get me wrong, I traded some of that DWAC ‘spac’, have Shibu crypto in my Coinbase account, and am trying to hop on that hot uranium trade– but that’s our play money, not our serious money. Working in the financial industry over the last 10 years and with a firm that has managed money since 1986… I know what happens after bubbles burst, when major highs become major lows, and why black swans are less enjoyable than the movie. Knowing this is one thing, feeling it is another. Anyone that began investing after March 9, 2009 has never felt a true bear market. March 2020 was a major sell-off, but not a bear market. We, the blasted millennials, have never felt what a 50% loss in our major savings does to our psyche, goals, and children’s daycare funds. “Knowing” and “feeling” are completely different.

About two weeks ago I was having my coffee early in the morning before heading into the office. I had been mulling over some complex situations and remembered a book I bought called, “The Hard Thing About Hard Things: building a business when there are no easy answers” by Ben Horowitz. I plucked it right off the bookshelf and began reading. Ben is considered one of Silicon Valley’s most respected and experienced entrepreneurs, and early on in his book he talked about the beginnings of his first startup as the CEO of LoudCloud when the dot-com bubble burst:

“…It seemed like we were building the greatest business of all time. Then came the great dot-com crash. The NASDAQ peaked at 5,048.62 on March 10, 2000—more than double its value from the year before—and then fell by 10 percent ten days later. A Barron’s cover story titled “Burning Up” predicted what was to come. By April, after the government declared Microsoft a monopoly, the index plummeted even further. Startups lost massive value, investors lost massive wealth, and dot-coms, once heralded as the harbinger of a new economy, went out of business almost overnight and become know as dot-bombs. The NASDAQ eventually fell below 1,200, an 80% percent drop from its peak.”

I immediately thought, “Gosh this seems familiar.”  There is investor euphoria with investors willing to take massive risk just to get a piece of the pie. There are people investing in a crypto that is not tied to anything, with founders admitting it was created as a joke! The global economy is fragile as it reels from a global pandemic, inflation is here (whether the Fed wants to call it transitory or not), international tensions are high (yep, that didn’t go away), businesses can’t find employees and supply chains are tighter than a Skims bodysuit. The chart to the right was used in our most recent quarterly newsletter, The Full Spectrum. This chart shows that almost every bear market over the past 88 years has taken back, or repossessed, about 50% of the previous bull market gain. Robert Harmon, who oversees Spectrum’s retail clients’ portfolios, put the current state of the market in the best word picture. He said, “It’s like there is a bear market puzzle and once it is all put together, things are going to get nasty. And as it stands, there are only a couple pieces missing.” It just doesn’t seem like the time to play Russian roulette with all your savings. There are more intelligent ways to invest your hard-earned assets.

Every investor is different because every person has a different risk tolerance, need for security and goal for a certain investment account. My plea is to assess what you can truly stand to lose, because it can be truly lost. When you invest any assets, you are taking on risk. That is the deal of investing. This industry is heavily regulated and on every marketing piece (including this one!) there will be a myriad of disclosures at the bottom. One may read, “Past performance is not indicative of future results” and/or “Investments can fluctuate”. When you begin investing, and you’ve only seen (mostly) gains and have (mostly) been rewarded for the risk you took, you get a false sense of surety and security. At Spectrum, we believe that as an investor you don’t have to take unnecessary risk to be compensated, and I agree whole heartedly. Separate out your serious money from your play money. There is nothing wrong with wanting to participate in something fun and risky, or what the investment world calls, “speculative”. I just try and keep that to 5% of my portfolio. The other 95%? I have in actively managed mutual funds. Taking on risk is not a bad thing. As the saying goes, “the greater the risk, the greater the reward”. I can afford to take on greater risk in retirement accounts because the “life” of that money is longer than the “life” of the joint savings account that may be used for an additional down payment on our next home in 2 years. The sooner you need the money, the less risk you should take with it.

There is a saying that “Ignorance is bliss.” Ignorance in investing is not bliss, it can be extremely painful. I will end with an excerpt from the book Greenlights written by the wisest man on earth, Matthew McConaughey:

“Everybody likes to be in the know. Even when we lose two and win one, we believe the one more than the two. We believe the one winner we picked was a product of our truer selves, was when we met our potential and read the future, was when we were gods. The two losses, however, were aberrations, misfits, glitches in our masterminds, even though the math clearly makes them the majority. After the game is played, everybody kn-ewww who the winner would be. Everybody is lying. Nobody kn-owwws who’s going to win or cover the bet, there is no sure thing, that’s why it’s called a bet. There’s a reason Vegas and Reno continue to grow. They kn-owww we bettors love to believe we do. That is a lock.”

Spectrum has been actively managing client assets since 1986, call our Investor Services team today to discuss how our mutual funds can compliment your portfolio.

Security or Invasion: Apps and Services that spy

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Ever wonder why your computer, or smartphone just recommended a product you were just discussing with a friend the day before?  Hmmm, that’s convenient. That’s just what I was looking for, must be a weird coincident?  No, it’s the eerie product of new marketing practices. These include cross app tracking, social network sharing, product review algorithms, and behavior recognition. Is this an invasion of my privacy, or a tech advanced value added shopping experience? Is this really meant to help me, or make someone else money?

Meta aka Facebook

Meta provides its business partners tracking software they embed in apps, websites and loyalty programs. Any company that needs to do digital advertising has little choice but to feed your activities into Facebook’s database: your grocer, political views, investments, brand preferences. Behind the scenes, Facebook takes in this data and tries to match it up to your account. It sits under your name in a part of your profile your friends can’t see, but Facebook uses this information to shape your online experience.

Among the 100 most popular smartphone apps, you can find Facebook software in 61 of them, according to app research firm Sensor Tower. Facebook also has trackers in about 25 percent of websites, according to privacy software maker Ghostery.

What to do … Quit Social Media?

Well, you could quit services such as Facebook and Meta owned Instagram. Of course they’ll beg you to stay, and encourage you to just temporarily “deactivate” your account for a while. But if you do fully delete your accounts on both services, Facebook will no longer build out a profile with your activities to target ads. But if you can’t bear to be without your social media then at least change your privacy settings.

Facebook has lots of bad default security settings you should change. Such as setting your public profile from strangers (anyone) to friends. But the most important one to combat tracking is called Off-Facebook Activity. Users found the feature was monitoring their use across multiple apps and websites, including banking.


Apple is a mixed bag when it comes to privacy. Starting with Apple’s iOS 14.5, the phone now comes with the long-awaited privacy feature called App Tracking Transparency (ATT), which highlights who is tracking you on your iPhone and gives you the option to stop it. Nice work Apple. However, …

Apple unveiled a sweeping new set of software tools in August 2021 that will scan iPhones and other devices for illegal pictures and text messages with explicit content and report users suspected of storing illegal pictures on their phones to authorities.

The aggressive plan to catch child predators and pedophiles and prohibit them from utilizing Apple’s services for illegal activity pitted the tech giant against civil liberties groups and appeared to contradict some of its own long-held stances on privacy and the way the company interacts with law enforcement. It seems like a good idea to police the bad, but at what cost to the privacy of the good?

The move also raises new questions about the nature of smartphones and who really owns the computers in your pockets. The new software will perform scans on its users’ devices without their knowledge or explicit consent, and potentially put innocent users in legal jeopardy, or at the very least monitor their private affairs.

Cheap Cameras and Cloud Services

So you think you got a great deal on a $20 wireless internet camera so you can monitor your house? Why not, it has a free cloud service and a cool App. Setup instructions were in poor English, but you got it working. Now you can check on your loved ones while they sleep, cook, and watch TV. But where is that cloud service server located? Easily could be someone’s basement in another country, or even the Chinese government? Nobody is regulating these foreign cloud services. Assume everything is being monitored, recorded, and stored. I would be very careful what room I placed one of these in! Pass on purchasing the cheap Yuanyang or NetSee cameras and stick with a U.S. product and monitoring service such as Ring or FLIR.

Google Alexa

Always listening … Best to assume everything you say is being monitored somewhere. In fact it’s being recorded when you say “Alexa”. After the wake word, the audio gets uploaded to Amazon’s cloud where they have algorithms that analyze it. According to Bloomberg’s reporting, there are at least 100 transcripts of conversations uploaded to the cloud each day that Alexas have recorded without being purposely activated. Guess I’ll be on my best behavior when there’s an Alexa in the room. Occasionally she asks, “by the way, do you want me to …. ” If you’re like me, and you don’t like this, go to the Alexa App, settings, and toggle off Hunches. I prefer when Alexa does not try to take over the conversation going on in my kitchen. And no, I don’t need another reminder to reorder protein drinks for my son.


We should realize companies that offer free products and services need to be compensated. Whether that is by generating product recommendations and revenue from you through online commerce or selling and sharing your data to another vender. Nothing in life is free. Be wary of your digital footprint because it can easily be tracked. Protecting your identity should outweigh convenience or your social media. Sometimes it’s better to stay anonymous.

The New Relative Strength Trade

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As active managers, we use many different price analysis tools to determine how to be attractively positioned. Relative strength, or comparative strength, is just one of the useful tools to help narrow down potential areas of investment. The concept is simple and attractive. From an equity perspective, find stocks that have a similar theme, detect outperformance versus another group or benchmark, then hold a belief the outperformance of the group can continue. In early 2020, as pandemic quarantines began to be seen as a new way of life, “COVID trades” became popular, consisting of companies benefiting from work from home, school from home, online shopping for essentials and non-essentials. Depending on the mix, some of those stocks posted returns well above typical benchmarks such as the S&P 500 Index. Since the election in November of 2020, other relative strength or theme trades have made headlines.

