Frequently Asked Questions
Frequently Asked Questions by Investors:
2) Questions about My Account?
5) What are some Investing Myths They Never Told Me?
6) What are Seven Stock Market Truths?
How do I start an account with HCM? Account setup is easy for you. The first step is an initial meeting with one of our representatives. This may be direct with HCM at our office, by phone, or through an authorized solicitor. You can start this process by contacting us by phone or email today. During this process you will get to know us. We will discuss your resources, your dreams, your goals and your needs. You will fill out a confidential questionnaire. Based on your questionnaire response, we will determine the best HCM program for your situation. This program can be changed later as your situation changes. Then we will fill out the documents for your signature. If you're investing cash, you will write one or more checks to the new custodian, for the benefit of your new account number. If you're transferring assets from your old custodian we will fill out the paperwork for you.
To read our brochure, click here . Our ADV II is available upon request, contact us.
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Should I use a buy-and-hold strategy or a risk management strategy? Most people take an active approach to living. You actively manage your marriage, your children’s activities and schooling, your own education, where you live, your business, etc. Can you imagine your life if you didn't manage? Why would anyone NOT want to have his or her investments actively managed?
What is the minimum amount I need to open an HCM actively managed account? The minimum amount needed to open an HCM managed account is $100,000. In some cases this is negotiable.
Can you rollover my retirement plan account into an IRA for me? Yes, we can rollover your 401(k), 403(b), or 457(b) government plan into your IRA where we can manage your account. We will prepare the paperwork for your signature to request that your funds be transferred from your old custodian to your new custodian.
Can you manage my IRA, which is now at another company? Yes, we manage IRA accounts. We will prepare the paperwork for your signature to request that your funds be transferred from your old custodian to your new custodian.
Can you manage my 401(k) account for me? Yes, in certain instances we can manage your 401(k) account. Contact us to see if we can. Your 401(k) plan has to permit us to manage your account and to bill your account for our management fees. You will have to complete a retirement risk questionnaire and our money management agreement to get started.
I live many miles from your office. Can I still hire you to manage my accounts? Yes, many of our clients don’t live near our office, and some of them never visit our office, although we encourage clients to visit us often. You can benefit from our services through telephone, fax, regular mail, and e-mail. Contact us to see how we can work with you.
When I open an account, whom will I meet with? You will initially meet with one of our representatives.
Do your firm offer estate planning, financial planning, or CPA services? Our primary emphasis is on active fee-based money management. We do sell comprehensive living trusts to clients by partnering with an attorney near our clients.
What is your thought as to when you will open your account with HCM? Do it today. Contact us today!
How often do you review my investment portfolio(s)? Since we actively manage risk and return, we monitor the markets and client portfolios nearly every business day and are ready to adjust your portfolio(s) as needed. On a quarterly or annual basis, whenever you decide, we can meet with you in our office or by telephone to review your account and to determine if your circumstances have changed. We encourage these reviews and leave them up to the client to set the appointment on a timely basis. In addition to regular meetings/reviews, you should let us know right away about major changes in your life that may affect your needs. Some examples of major changes include: inheritance, new accounts that you want HCM to manage, marriage, divorce, change of job, change in your health, etc.
Can I get money from my account(s) in case of emergency? Yes, we can usually transfer money into your bank account within three to five business days after you notify us of your need. Most investors have a separate emergency fund so they don't have to liquidate long-term investments in an emergency.
Do you contact me to make portfolio changes in my account? No, we make trades in client accounts according to the strategy that we have agreed upon when we set up your account. By way of our agreement, we have limited power of attorney to trade your account and you should not trade it.
I need monthly income. Can you wire money to my bank account every month? Yes, we can facilitate a monthly wire to your bank account every month for a small wire transfer fee.
How often will I receive account statements? Depending on the type of account and your custodian, you will receive either monthly or quarterly statements from the custodian where your assets are held and a quarterly statement from us. It is your responsibility to review your statements for accuracy.
Can I have duplicate statements sent to my accountant? Yes, we can arrange for this. We provide a schedule D for taxable accounts at no additional charge.