As mentioned, thematic trading can be very tempting to pursue, especially when promoted in the media. The purpose of this blog is to increase understanding in order to potentially guard against being overly influenced by outside sources. Let’s cover some of the how-to’s, pros, and then some cons or pitfalls of the concept, we will use 2020 as an example throughout this blog.

Theme investing and relative strength go hand in hand. Themes can be pre-made or custom. Mutual funds, exchange-traded funds (ETF’s), and indexes are examples of pre-made themes. Some may be broad-based such as small cap stocks. These can contain smaller companies across many sectors. A more narrow focus could be energy companies. This can be combined to get even more narrow if an investor wants small cap energy companies for example. Custom themes are often built by investors to fit certain scenarios, and are simply made up of inserting within one’s portfolio stocks that meet certain criteria versus buying a pre-made available investment. These nuanced ideas often make their way into the marketplace as packaged products by ETF providers, while others are intended to be just temporary such as the “COVID Trade” stocks.

Technology stocks have been favored for quite some time, including early on during the pandemic as technology played a major role in the work/learn/shop from home period. When progress and FDA approval of the vaccines and therapeutics were announced, this caused a sharp shift away from the stocks that ran up. New enthusiastic interest was shown toward those businesses that had been overly suppressed. Many of the companies hit hardest due to the pandemic were travel, entertainment, and restaurants. A broader brush stroke can point to smaller businesses and may include those noted sectors.

This trailing 12-month (November 2019-2020) chart displays the Invesco NASDAQ 100 ETF (QQQ) in red, consisting primarily of large cap technology stocks, and the iShares Russell 2000 Small-Cap ETF (IWM) in green. The black line is the result of the cumulative performance difference (percent basis) of the QQQ versus the IWM and is called a “Relative Strength” line, not to be confused with the popular indicator, Relative Strength Index. Comparative strength is a more descriptive but less popular term. A general rise or uptrend in the Relative Strength line means the technology heavy NASDAQ 100 had been outperforming while a general decline means small caps had been underperforming. A way to make it a little easier to define “general rise” or “general decline” is with the addition of the blue and magenta moving averages. The NASDAQ 100 would be considered the leader when the blue line is above the magenta and small caps have leadership when the magenta line is above the blue.

By now, I’m guessing you’re picking up on a common tendency of relative strength analysis. Outperformance is USUALLY not very consistent in the short-term. Strategies and techniques can produce attractive results but ultimately, the method needs to be implementable by the end user. Back to the chart above. Approximately 80% of the time or more, the NASDAQ’s trend, if defined by the moving average method, displayed leadership over small caps. However, every down move by the black relative strength line represents a day in which that leadership was not seen. That is an important and needed consideration in understanding this concept. Let’s take another step. First, this method shows the past with 20/20 hindsight. Of course, we cannot know the future, but we can go forward in time with a reasonable expectation. If a conclusion is derived that a particular group going forward may outperform the other, what should go through our minds? Remember, we had been presented by the media of the possible outperformance of certain groups because of the Biden victory in the presidential race as well as what stocks may do better than others as the economy opens up with the assumed eventual control or defeat of the pandemic. A few more examples before getting to our goal of becoming a bit more shrewd than when we started.

Same inputs as the previous chart, now look at the 5-year time frame (November 2015-November 2020) of the large cap, tech heavy NASDAQ 100 (QQQ) versus the small caps (IWM). In 2016, the relative strength line was trending lower, generally speaking, as small caps led. However, there were enough months in which the QQQ’s led that it would have been difficult to hold on to a stance or a portfolio biased to small caps. Stepping back and looking at the 5-years, large cap technology held leadership more than they didn’t. Expecting leadership by small caps under a Democrat led administration may fit logic, and currently fits the blue line versus the magenta line moving average method. HOWEVER, steadfastly embracing such a concept, especially believing there should be smooth consistency in outperformance by small caps is not very likely, not in line with historical tendency.

ETFs representing momentum (blue) versus value (orange) is another comparison currently being discussed in the media regarding stocks that performed well during the pandemic in light of a potential rebound in the beaten down stocks as the pandemic continually loosens its grip both domestically and internationally. There are certainly some characteristics similar to the previous chart. A major reason is likely because the momentum versus value story has a lot of overlap with the stocks from the previous chart – high momentum stocks have generally been technology, which includes some health care names searching for vaccines and therapeutics, hence the term bio-“technology”.

“Discipline is more important than conviction” is a motto I’ve used for many years. When hearing commentators on tv or the internet present their cases for what to own, especially predicting relative strength sector or thematic shifts, we need to not forget the devil in the details. Thematic shifts may have merit, but we need to be able to reconcile potential movements with our own investment style. What has been presented is simply a couple of techniques to help recognize thematic or relative strength tendencies for ourselves versus just taking the media’s word for it.

Withdrawing Money In Retirement

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As we get close to graduating from High School/College we quickly realize that working for at least the next forty years is a stark reality.  We have bills to pay. Many of us invest in our company retirement plan or start a Traditional or Roth IRA.  In most cases the overall goal of our lifetime investing is to be able to retire comfortably.  Our expenses do not stop once we retire.  Social Security checks are a supplement, but one that most individuals will have a hard time living on. According to the website, the average retired worker receives just over $1,500 each month. So, we turn to our retirement account to make up the difference.

One of the first questions that I hear from clients is “How much can I withdraw every month and not run out of money?”  First, you need to decide what your end goal is.  Do you want to spend your last penny on your death bed?  Do you want to maintain the principal and forward the balance to your children and/or charity? Or do you want to grow your account as much as possible, regardless of how little you may be able to withdraw?

Outside of health, nothing is more fearful in retirement than the thought of running out of money.  As a rule, I tell clients that withdrawing 4-5% per year is the best conservative option.  Some historical numbers can explain my reasoning.  From 12/30/1929 to 12/31/1999 the S&P 500 Index had an annual rate of return of 10.47%.  From 12/31/1979 to 12/31/1999 the same index annualized 17.85%.  Based on these numbers I should be able to withdraw 10% per year and be just fine, right?  Well, so far this century (12/31/1999 to 10/30/2020) the S&P 500 has annualized only 5.94%.  If the last twenty years is the “new norm” then taking 4-5% annual distributions is probably a safer route than what many investors were used to before the turn of the century.  The above S&P 500 returns were calculated using ©Bloomberg software.

A very common and practical way to take annual withdrawals is by taking a fixed percentage that remains constant throughout your lifetime.  If you take 5% per year (monthly withdrawals to live on) you will get more per month the following year if your portfolio grows greater than 5% and less per month if your portfolio return is less than 5%.  But it is a safe way to ensure that your portfolio will never be depleted.  Trust accounts employ this strategy frequently to ensure the beneficiaries won’t squander the proceeds.

Another very practical way to look at withdrawals in retirement is like the example below.  Many times, the conversation goes as follows:

“I have $500,000 and need to withdraw $4,000 monthly.  Will it last me 25 years?”  I created a simple calculator that is very useful in giving clients realistic expectations based on their starting portfolio value and monthly withdrawals.  I usually use 5% as an annual rate of return.  These three numbers can be adjusted annually based on current value.  Based on the hypothetical question above, you can see the results below.

In the case above, it is unrealistic to believe that withdrawing $4,000 per month will last 25 years.  Based on a 5% annual rate of return, this client’s portfolio will be depleted in about 15 years.  “So how much can I withdraw for the next 25 years?”  Again, by adjusting the monthly withdrawal in the calculator we come up with an answer of $2,900 per month.

Again, the above example is using a conservative rate of return based on what the market has done over the past twenty or so years.  If returns are bigger going forward the portfolio will last longer.

The examples above are just a few of many possible examples out there.  Every client is different.  Preparing early is always the best approach to avoiding disappointment in retirement.  I would encourage you to call our Client Services Team at Spectrum so we can discuss your specific goals, whether you are a prospective or current client.  You can reach us at 888-463-7600 Monday through Friday from 8:30-4:00 p.m. ET.

Pandemic Security: Coronavirus and Protecting Your Digital Assets

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With Christmas and the holidays behind us, we still have the added complication of COVID-19. This fact has not been lost on cybercriminals, the “bad guys” who are always trying to steal your identity by tricking you into giving up some of your personal information. So, now that you may have a little less time pressure on you, let’s take a minute to review some basic online safety measures to keep you as safe as possible while enjoying time with family and friends (probably virtual), and of course, online SHOPPING!

The CDC and your local government have provided medical guidelines for safe interactions during COVID, but we’re talking about cyber health and what you can do to add a layer of safety and confidence to your online interactions.

Who are the “bad guys”?

Just who are these cybercriminals? They can be young or middle aged, mostly male but also female, any nationality, and they could be next door or on the other side of the world. Most do it for money, but some do it just because they can; for fun and bragging rights. The important point is that they are smart and have the tools that make it easy to exploit any of your online accounts or transactions that aren’t well-protected.

What’s at stake?

Being careless or just unaware of proper online safety can allow a cybercriminal, the “bad guy”, to steal your credentials like passwords, social security number, bank account logons, etc. Here are some of the bad things that they can do:

  • Credit card fraud—use your information to make charges on your credit card
  • Ransomware—lock your computer files and extort you for money
  • IoT threats—compromise a router or connected camera
  • Account takeover—use your credentials to make online transactions on your behalf
  • Identity theft—steal your identity and act on your behalf
  • They could even steal the title or deed to your home!

According to, 2019 was the worst year in history for identity theft, and 2020 has not been better so far.

Are you a target?

If you have a social security card, you are at risk for identity theft. These bad guys target the young, the old, and everyone in between. It turns out that most of the identity theft occurs within the 20-49 age group, because they have more credit cards and they purchase more online. However, when it comes to fraud reports other than credit cards, most of that occurs in the 60-69 age group. The most likely reason is that people become more trusting as they age.  Check out this chart showing the average fraud loss amount by age.

Fraud loss by Age

Younger adults lose money to fraud more often, but when older people experience a fraud-related financial loss, the median amount is much higher, according to the Federal Trade Commission.  Source:  2020 Identity Theft Statistics | Consumer Affairs

What are the COVID-related things they’re doing?

According to IdentityForce, the most common COVID-19 scams in 2020 include:

  • Fraudulent e-commerce vendors for masks, sanitizers, and test kits
  • Fraudulent investment sites
  • Phishing (email) and vishing (voice calls) through update emails, texts, and voicemails
  • Spoofed government and health organization communications
  • Fake vaccines or “miracle cures”
  • Scam employment posts
  • Phony charity donation offers

What you can do

Keep your antivirus software up to date

If you don’t do anything else, make sure you have an antivirus installed on your computer and keep it up to date. For Microsoft Windows, you should be on version 10, where Microsoft Defender Antivirus (formerly called Windows Defender) is the default and is actually pretty good. And, it’s free and easy to use. If you feel that you need more, there are numerous apps available.

Check your bank account transactions regularly

If you regularly balance your checkbook and check your bank statement, you’re ahead of the game on this point. Often the cybercriminal will steal your credit card information and begin making small purchases from the same places that you do. These small amounts add up over time but may not be caught by your bank or credit card company. If you see transactions that you did not make, call your bank or credit card company immediately!

Password manager—you need one

If your passwords are easy to remember, they’re probably too weak. Basically, short passwords are weak; long passwords are strong. When it comes to passwords, the longer, the better. Also, you should never use the same password twice. If you’re thinking “There’s no way. I can’t remember long passwords!”, you’re right. That’s why you need a password manager. You create one very long difficult pass phrase that you can remember. Then you use that to unlock the password manager, which stores all your other passwords.

For the iPhone and Apple products, use the iCloud Keychain. This is great for Apple products, but unfortunately, it doesn’t easily adapt to a PC.

Here are a few good password managers: RoboForm, Keeper, LastPass, DashLane, Bitwarden, LogMeOnce, etc. Most of these don’t cost much, but they are extremely important for keeping your passwords organized and safe. Most of these can sync your passwords across all your devices, which is a must if, for example, you shop Amazon on your iPhone and your PC.


Today, even a good password is not enough! Weak passwords can be guessed; strong passwords could be stolen. The solution is multi-factor authentication (MFA). Simply put, MFA is short code or number that is sent to you in a text or email in addition to your password. For example, you go to your bank website to logon. You enter your username and password. Next, they send you a code that you must enter into a box on their site. This verifies that it was really you who is signing in; the “bad guys” will not have the code even if they had your password.

What we’re doing

At Spectrum, we’ve also felt the impact of the pandemic, and we’re doing our part. We’ve tightened our security stance to protect your data and ours. Here are some of the specific things we’re doing to protect your information:

  • Our “Client Portal” protects you by avoiding sending personal info in email
  • Our “Prospect Portal” similarly protects prospective clients
  • Diligent email filtering, monitoring, and user training
  • MFA where possible
  • Business Continuity and Disaster Recovery testing
  • Masks, social distancing, and hand washing
  • Regular office sanitizing

Together we can make our online experiences safe and profitable in 2021.

The Oil Market in 2020

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Oil 101:  An introduction to the oil market

At the time of writing this blog, a quick google search or inbox perusing will reveal oil market headlines that read something like this, “A few ominous signs in the world of oil..” Morning Brew; “A Serious Bearish Catalyst for Crude Markets”, “OPEC and BP Signal Pessimism in Oil Markets” nytimes. 2020 seems to take no prisoners, and the oil market did not escape its talons. The purpose of this article is to show the volatility and risk (specifically in oil) within the general commodities market if not actively managed by first outlining the market for oil. Oil is part of the commodities market. What is a commodity? Investopedia states, “a commodity market involves buying, selling or trading a raw product, such as oil, gold or coffee.” Think Tim Allen and Martin Short in the movie Jungle2Jungle. Remember when they didn’t sell all the coffee beans because Michael Cromwell (Tim Allen) was stuck in the Amazon meeting Mimi-Siku (his son) and the sell order didn’t go through to Richard (Martin Short)? They were stuck with coffee beans and went to a Russian buyer, it unraveled from there. A great movie, and also a great reminder of the commodities market- think raw product.

Who are the “oil market” suppliers?

Crude oil (also called petroleum) is a finite, naturally occurring fossil fuel found below the earth’s surfaces in reservoirs. These reservoirs (or deposits) are found around the globe. The top 10 oil reserves around the world are found in:

  1. Venezuela- 303 billion barrels
  2. Saudi Arabia- 267 billion barrels (ironically enough, the US company Standard Oil was the first to drill for petroleum in Saudi Arabia back in 1933. Source:
  3. Canada- 167 billion barrels
  4. Iran- 155 billion barrels
  5. Iraq- 145 billion barrels
  6. Kuwait- 101 billion barrels
  7. United Arab Emirates- 97 billion barrels
  8. Russia- 80 billion barrels
  9. Libya- 48 billion barrels
  10. United States- 47 billion barrels (the largest oil producers in order: Texas, North Dakota, New Mexico)

The United States was the first country to create an industry out of oil production, and it was spear headed by John D. Rockefeller through the Standard Oil Company and Trust. However, OPEC+ is always synonymous with the oil market, its price, and its supply and demand cycles. According to, the Organization of the Petroleum Exporting Countries was created in 1960 with the intention of being a permanent intergovernmental organization between the five founding members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The objective of this organization is to, “co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.”(Source:

Investing in the oil industry today

The first oil well to attract investors was an oil drill built by Edwin L. Drake for the Pennsylvania Rock Oil Company of New York in 1861. An investment industry was created to solicit funds for the purpose of drilling an oil well, and it began to evolve throughout the east coast of the US. Over 160 years later, there are multiple ways to invest in oil: Mutual funds, ETFs, oil futures, exploratory drilling programs, developmental drilling program, working interest program and rework programs, or even owning mineral rights. When it comes to investing, the question is often, “How can I make money betting on whether this is going to go up or go down? Especially for a commodity like oil, speculation is tied to the law of supply and demand.

Oil in 2020

The equilibrium of price and quantity has been challenged in 2020 due to the global pandemic and issues amongst the OPEC+ members. This kind of environment creates uncertainty and volatility. March marked the onset of the COVID-19 pandemic in the United States. As the pandemic shut down the global economy and the US, the demand for oil plummeted leaving a massive oversupply. Saudi Arabia, one of the founding OPEC+ members, slashed their official pricing for its crude oil essentially creating an “oil war” with other OPEC+ members, specifically Russia. There was further breakdown between these two members when they failed to reach an agreement on deeper supply cuts. This marked one of the biggest cuts to oil pricing in over 20 years. Their objective was in pushing the prices lower, demand would tick up and they could flood the market with as many of their barrels as possible. As COVID-19 sank its talons into the global economy further, speculation in the oil market (represented by Oil future contracts) was fueled by panic. Investors began an accelerated sell-off as delivery dates for WTI (West Texas Intermediate) approached. April 20th, West Texas Intermediate crude dropped by almost 300% and traded negative, an unprecedented event. Oil is traded on its future price and the May futures contracts were due to expire on that Tuesday. The traders were keen to offload those holdings to avoid having to take delivery of the oil and incur storage costs.

Investing in a commodity like oil can be an extremely risky and volatile investment. However, when it is given a small position size within a larger diversified portfolio it can contribute to positive alpha (returns) while limiting drawdowns within the greater portfolio. This is something that has been implemented with the Hundredfold Select Alternative Fund found in our AssetMaxx℠ program. The chart below shows the year-to-date performance through 10/31/2020 of the Hundredfold Select Alternative Fund (SFHYX) and the WTI Crude Oil futures. This is not indexed performance, and the chart splits the Active WTI crude oil futures on one axis (left) and the Hundredfold Select Alternative Fund (SFHYX) on the right axis. This chart is not meant to compare performance necessarily, but show the difference in volatility between the two.