Can I trade my account? No. When you hire HCM to manage your assets, we make all the trades. You should sleep better at night knowing a professional is watching your account closely.
Can I see my account information on the Internet? Yes, usually you are able to see your account details on the Internet. Ask us to set this up for you.
I have stocks that I want to keep, and I don't want you to manage them. Can I hold this stock in your managed account without paying a fee? No, our service is to manage all your serious money and we do not keep buy and hold investments in client accounts. We recommend that you liquidate stocks and have them actively managed by HCM. This is negotiable in some cases.
How do I pay you for your services? At the beginning of every calendar quarter HCM bills clients for services in advance and our management fee is taken directly from client accounts.
How much do you charge for your services? HCM provides an investment methodology that is mathematically intensive and unique to HCM. This methodology constitutes our specialized service and it encompasses: (a) switching mutual fund/stocks/exchange traded funds, (b) dynamic asset allocation including sector rotation, and (c) overall decision to be invested in equities, bonds, or money market. Client funds are switched between shares of domestic and international equity and bond funds/stocks/exchange traded funds, and money market fund when proprietary analysis methods indicate the advisability of such switching. Additionally, proprietary means are used to dynamically asset allocate, e.g. determine when and percentage of funds should be invested in equities. Our fees are based on a percentage of your account balance, and they are graduated depending on the size of your account. The following rates are quoted as annual percentages, although we bill them quarterly to your account. Other fees may apply, see agreement.
Non-incentive fee option:
HCM's fees are:
2.96 percent on the first $500,000
2.75 percent on balances from $500,000 to $1 million
2.5 percent on any balance over $1 million.
Incentive fee option for accredited investors (net worth of 1.5 million or have $750,000 under HCM’s management):
HCM's fees are:
1.8 percent on balances up to $500,000
1.5 percent on balances from $500,000 to $1 million
1.2 percent on balances over $1 million.
The incentive fee is 13.5% of the net profits during the previous four fiscal quarters, reduced by the incentive fee already paid, if any, in the first three quarters of such periods. The incentive fee is based on a rolling 12 month billing period and paid quarterly. The client account has a high water mark. Other fees may apply, see agreement.
Institutional fees:
For institutional accounts HCM's minimum account is $1,000,000; this value may be negotiable. Our fee is:
1.0 percent on balances paid quarterly in advance. Other fees may apply, see agreement.
Can I buy advice instead of hiring you to manage my money? We provide hourly consulting to recommend a portfolio of no-load mutual funds or ETF's. Dr. Gary J. Harloff, Ph.D. offers this service. You complete our questionnaire and submit it to us in advance of the meeting in our office. The charge for this service is $500 per hour. Gary has never needed more than two hours to provide this service. This one-time consultation is to recommend a portfolio that you will subsequently buy and manage by yourself.
I'm thinking of opening accounts in several of your strategies, will my combined accounts reduce my fees? Yes, we base our fee on your combined account balances.
Do I have to owe you a fee even if my investments lose money? Yes, that's the way fee-based investment management is. We manage your accounts and we cannot guarantee results. For our incentive fee program for accredited investors, we are paid an incentive fee along with our management fee where we are paid more if we make you money. We do our best and try hard for you. We usually have our own money beside client money and trade them at the same time. Past performance does not insure future performance. Our situation is similar to this: when your physician performs an operation she can’t guarantee the outcome. The physician is paid for the work, not for the result.
Are your fees tax deductible? In some cases our fees may be deductible. See your tax professional for tax advise.
Is my investment guaranteed? No, your account value will fluctuate, and HCM can’t insure that your account will increase or not lose value. HCM works hard to manage risk and return. Past performance does not insure future performance.
Who is my new custodian and how do I fund my account? We do not take possession of your money and your account stays in your name. When you open an account with HCM, you write a check directly to the custodian. Don’t write a check to HCM because we can’t cash it or deposit it; we will only send it back to you.
Is there a start up fee? Or a fee to change strategies? When you open an account with us, we enter into a management contract and your start up fee is $75. There is a $50. fee to change from one strategy to another one.