The following is an excerpt from our most recent quarterly newsletter,

Hundredfold Select Alternative Fund (SFHYX)—The All-Season Investment

Navigating through one of the most challenging investment seasons in 2020 has once again proven to our investors that our active asset allocation strives to give them the peace of mind they require. Price declines of nearly 40% or more can make life-altering financial plans for investors. This has occurred three times since 2000. Changing market conditions happen so quickly now, that investors may not be able to handle the risks involved in a conventional portfolio. The Select Alternative Fund was created to utilize alternative investments where returns are not directly tied to the stock market, yet still provide comparable returns. Active management and diversification are the keys to its success. Formed with philosophy of King Solomon: “A cord of three strands is not quickly broken.” (Ecc. 4:13) the portfolio is divided into three parts, and diversified further within those categories. Currently, stocks are employed from 0% to 40%, using four 10% trading strategies; Bonds, from 0 to 120% using about ten different bond categories and rotational strategies; And commodities, from -50% to +50% using 10 different types of diverse commodities which may be either long or short positions. These strategies work together to complement each other with the objective of reducing risk and volatility, so the performance should not directly correlate to the stock market. For the first 9 months of 2020, SFHYX had a return +21.39% with a maximum drawdown of -4.3%. In contrast, the New York Stock Composite Index had a negative return of -6.94% for the first 9 months of 2020 with a maximum drawdown of -37.5%. The chart on the top right illustrates the past 5-year performance of SFHYX compared to the New York Stock Composite Index as well as the Aggregate Bond Index. The second chart below illustrates how actively the Fund is managed, showing asset class investments at various times over the last year, taking advantage of market opportunities when they present themselves, while reducing risk at other times.

Please see standard performance information below:

Annualized total return performance

Annual performance at net asset value (all distributions reinvested)


The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of any dividend or capital gains distributions. To obtain performance data current to the most recent month-end or a prospectus, please call toll free 888-572-8868  or visit for further details.

An investor should consider the investment objectives, risks, charges and expenses of the Hundredfold Funds carefully before investing. The prospectus contains this and other information about the Fund. The prospectus should be read carefully before investing. Distributor: Ceros Financial Services, Inc.

Advisors Preferred, LLC serves as Advisor to the Hundredfold Select Alternative Fund. The Hundredfold Select Alternative Fund is distributed by Ceros Financial Services, Inc. a commonly held affiliate of Advisors Preferred.  Hundredfold Advisor, LLC is the subadvisor to the Hundredfold Select Alternative Fund. Hundredfold Advisors is not affiliated with Advisors Preferred.

  • Inception date: SFHYX Sept. 1, 2004, HFSAX  Oct 24, 2012

Consider these risks before investing: Aggressive investing techniques, asset-backed securities risk, credit risk, counterparty risk, depositary receipt risk, derivatives risk, emerging markets risk, equity securities risk, foreign securities risk, high portfolio turnover risk, high-yield securities risk, holding cash risk, interest rate risk, leverage risk, master limited partnership risk, non-diversification risk, other investment companies risk and ETFs risk, prepayment risk and mortgage-backed securities risk, shorting securities risk, small and mid-capitalization risk, subadvisor investment strategy risk, tax risk, and floating rate notes risk. There is no guarantee the fund will achieve its investment objective. You can lose money by investing in the Fund. Please carefully review the prospectus for detailed information about these risks.


  • S&P 500 Index is a capitalization weighted index of 500 stocks representing all major domestic industry groups. It is not possible to directly invest in any index. The S&P 500 TR assumes the reinvestment of dividends and capital gains.
  • Barclays U.S. AGG. Bond Index: measures the underlying performance of the total U.S. investment grade bond market. It is a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity.
  • West Texas Intermediate Crude Oil Futures: The ICE West Texas Intermediate (WTI) Light Sweet Crude Oil Futures Contract offers participants the opportunity to trade one of the world’s most liquid oil commodities in an electronic marketplace. The contract not only brings the benefits of electronic trading a US light sweetcrude maker, but also brings together the world’s three most significant oil benchmarks on a single exchange: Brent, Middle East Sour Crude and WTI. This offers a reduction in collateral requirements through the offsetting of margins.

Creating a Portfolio for the Long Run

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Many of us are told at a young age to save money and invest it for the long run so compound interest can do its magic.  It is not hard to set up a systematic withdrawal plan from your bank account to your investment account, or to invest in your company retirement plan.  The hard part is to know WHAT to invest your hard-earned money in.

Most financial advisors, as a rule, recommend a portfolio weighted heavily in stocks and little in bonds when you are young.  As you get older, you shift more and more of your aggressive stock positions into bonds.  When you enter retirement most of your portfolio is in less volatile bonds.  Simple! Enjoy the roller coaster ride…see you in forty years.  The problem with this formula is that it doesn’t prepare an investor for market volatility.  The recent high market volatility indicates that the daily price movement in the stock and bond markets can change dramatically, in a good or bad way (see below).  Until you have experienced a sudden drop in your financial portfolio, your roller-coaster ride will feel fun and exciting as it goes higher and higher.

At Spectrum we believe in order to have a steady and profitable portfolio for the long run you need three things. Your portfolio should be actively managed with an experienced investment team, it needs to be diversified and it must fit your own risk profile.

At Spectrum, no two client portfolios are alike.  Our client services team takes the time to make sure we understand the specific short and long-term goals of a client and how much risk a client is willing to take.  We have young clients who are very conservative and some older clients that are very aggressive.  We realize that there is no “normal/average” client.  Some investors can handle seeing their portfolios drop 10-15% in a short period of time.  Others get very nervous if their portfolio drops 5%.  Many buy/hold investors watched the S&P 500 fall over 50% in the last bear market almost 12 years ago.  As recently as five months ago the S&P 500 lost over one-third of its value in less than five weeks! Once we know what level of risk a client is willing to take, we can diversify the portfolio accordingly.

Based on our evaluation, a client is then diversified among our actively managed funds.  A mix of all three mutual funds offered at Spectrum gives a client the ability to invest in almost every sector of the market while our investment team manages the daily risk of each fund.  Unlike the “buy/hold” strategy that most advisors implement, our fund managers can adjust exposure to the market daily.  When the market is rising, our exposure to the market increases.  When the market falls, as it did abruptly in March of this year, our investment team can reduce exposure to the market.

Our client services team also understands that long term goals for clients and market environments can change over time.  A wedding, birth of a child, home or auto purchase, retirement and death in a family are just some life events that may lead to a change in client portfolio allocations.  Client portfolios are always monitored and can be adjusted at any time.  When you call our office, you can feel confident in knowing you are speaking with someone you know and that knows you personally and professionally.

We encourage you to give us a call and learn more about Spectrum and what we offer.  We are different than most investment companies.  You can call and speak with someone on our Client Services team toll-free at 1-888-463-7600.

Spectrum Advisors Preferred Fund Hits 5 Year Anniversary with a bang!

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Spectrum Advisors Preferred Fund (SAPEX) celebrated its 5-year anniversary on 6/1/2020, and completed the second quarter of 2020 with its best quarter ever, up 16.60%. Year-to-date through the end of the second quarter, SAPEX was up 1.42%, putting it well ahead of the broad-based New York Stock Exchange Composite Index (NYSE) still down  -13.36%. With these exciting milestones just passed, now it a great time to highlight this unique fund. What is the Spectrum Advisors Preferred Fund (SAPEX) all about? Officially, SAPEX’s objective listed in its prospectus is, “long term capital appreciation”. Another way to put that is the objective is to provide an actively managed equity mutual fund that seeks long-term capital appreciation and a strategy that pursues positive alpha (excess return over a benchmark) while managing return volatility (price variability). A succinct bottom-line is the Fund strives to simply make more and lose less. That seems to be at the heart of what most investors are looking for, especially when it relates to the stock market.

Data:  Bloomberg L.P.

The Spectrum Advisors Preferred Fund (SAPEX) has always centered around tactical adjustments to risk while seeking timely buying opportunities. Even though the Fund primarily holds equity investments, there is a sleeve dedicated to bonds for defensive measures. The exposure chart above shows SAPEX’s nature of quick adjustments. From its 6/1/2015 inception to the end of 2018, SAPEX had a total return of 10.28% versus the 12.54% total return of the NYSE. This underscores the difficulty of beating a benchmark even with active management. During this period, however, SAPEX was much less volatile, having a Beta of 0.69 versus the index. Equity exposure changes have been more rapid and wider over the last year in an attempt to capture more return and offset risk. Since then, SAPEX’s Beta over the trailing twelve months (6/30/19-6/30/20) was only 0.76, a marginal increase, even as it began to outperform the NYSE stock index for that time period.

In addition to the 5-year anniversary milestone, the Spectrum Advisors Preferred Fund has been able to celebrate along the way. As mentioned, comparison to a benchmark while managing risk can prove challenging. Comparing to an index has its place but investors should compare possible fund choices to each other within defined categories. For the 2018 year, SAPEX was given a Refinitiv Lipper Award at the 2019 awards ceremony for being the “Best Fund Over 3 Years: Absolute Return Funds”. Go back to the noted statistic and the chart- SAPEX modestly underperformed the NYSE stock index during the period. Many investors were likely disappointed with their equity mutual funds during that time. This shows how difficult it is for mutual funds, as a whole, to hit the mark but SAPEX was beginning to show separation from its competitors as a prime choice in one’s portfolio. After 2019, the Spectrum Advisors Preferred Fund posted a repeat, once again winning an award for the 3-year Best Absolute Fund.

SAPEX is also tracked by Morningstar and as of the end of 6/30/2020 had a five star rating out of 215 funds for 3-years and a five star rating out of 171 funds for 5-years. We started recording Morningstar’s trailing 3-year performance ranking when the 3-year anniversary was reached.

The Fund received a 5-Star Overall Morningstar Rating as of 6/30/2020. Spectrum Advisors Preferred Fund (SAPEX) was rated against the following numbers of U.S Tactical Allocation funds over the following periods: 215 funds in the last 3 years, and 171 funds in the last 5 years. With respect to these Tactical Allocation funds, Spectrum Advisors Preferred Fund received a 5-Star rating overall and a 5-Star rating for 3 years and a 5-Star rating for 5 years. Past performance is no guarantee of future results.

Near the upper left of the table, SAPEX’s performance was in the top 2 percentile out of 259 funds in Morningstar’s Multialternative category. Through 6/30/2019, SAPEX remained, at worse, in the top 7 percentile. From 7/31/2019 to present, Morningstar has SAPEX in the Tactical Allocation category. Since then, SAPEX has been at least in the top 5 percentile. With June of this year being its first month after its 5-year anniversary, SAPEX now has a trailing 5-year performance ranking — in the top 6 percentile.

More than five years ago, Ralph Doudera challenged the Investment Services team to design an equity focused fund that would allow him or its investors to sit back and “sip a Starbucks coffee” during the bull markets and then have it, to varying degrees, take defensive measures during bear markets. Becoming overly conservative was found to hinder performance. Allowing for more volatility and drawdowns during garden variety corrections but incrementally increasing the use of defensive tactics as bearish market action has allowed SAPEX to post a return since inception (6/1/2015-6/30/20) of 42.77% or 7.25% annualized versus a total return by the broad stock market, the New York Stock Exchange Composite Index (NYSE) of 22.37% or 4.05% annualized.


The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value will fluctuate, so that shares, when redeemed, may by worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reimbursement of any dividend and/or capital gains distributions. To obtain performance data current to most recent month-end, please call toll free 1-888-572-8868.

© 2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Morningstar RatingTM for funds, or “star rating”, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. Morningstar Rating is for the Service share class only; other classes may have different performance characteristics.

The Lipper Fund Awards, granted annually, highlight funds and fund companies that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. The fund with the highest Lipper Leader for Consistent Return (Effective Return) value in each eligible classification wins the Lipper Fund Award.

The currency for the calculation corresponds to the currency of the country for which the awards are calculated and relies on monthly data. Classification averages are calculated with all eligible share classes for each eligible classification. For more information, see Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper.

Lipper Leaders fund ratings do not constitute and are not intended to constitute investment advice or an offer to sell or the solicitation of an offer to buy any security of any entity in any jurisdiction. As a result, you should not make an investment decision on the basis of this information. Rather, you should use the Lipper ratings for informational purposes only. In addition, Lipper will not be liable for any loss or damage resulting from information obtained from Lipper or any of its affiliates.

Beta: a statistic that measures volatility of the fund, as compared to that of the overall market. The market’s beta is set at 1; a higher beta than 1 is considered to be more volatile than the market, while a beta lower than 1 is considered to be less volatile.

Consider these risks before investing: Bond risk, derivatives risk, equity risk, inverse ETF risk, junk bond risk, leverage risk, management risk, market risk, mutual fund and ETF risk, short position risk, small and medium capitalization risk, and turnover risk. There is no guarantee the fund will achieve its investment objective. You can lose money by investing in the fund. Please carefully review the prospectus for detailed information about these risks.

New York Stock Exchange Composite Index (NYSE) measures the performance of all stocks listed on the New York Stock Exchange. It includes more than 1,900 stocks, of which over 1,500 are U.S. companies. Its breadth therefore makes it a much better indicator of market performance than narrow indexes that have far fewer components. The weights of the index constituents are calculated on the basis of their free-float market capitalization. The index itself is calculated on the basis of price return and total return, which includes dividends.

S&P TR 500 Index is a capitalization weighted index of 500 stocks representing all major domestic industry groups. The S&P 500 TR assumes the reinvestment of dividends and capital gains. It is not possible to directly invest in any index.

*60/40 NYSE Composite/Barclays U.S. AGG. Bond Index: This benchmark gives 60% weight to the NYSE Composite Index and 40% weight to the Barclays U.S. Agg. Bond Index. The NYSE Composite Index (NYA) measures the performance of all stocks listed on the New York Stock Exchange. It includes more than 1,900 stocks, of which over 1,500 are U.S. companies. Its breadth therefore makes it a much better indicator of market performance than narrow indexes that have far fewer components. The weights of the index constituents are calculated on the basis of their free-float market capitalization. The index itself is calculated on the basis of price return and total return, which includes dividends. The Barclays U.S. Aggregate Bond Index measures the underlying index and performance of the total U.S. investment grade bond market. It is a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $250 million per amount outstanding and with at least one year to final maturity.

Request a prospectus or a summary prospectus from your financial representative or by calling Gemini Fund Services at 855- 582-8006 or access These prospectuses include investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. Gemini Fund Services serves as transfer agent to the Fund and is not affiliated with the advisor, subadvisor or distributor.

The Fed: Its History & Connection to the Markets Pt 1

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Over the last several market days, there was an increase in volatility and selloff in the equity markets. June 11th the Dow had its biggest one-day loss since March. This came one day after Fed Chairman Jerome Powell and the rest of the board concluded their two-day meeting and held a post-meeting press conference. In his press conference Powell announced that interest rates were left unchanged and near zero, unemployment was at an all-time high, and he projected a very slow economic recovery from this “pandemic-induced” recession. So, what is the Fed’s connection to the markets and economy, and what type of impact can they have? It is always best to start with why the Federal Reserve System was created and for what purpose. This blog will briefly cover the history of America’s central banking system, its structure and its overall purposes.

After the revolutionary war, Alexander Hamilton led several attempts at forming a central bank for the United States, but each attempt failed. Up until 1913, the United States was plagued with frequent financial pandemics, liquidity issues and high rates of bank failures. As a new country with these issues, the U.S. economy became a risky place for capital to be invested both for international and domestic investors. This lack of trust in the banking system was stunting America’s growth in its agriculture and industry. It was finally at the demand of J.P. Morgan, after the panic of 1907, that he pressured the government into acting on a central bank plan. J.P. Morgan, a wealthy financier, had bailed out the federal government several times up to that point. One instance was in 1895 by providing $65 million in gold, and another in 1907 when he convinced other bankers to provided capital and restore liquidity to desperate markets. That was after Morgan had already bailed out several trust companies, a leading brokerage house, New York City and the New York Stock Exchange.

Thus, on December 23, 1913 Congress passed, and President Woodrow Wilson signed, the Federal Reserve Act of 1913. The Federal Reserve website ( states this, “The Federal Reserve Act of 1913 established the Federal Reserve System as the central bank of the United States to provide the nation with a safer, more flexible, and more stable monetary and financial system.” The Federal Reserve, or commonly referred to as the Fed, has the purpose of managing the nation’s monetary policy by manipulating the money supply and interest rates. This was to smooth out the booms and busts of normal economic cycles. Determined to not have one central bank, the Federal Reserve Act purposely established three entities:

  1. A central governing board
  2. A decentralized operating structure of 12 reserve banks
  3. A combination of public and private characteristics (Federal Open Market Committee)

The Federal Reserve board initially consisted of seven members: the Secretary of Treasury and Comptroller of the Currency, and then five others appointed by the US President and confirmed by the Senate. Of those five appointed members, the President would designate one as “governor” and one as “vice governor”. The active executor of the Fed would be the governor. The board leadership structure has gone through several changes to morph into what we are familiar with today which is a Chair, a Vice Chair, and Vice Chair for Supervision and then 4 other board seats, making a total of 7 possible positions. Each are nominated by the President of the United States and confirmed by the Senate. Each member serves a 14-year term, with one term beginning every two years on the 1st of February on even numbered years. The following are the current Board of Governors of the Federal Reserve System:

  • Chair: Jerome H. Powell
  • Vice Chair: Richard H. Clarida
  • Vice Chair for Supervision: Randal Quarles
  • Michelle W. Bowman
  • Lael Brainard
  • Vacant Position
  • Vacant Position

The Act established 12 Federal Reserve banks instead of relying on one “central bank” and they were based on a geographic division of the United States. In 1913, these boundaries were based on the biggest trade regions and their related economic needs. The 12 bank districts are: Boston, New York, Philadelphia, Cleveland, Richmond, St. Louis, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco. These banks operate independently but under the greater supervision of the Federal Reserve Board of Governors. Each bank has a nine-member board of directors and is responsible for gathering data on the economies and businesses of its local communities. This information is used to influence decisions made by the Board of Governors and the other entities of the system.

The Fed is in its 10th edition of The Federal Reserve System Purposes & Functions which details the structure, responsibilities and aims of the U.S. central banking system. The Fed performs five functions to promote the operation of the U.S. economy:

  1. Conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy
  2. Promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad
  3. Promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole
  4. Fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitates U.S.-dollar transactions and payments
  5. Promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.

Understanding why the Federal Reserve System was created and for what purpose, establishes a framework to further understand how the Fed and their monetary policy affects the behavior of the markets. No matter the investment style or philosophy (active vs. passive management, technical analysis vs. fundamental analysis) what the Fed decides to do in regards to money supply and interest rates does in fact influence buy and sell decisions for both retail and institutional investors. However, instead of skimming the minutes of Fed meetings or staying glued to a post-meeting press conference or senate hearing, we prioritize the analysis of price movement rather than the underlying fundamentals of a security or economic numbers. It is our belief that what is happening both in the economy and with a particular company (if stock) or a company’s debt (if bond) is all reflected and priced into the security, index, market, etc. By placing our priority on analyzing price trends, we are able to be active traders on what is currently happening. This allows us to manage risk for our clients and shareholders.