If I close my account will I have to pay a close out fee? When you open an account with us, we enter into a management contract and we expect a five-year commitment. However, you may terminate the account at any time by notifying us in writing. You pay an account-closing fee of $100. that covers the additional work in closing your account. Usually you will have to move your account to another custodian because we custody funds at the institutional level.
HCM is getting bigger, and bigger, and better, and better and why don't you contact HCM today?
5) What are some Investing Myths They Never Told Me?
Why does the average investor, with a sizable nest egg, need a professional money manager? Dalbar Financial Services , of Boston, Ma., has published results of several studies of investor compound returns compared to the S&P500 compound returns for four time periods, see below. Over a 19-year period ending in 2002, the yearly compound return for the S&P500 was 12.22%, and average investor return was 2.57%. This could be due to selling out too late when the market goes down and waiting too long to go back into the market. Similar results are indicated for years ending in 1997, 1998, and 2000.
S&P500 and the Average Investor Compound Return
(% per year)*
1984-1997 |
1984-1998 |
1984-2000 |
1984-2002 |
|
S&P500, % |
17.1 |
17.9 |
16.29 |
12.22 |
Avg. investor, % |
6.7 |
7.25 |
5.32 |
2.57 |
*Reference: Dalbar Inc. Quantitative Analysis of Investor Behavior Study 1997, 1998, 2000, 2003 updates
What is " Modern portfolio theory" (MPT)? It was developed in 1952. This work showed that diversified portfolios, with uncorrelated stocks, reduce portfolio volatility or risk. Yet, the return for a diversified portfolio is always less than the return of the top-performing asset. A major limitation of MPT is that accurate forecasts of investment statistics have to be made. These statistics (for return, return volatility, and statistical correlations of returns) generally are not accurate and computed portfolios are not optimal. These forecasts are usually based on historical data spanning from 3 to over 20 years. And with globalization in progress and technology advancing at a rapid pace it makes little sense to use long-term average statistics. Portfolio re-balancing is usually yearly or quarterly and this strategy sells winners and buys losers. These portfolios held losing positions during the bear market of 2000-2002. In contrast to passive portfolio allocation, HCM actively manages client portfolios and re balances portfolios more frequently than quarterly.
What is wrong with Demographic Investing? Baby boomers, born from 1946 to 1950, are investing heavily in the stock market in the decade before their retirement, 2000-2010, to fund retirement programs. This investment t fuels the stock market higher. Health and drugs sectors will be in favor as the boomers both age and demand more medical attention. In its simplest form, this is a buy-and-hold investment strategy of areas thought to be most cherished by the boomers. This strategy held stocks and did not sell out during the recent bear market. The theory is obviously incomplete since it did not predict the bear market of 2000 to 2002. In contrast, we believe that HCM’s performance based investing adds value over this strategy.
Why is Index investing another passive buy-and-hold strategy? To obtain good investment results the investor needs to know in advance which index to buy-and-hold. Many pensions, insurance companies, family offices, and individual investors employ index investing. In contrast, we believe that HCM’s performance based investing, with Dynamic Asset Allocation, adds value over the buy-and hope non strategy.
Why is it a myth to not asset allocate the market? Many investors do not want to asset allocate the market because they can’t do it. They swear by the buy-and-hold non strategy to diversify, and don’t manage. Their plan may be to re balance and over-diversify once a year. For the investor who bought and held the market in 1929, it took 25 years to get even. And for the buy-and-hold investor who bought in 1973, it took 7.6 years to get even. In addition, many buy-and-hold investors are over-diversified with too many holdings. Studies show that 6 to 9 uncorrelated stocks provide adequate diversification: portfolios of mutual funds need fewer than 6 to 9 funds since each fund usually holds about 100 stocks.
Why you don’t have to be a perfect asset allocator to beat the buy-and-hold non strategy. Buy and hold advisors usually show how returns go down when you miss a few of the best days. They usually don't show the rest of the story. The table below shows that you don't have to be perfect when you miss 10 to 40 of both the best and worst days since the return still exceeds the buy and hold return of 9.55% per year.