Active Portfolio Management In Spite of Covid-19

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Breaking News: Over 270,000 viral deaths globally (over 75,000 in the United States) and it is still spreading.  Global economies have been almost completely shut down.  Airlines shut down.  Entire cities turn in to ghost towns.  Stay in your homes. No eggs, meat or toilet paper anywhere.  Oil is free.

At first this sounds like the backdrop to a new novel written by Stephen King.  But this is the current reality and it could be here for some time to come.  To think that only three months ago the stock market was hitting new all-time highs and everyone who wanted a job had one.  Kids were all in school learning.  Sports fans were happy.  Graduations, weddings and vacations were being planned.  All was well with the world!
On March 9, 2009, the last Bear Market ended.  The ensuing Bull Market lasted eleven years, the longest ever recorded.  There is always a catalyst that pushes the stock market over the edge.  Everyone has read about the Great Depression, the 73-74 bear market and the Crash of 87’.  It was the dot-com bubble in 2000, the real estate bubble/bank-auto bailout in 2007-2008 and now the coronavirus pandemic/oil crisis in 2020.

Not since World War II has there been such a global event that has affected how all 7.8 billion humans on this planet live their daily lives.  During this stressful period, the last thing investors need to worry about is the health of their investment portfolios.  Many investors saw 20-60% drawdowns in Q1 2020.  Many large-cap companies like Delta Air Lines, Boeing, Carnival and Occidental Petroleum are down 60%+ YTD (through 5/5/20).

At Spectrum Financial our client portfolios are actively managed, every day, all day long.  We allocate client money based on their individual risk level, time horizon and personal goals.  One of the services Spectrum offers is our AssetMaxx℠ program.  It provides access to three distinct actively managed funds for portfolio design. These funds can adjust exposure to the markets based on current environments. At times, these funds may be invested 100% in cash or cash equivalents. Spectrum clients have historically benefited from active management in managing risk.  This current environment is no different.  In the 1st quarter this year the Spectrum Low Volatility fund (SVARX) was up 1.60%, the Hundredfold Select Alternative fund (SFHYX) was up 4.40% and the Spectrum Advisors Preferred fund (SAPEX) was down 13.02%. The S&P 500 TR Index was down 19.60% and the Barclays High Yield VL Index was down 12.32% during the same period. Standard performance data can be reviewed at under our AssetMaxx℠ Service, or at each Fund’s website, or .

Markets do not like uncertainty.  With the ongoing Russia/Saudia Arabia oil feud, the aggressive behavior of Iran and North Korea, the trade war with China and the Coronavirus pandemic, there are plenty of elephants in the room to keep this market nervous and volatile in the short-term.  We don’t know when the storm will be over, but our active management helps clients feel secure as we control exposure in this volatile market.

For over 20 years I have worked with Ralph Doudera, the CEO and head Portfolio Manager of Spectrum Financial, Inc.  One of my favorite quotes that he has repeated over the years is “I want to sleep good at night, and I want our clients to sleep good as well.”  Have you been sleeping good lately?

We encourage you to call and speak with our Client Services team at 888-463-7600 to learn in more detail the programs we offer here.  You can also go to our website to learn more about our company, the team and timely updates about the actively managed funds used in our AssetMaxx℠ program.

The Future of Blockchain

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Blockchain is a public record of transactions, known as a ledger, that is recorded and duplicated across a distributed computer network secured using cryptography. In the case of Bitcoin (one of the most well-known blockchain-based currencies), every time a Bitcoin transaction takes place, it’s recorded in the ledger for all to see. While the ledger is public (typically in blockchains), the data is anonymous and encrypted.

“blockchain: A public, permanent, append only ledger for storing and verifying transactions”

In an active blockchain, there are often thousands of machines around the world owned by different people participating in the blockchain at any given time; each node serves as a redundant copy of the ledger. To add new transactions to the ledger requires consensus among the majority of participants at any given time. The goal: to make it very difficult and expensive for hackers to maliciously alter the blockchain.

“There is potential for Blockchain to be utilized in every industry”

Keeping a record of financial transactions isn’t the only use of blockchain technology. There are endless potential future uses for utilizing blockchain technology. For example, Kodak has launched a Blockchain-Enabled Document Management System to keep a public ledger to verify the author of photographs for copyright purposes. Kodak claims that the blockchain platform will lead to 20-40% cost savings through automated workflows and decreased human management of content, information, and documents.

Blockchain is also having a big impact in the financial sector. PNC Financial Services, one of the top ten banks in the United States has been utilizing RippleNet since 2016 to use its blockchain solution for cross border payments and settlements. PNC is a leader in fintech with strategic relationships with RippleNet, investments in artificial intelligence solutions, and has been recognized by Forbes as a top blockchain company. The financial sector is achieving the following benefits utilizing blockchain payments.

– Faster transactions
– Lower fees
– Reduction of fraud
– Use of Smart contracts
– Transparency
A smart contract isn’t unlike its paper predecessor. It helps you exchange property, services, and currency. But unlike that hardly enforceable paper stack paper clipped together on your desk, this contract is a self-executing document enforced by blockchain.  When the first condition is triggered, the funds are released automatically.  Many blockchains support smart contracts.  The Ethereum blockchain serves as a “global computer” that anyone can rent time on to perform complex computations.  Ethereum is a global, open-source platform for decentralized applications.  Use of this computing platform, which is kind of like a decentralized supercomputer, is paid for in Ether, which is a solution to the issue of payment.  This is the fuel that keeps apps and developers on the Ethereum blockchain.

Blockchain technology has been viewed as a way to create secure digital identities in a decentralized way, where the ownership of your online identity isn’t controlled by one entity. Recently, Microsoft announced its support of blockchain-based identity systems, such as the one used by the ID2020 Alliance.

Other proposed uses of blockchain technology include storing medical records securely.  This method could prove beneficial in verifying and protecting patients’ data while making records readily accessible.  A trial by MIT Media Lab and Beth Israel Deaconess Medical Center shows that blockchain works extremely well in terms of tracking test results, treatments, and prescriptions for inpatients and outpatients over 6 months.

Cyberattacks are considered to be the fastest growing crime in the US, and they are increasing in size and frequency. There are 400 new threats every minute, and up to 70 percent of emerging attacks going undetected by signature-based antivirus.  Blockchain could be utilized in protecting computers from ransomware and other breaches.  This could be in preventing distributed denial of service (DdoS) attacks by verifying traffic, validating attachments, and approving updates.  Antivirus companies are revealing plans to create the first decentralized marketplace for threat intelligence.

There is potential for Blockchain to be utilized in every industry.  This includes food delivery, legal contracts, insurance providers, and even our education system.   Even the United States Postal Service is considering utilizing it for tracking and transaction processing.  These are exciting times for this new technology.  Ill go out on a limb and say the blockchain may invoke a paradigm shift on the future of verification.

Measuring Fear: A logical assessment of COVID-19 and its effects on the financial markets

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Blogs about the coronavirus are dominating digital media and for good reason.  The virus is clearly impacting us at a quickening pace.  A clear impact is fear.  Case numbers and death tolls are shown on television and internet news seemingly all throughout the day.  Fear manifests itself in many ways.  Early signs have been through decreased travel, primarily air flight and cruise ships.  We are starting to see public gatherings such as sporting events being canceled or modified.

Fear, no matter what the source, plays an important role in the financial markets.

As we step back and gather clues, a logical path would be to look at what the financial markets did during prior times when there were threats of a worldwide pandemic.

Over the last few weeks, I have seen information like this in table and chart form (see below).  This information may give some degree of comfort, implying the historical tendency suggests very high odds of a gain in the intermediate term.  But what about the time in between day 0 and the six months out?

Markets have experienced unprecedented movements that have not been seen but just a few times in the last 100 years.  Is it logical to embrace the indication from a table or similar statistics of prior outbreaks?

Not just quantify it but to gauge its movement. The point is to move beyond interpretation of headlines and to focus more on interpreting human behavior.

A relatively recent period of a sharp decline from new highs was Q3 2018, followed by the rebound in Q1 2019.  Sure, this is not related to a previous virus, but the example shows a moving gauge of fear.  The VIX Index is commonly called the “Fear Index” for good reason.  In the chart below, the VIX itself is not displayed, but rather, a momentum indicator of the VIX. A momentum indicator measures the speed of price changes. Measuring the momentum (or speed of price change) of the VIX allows us to track that acceleration or deceleration of fear.  Even with the VIX smoothed by the indicator, it still has some gyrations.  If we follow the general direction and the overall zones, such as Fear Dominant or Calm Dominant, then we can get a better handle on the connection to the movement in the stock market.

Created with TradeStation. © TradeStation Technologies, Inc. All rights reserved

From May to October 2018, the Momentum of VIX was dominated by calm, allowing for the S&P 500 to trend higher.  Naturally, fear crept higher as the rally became older.  In early October, the Momentum of VIX moved out of the middle neutral zone and into the Fear Dominant Zone. At that moment in October, I’m sure some questions were asked that are being asked today such as, “What about precedents?” And, “How long should this last?”

The bottom-line question for today is, “How long is the crisis going to last?” and that question may have two basic answers.

The first may be related to the headlines and the second related to the stock market sell-off.  The two are not necessarily tied together.  Headlines may still be scary to the public but if some underlying forces are changing investor perceptions, then the stock market has a higher probability of improving.  In the chart above, the sharp drop in the Momentum of VIX at the very beginning of 2019 was enough to cause it to reach the Calm Dominant zone.  If the charts and tables in October 2018 stated the market would be higher six months later, then, yes, they would have been right.  However, this example shows the ongoing warning of the selling pressure for several months until the climate of fear changed.

Earlier this week I started to have a few body aches and a low-grade fever, both very minor.  Regrettably, I went into the office before sunup to get some work done, thinking I’ll go home if my condition worsened.  As people came into the office and became aware of my condition, the growing fear was palpable.  I was urged to go to the doctor, but to call first.  I called a well-known walk-in clinic but was told they were not prepared to test for Covid19 and was instructed to go to the emergency room.  I did and was given a screening tests, including a chest x-ray by medical personnel in full protective body suits.  I learned the hospital reports the findings to the local health department and then to the Center for Disease Control (CDC) for further instruction – to administer a rare Covid19 test or not.  Fortunately, it was determined I have a more common flu strain.  That said, I am writing this blog from quarantine – a self-quarantine but one advised by the doctors.  In the days since the emergency room visit, news on a local and federal level has intensified to where grocery shelves are being emptied even for seemingly random items.  I am seeing firsthand how the fear related to the headlines may get worse before getting better, but as a financial professional, I am monitoring the change in fear to get a better gauge on the impact to the financial markets.

Your Children and Inheritance

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You invested wisely for forty years, building your nest-egg. You are in retirement now and enjoying every minute of it. At some point you realize that you will be leaving some of your investments to charity, and in many cases, most to your children. Over the next 30 years trillions of dollars will transfer from the “Baby Boomer” generation to their children.

You would be surprised how many working adults haven’t prepared for their own retirement.

The average 401k balance for 60-69-year-old individuals is $195,500 and the median balance in this age group is only $62,000. This means that half of soon-to-be retirees have less than $62,000 in their 401k accounts. Generally, by age 60 you should have six times your current salary in savings and at normal retirement (age 67) eight times your salary.[i]

Whether it be for health reasons, an ended marriage, not profitable investment decisions or a slew of other reasons, many adult heirs aren’t prepared for retirement due to a lack of assets.

Over the past 25 years I’ve seen what happens to client assets when transferred to their beneficiaries. An adult child (or heir) inherits an investment portfolio and instead of investing the inheritance, every penny is spent. “I had to pay off my debt, I wanted a new car, or a new house”, says the adult child. While debt is important to pay down, and a new car or home is not a malicious want, the hard earned money you have saved and worked for can be gone so quickly when you may have wanted this wealth to have a different impact in your children’s and future generation’s lives.

While your children may be mature adults with their own families, having the conversation with them on how you would like their inherited wealth to be treated is important. Equally important is helping them become knowledgeable about investing. The most important thing you can do right now, if you haven’t done so already, is to have a conversation with your heirs about investing.  Let them know about your intentions of their eventual inheritance and the importance of continuing to invest what you have already invested over the years so they can have a comfortable retirement. If you feel uncomfortable talking to your heirs about your investments, we can help.

You have several options to transfer wealth, from setting up a trust, identifying who is a beneficiary and the percentage he/she receives on your qualified retirement account(s) and setting up a Transfer-on-Death (TOD) individual account. An inheritance, if handled correctly, can ensure your heirs a comfortable retirement in the future. This can give you much-needed peace of mind. At Spectrum Financial we encourage our clients to talk to their heirs about the importance of investing. We enjoy having conversations with children and even grandchildren of our clients, whether in person or on a phone call. Call us today at 888-463-7600 if you would like to learn more about how we can help your children or grandchildren start investing today and be prepared to handle an inheritance in the future.

[i] Investopedia. What’s the Average 401(k) Balance by Age? See how your savings stack up. By Tim Parker, November 21, 2019.

What is a 401(k) and Should I have One?

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A 401(k) plan is a tax-advantaged retirement savings account that can only be accessed through a company that offers them to their employees. A 401(k) is a tax qualified, defined contribution plan defined in subsection 401(k) of the Internal Revenue Code (hence the name). You should definitely take advantage of a 401(k) if your company offers one with matching benefits.

Let’s get some definitions and facts straight:

As mentioned above, a 401(k) is ‘tax qualified’ or ‘tax-advantaged’. What does ‘tax-qualified’ mean? It means that there is some tax benefit involved.

It is also a ‘defined contribution plan’ meaning the ultimate account value depends on the total amount contributed, along with interest and capital gains from the plan’s investments.

The contributions to your 401(k) plan come from your paycheck and can come from your company if they have a contribution/ matching program. 403(b) and 457(b) are like a 401(K). You may have a 403(b) if you work for a non-profit or a 457(b) if you are a government employee.

Tax-Qualified: So what’s the tax benefit?

Your contributions to the plan are paid with pre-tax dollars, meaning they are taken ‘off the top’ of your gross salary, reducing your taxable earned income. Those pre-tax dollars get to grow tax deferred. Because of that deferral, taxes become due on the 401(k) funds once the distributions begin.

Bottom line: not only are you able to reduce your taxable income for the year, but your pre-tax dollars grow and experience compound interest tax-deferred!

When it comes time to take distributions from your 401(k) you pay taxes at that time. Speaking of distributions, you can withdrawal from your 401(k) without penalties when you turn 59 ½ . The April following the year you turn 70 ½  you are required to take a minimum distribution based on a formula.

What happens if I want to take money out before I am 59 ½ ? You can but there are several things to consider.

  1. First you will be subject to a 10% tax penalty.
  2. You will have to pay your normal income tax on the withdrawal on top of the 10% penalty.
  3. You may not be fully ‘vested’ with your plan. Vesting is a term used to refer to degree of ownership that a employee has in a 401(k). Think of it as what you are entitled to. The vested schedules are determined by the company. For example, you may have to work with the company for 5 years before you are 100% vested. Often times employers use vesting schedules to encourage employee retention.

All of these factors can significantly reduce your hard earned savings, so it is best to not withdrawal from your 401(k) prior to being 59 ½.

There are exceptions to the 10% penalty that include situations like disability or medical expenses greater than 7.5% of your adjusted gross income. For a full list of the current exceptions this is a helpful link: Keep in mind, the point of a 401(k) is retirement savings.

Roth 401(k) vs. Regular 401(k)

A Roth 401(k) is fairly new and was introduced in 2006. A Roth 401(k) is being offered more and more, with over half of all companies offering this type of 401(k). Whenever you see Roth think after tax dollars. 401(k) contributions are made with PRE-tax dollars. Roth 401(k) contributions are made with POST tax dollars. That means you pay the taxes on your contribution now, instead of when you withdrawal those funds.

The Roth 401(k) benefit is that you may be in a lower tax bracket throughout your contribution time than at the time of distribution when you pay the tax on a traditional 401(k).

You will still have to pay taxes on the ‘employer match’ part of your Roth 401(k) but you will not pay on the earnings/growth or contributions. Something to consider in regards to utilizing either a Roth 401(k) vs. the traditional 401(k) is the unknown of future tax brackets and tax percentages.

Rolling out your 401(k)

There are several instances that will call for a ‘roll-out’ of your 401(k). ‘Roll out’ or ‘rolling over’ just means to transfer and in this instance, you are ‘rolling out’ your 401(k) plan into a different type of account structure. In this blog we will cover rollouts due to changing companies or retiring.

If you change employers and had a 401(k) with your previous employer, you can rollout that 401(k) into an Individual Retirement Account (IRA) Rollover with no tax penalties or change to tax structure. One of the best explanations of this process is to visualize a jar of money and a tiny sweater. The jar represents the money you have saved, and the sweater represents the tax structure or ‘account type’. Think of the sweater as tax protection! Once you are no longer an employee you can take your 401(k) distribution and transfer it directly into an IRA rollover to make sure you are not penalized or taxed. You basically take the jar, remove the 401(k) sweater, and put on the IRA rollover sweater quickly!

The IRS gives you 60 days or else it considers it a distribution and if you are under 59 ½ all the penalties and taxes will be due.

Once your 401(k) becomes an IRA rollover you have full control in how you manage those assets. The same process is involved when you retire. If you have any questions in regards to how to invest your IRA rollover, or to assist you in an IRA rollover you are more than welcome to give our office a call!

Final Thoughts

A 401(k) is a tax-qualified retirement savings plan offered through an employer and it should be part of your overall financial plan if your company offers one and matches employee contributions. Here are some final thoughts to keep in mind:

  • This is only a piece of your overall savings and financial plan, it shouldn’t be your only one!
  • Everything from your budget to your investment plan is highly personalized to your needs. What works for one person may not work for you yet.
  • Keep your 401(k) for retirement- do not withdrawal early!
  • If your company matches then you should definitely have a 401(k) plan. Contribute as much as you can up to your company match. Then utilize other retirement savings outside of the 401(k) if you would like to save more.
  • And finally, Spectrum is always here to help you answer any questions when it comes to your investments.

Spectrum does not hold itself out as experts in 401(k) and/or retirement matters.  This article is meant as an educational piece, so investors understand general concepts.  For specific details relating to your situation, please contact a CPA, attorney, or 401(k) specialist.

Factor Investing

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The stock market is often referred to as a single entity but is made up of many moving parts.  Looking beneath the surface at single and multi-factor indexes can help investors better understand trends that may not be as visible when looking at the major indexes.

Factor investing has been around for many years but has only become more mainstream recently as investors have been given easier access to more specialized investments.  This area has been evolving with the growing popularity of “multi-factor” investments.  First, let’s begin with defining single factor investments and then progress onto more complex multi factor methods.

Single Factor

People tend to gravitate toward organization and categorizing information in order to better understand attributes and possible outcomes.  As an example, consider this analogy between factor investing and cars. Cars with big V-8 engines tend to be fast and powerful while those with small four cylinders tend to be more fuel efficient and less performance oriented.  Such a conclusion may not always be the case but is a tendency.  Engine size is simply one “factor” when assessing an automobile.  Investors do this with stocks too.  The most widely recognized indexes are one factor, or “single factor”.  A single factor may also be characterized by a sector such as a semiconductor index or a gold stock index.

The S&P 500 Index may be diversified but it is simply the 500 largest companies.  This makes size or market capitalization the single factor.  Along the same lines, the Russell 2000 Index is a small-cap index.  In the chart below, there was a clear distinction between the performance of large caps versus small-caps during mid-2018 as small-caps led the way higher.  In 2019, large-cap stocks have been displaying overall leadership.  This illustrates how factors can help explain what has been driving returns, giving a deeper perspective than over generalizing movements in the stock market.  Investment choices have become more easily available to investors that attempt to give exposure to those factors.


Multi-factor investments are the natural progression after single factor ones.  Common multi-factors include value and growth.  At first glance, these individually may sound like single factors but to determine value or growth, many factors are combined.  For example, an index provider putting together a value or a growth index may use price-to-earnings ratios, price-to-book, or dividend yield among other criteria.  These are most often well-defined, quantifiable filters to find stocks to be included in the index.

If some of the factors already covered are combined, the stock market can be broken down to an even more granular level often called “style investing”.  Each size, small, mid, and large cap is then further separated into growth or value.  In the chart below large-cap value is being compared to small-cap growth.  During the first three quarters of 2018, value stocks were rather subdued while small-cap growth was rewarded.

Factor investing has adopted very specific characteristics beyond the historically common size or styles.  Categorizing stocks down to attributes can yield an interesting perspective.  Some examples are high and low volatility, value, momentum, and quality.  These tend to be multi-factor as it can take a combination of numerous filters to find stocks with the targeted characteristic.

A momentum factor index or investment may use the performance return of multiple time frames and may be absolute returns, or the stocks return, relative to a benchmark. Some index companies define momentum as positive earnings momentum (growth factor). Quality factor investments may include formulas that filter for companies with low debt, stable earnings growth, and measures of profitability.  The recipe for making a multi-factor index it generally transparent and can be found in documentation released by the indexing company.

Having factor-based investment choices allows investors to be positioned to possibly take advantage of various economic or technical conditions.

  • Quality and lower volatility factors may take on defensive characteristics during times of stress in the markets.
  • Momentum and higher beta factors may take advantage of bull market rallies when higher risk is being rewarded.

Active portfolio managers may use rotation methods, moving between various factor investments as conditions change.  In the chart below, the black lined Relative Strength, displays the performance of the high beta factor to the low volatility factor.  A rising black line conveys leadership by the high beta index and a falling line shows leadership period by the lower volatility index.  Technical analysis methods can be applied to the Relative Strength line in order to better define the trend of leadership and its transitions.

Uncovering the idiosyncrasies of the stock and bond market in order to invest strategically has always been an obsessive compassion of the portfolio management team at Spectrum Financial. The team uses several disciplines and factors when constructing portfolios and making investment decisions for its clients.

Navigating the Wild Wi-Fi West

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Ahh……. traveling through the countryside again.     I’m thrifty, and don’t have unlimited cell service.  I don’t want to use up all my cell phone data out here downloading movies for my kin.    That’s fine, free public wireless Wi-Fi networks are everywhere.    Everyone likes to get online for free.  But what does “free” often mean. There are a lot of security issues with public Wi-Fi.  I like to think of them as the wild-wild west.  This blog will go over the big dangerous amidst many public Wi-Fi spots and how to navigate them.

Malicious Hotspots

Howdy partner, welcome to free Wi-Fi.   So, you’re having dinner at the Texas Steakhouse.  Is the free public Wi-Fi really offered by the diner, or supplied by the guy renting an apartment next door?  Perhaps someone nearby setup a rogue network to entice people to connect and snoop on your web browsing.  It’s a good practice to ask an employee, or the front desk what the name of their Wi-Fi is before just jumping on the first network you find.  A legitimate Wi-Fi network will be less dangerous then a malicious hotspot that is anonymously owned.  You don’t want to shoot yourself in the foot, so to speak…

Wi-Fi sniffing

Just because you found the restaurant’s Wi-Fi network doesn’t make it safe either.  One of the tools that hackers are using on public networks is the Pineapple Wi-Fi device.  Originally developed for penetration and security testing, they can be repurposed for Man-in-the-middle attacks.  After determining what websites you access, the device can thoroughly mimic preferred networks.  All your information is then routed through the device. You may think you’re sending information to a HTTPS website, but it’s actually a spoofed website that the device created.  What’s worse is the Pineapple can save user session and cookie information and continue masquerading as your device, long after your gone.  You may need to call the local Sheriff on this network. 

How do you protect yourself?

When you connect be sure you select the Public network option when connecting to public Wi-Fi, keep your computer up to date, and leave your firewall enabled.  These options will protect your computer or device from being breached. 

When you leave a public Wi-Fi, be sure to delete, or “forget” the network in your phone or laptop.  This will keep your device from automatically reconnecting to a similar rogue network at another location.

Cautious browsing

So, we have learned how to protect your device, but what about protecting your online browsing transactions.  Limiting your internet searches to informational websites that don’t pass sensitive credentials is the best practice.  Logging into your online bank, even though an installed App should be avoided.  What about credit card purchases?  Just say no!  Ok, I just want to send an email.  Unless your email is encrypted (most isn’t) even email shouldn’t be checked on public Wi-Fi.  Do your email servers authenticate exclusively with secure HTTPS?  If you’re not 100% sure, don’t chance it.  So, what about Netflix, you like watching movies don’t you?  It depends….   If you can set your online accounts up with different passwords, in the event you are hacked they will only get onto that one site.  Not too much at risk with a compromised Netflix account if your passwords are all unique.  Plus, I get an email when another device logs on my account, so you know you can cut them off at the pass!

VPN – Circle the Wagons

What if you really need to get some work done, cellular service is not available and public Wi-Fi is your only option?  Well that’s when you need to invest in a VPN service.  A virtual private network (VPN) is a technology that allows you to create a secure connection over a less-secure network between your computer and the internet. This is beneficial because it guarantees an appropriate level of security and privacy to the connected systems. This is extremely useful when your Wi-Fi infrastructure may not support it.  It’s like sitting inside a protective circled wagon.

If your company can setup a VPN for you that would be the best option.  The next best would be a paid VPN service that’s based in the United States.  Most of these run under $10 per month.  Though there are many good ones outside of the States.    The following VPN Services have been highly rated by CNET for 2019. 

Norton Secure VPN
Private Internet Access VPN

So, chock up and stay away from those free VPN services.  Because as we just learned from this blog, nothing in life is “free”.  Now head ’em up, and move ’em out

Wealth Conundrum

A Money Managers Perspective on the puzzles of wealth.  This book was written to help put the financial puzzle in better perspective…

wealth (n) having a plentiful

supply of material goods and money


conundrum (n) a problem where

the answer is very complex, possibly

unsolvable without deep investigation



You can still find the Kindle Edition of Wealth Conundrum at and through Amazon Whispernet using your Kindle.  To request an out of print hard copy, please call:  757-463-7600 


1 Emotional Crash

My money was managing me.


2 Jesus Was Always Talking About Money

Jesus said I could use money,
but I couldn’t let it use me.


3 The Deal

God owns it all, but He gives me
the responsibility of managing it for Him.


4 Making Megabucks

With God as the Owner, the cash flowed.


5 Confrontation in Calcutta

I learned something uncomfortable about myself and
money when I was confronted with the truly needy.


6 Emptying the Barns

I couldn’t challenge others to empty their wallets
when I had a barn stuffed full of cash.


7 The Wealth Conundrum

Earning money to make a profit so that you can
give it away is a conundrum—but it rewards well.
“For whoever wants to save his life will lose it,
but whoever loses his life for me will find it.”—Jesus


8 Relax And Win

Driving race cars is like the Christian life.
If you try too hard you lose, but if you relax, you win.


9 Stewardship Struggles

Even when you want to give, your own unanswered
questions can divert you unless you have faith.


10 A Life Of Financial Freedom

Anyone can achieve a life of financial freedom
if they understand how to play the game.


11 Finishing Well

My most prosperous plan ever, with eternal benefits, came when I entered a relationship with Jesus Christ and let God run my life.


Resources and Notes



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