Returns for the S&P500
(1/1/1980-12/31/02)*
% per year |
|
Buy-and-Hold |
9.55 |
Missed 10 best days |
7.03 |
Missed 20 best days |
5.18 |
Missed 30 best days |
3.57 |
Missed 40 best days |
2.12 |
Missed 10 worst days |
13.44 |
Missed 20 worst days |
15.47 |
Missed 30 worst days |
17.18 |
Missed 40 worst days |
18.75 |
Missed 10 best & worst days |
10.83 |
Missed 20 best & worst days |
10.87 |
Missed 30 best & worst days |
10.78 |
Missed 40 best & worst days |
10.68 |
* Tandem Financial Services, Inc. Study
What is HCM's new investment approach? HCM has our own unique proprietary investment models. No other company has our technology. These are:
1) long-term relative model to rank funds. We combine several different HCM indicators to determine relative fund rank. We manage risk by usually selling funds low on the list and buying funds higher on the list.
2) short-term absolute model to rank funds. We analyze fund and index data on a common basis. We manage risk by usually selling funds low on the list and buying funds higher on the list.
3) dynamic portfolio theory model to determine optimal dynamic frontier portfolios of funds. We have developed a new approach to design optimal portfolios. We manage risk by usually selecting funds that are thought to belong to an optimal portfolio.
4) dynamic style theory model to determine the best style (growth/value/large/small) indexes and funds. Our original research is based on data from 1928 to 2002. We manage risk by usually investing in the best investment style.
5) dynamic investment allocation model to determine buy and sell signals for the S&P500 and NASDAQ indexes. Our original research is based on data from 1942 to 1998, and more recent data. We manage risk by usually selling funds and/or buying contrary funds during periods of perceived weak markets.
HCM offers several active investment programs for both variable annuities and our mutual fund wrap program. In addition, our strategies can usually be employed within client 401(k) accounts.
Dr. Gary J. Harloff, Ph.D.
For many of us our retirement life style is riding on our success in the markets. Yet it is surprising how little some of us know about investing.
Forget about the hot tips and market forecasts provided by the television talking heads. Even the highest paid consultants are seldom correct. Often these tips are really sales pitches meant to drive commissions to their broker-dealer company. The actual life of a hot tip is only about 7 seconds. How can many of us gain from tips with this short time span? Or you might make some real money from insider information, until discovered by the SEC, and you then asked to take a long vacation in a government facility.
Yet, your golf friend always brags that his advisor beats your advisor's return. You don't realize that he always inflates his performance. And you are off in search of the Holy Grail.
We all want the "Holy Grail" of investing, and constantly search for it. In thinking about the Grail, I have developed a list of seven stock market truths that you may profit from.
#1 Diversification is a cornerstone to investing. A good stock portfolio may contain 8-10 uncorrelated stocks. Knowing the magic 8 or 10 is the problem. A portfolio of mutual funds needs fewer than one with stocks since funds usually have 80-100 stocks in them. This is why we employ mutual funds in our portfolios.
#2 The markets constantly change. For example, stocks may outperform bonds one year, and the next year it reverses. Value stocks often beat growth stocks, but not last year. To really stay with the ever-changing markets one needs to spend nearly full time analyzing the markets with accurate and sound analytical methods. Most advisors do best in a special kind of market, and under-perform when the markets change.
#3 Accurate on-going analytical market analysis is needed to remove emotional mistakes we are prone to make. But most advisors fool their clients into a false sense of expertise when they use stale three to twenty year statistical data. Most advisors lack the ability to compute market statistics and are motivated to sell, not manage, funds to clients. Some even convince their clients they know the market because they can count from one to five (stars). During the recent bear market, 2 and 3 star funds beat 4 and 5 star funds due to stale statistics. What is actually needed, and few advisors provide, is accurate analytical analysis of the markets. How many of us have the knowledge and time to analyze markets on a continuous basis?
#4 The buy-and-hold strategy is yesterday's strategy. The buy-and-hold strategy used to be the bread and butter strategy of the financial industry. Now, many investors know better and insist on actively managed accounts.
#5 Active portfolio management is a strategy formulated for investors. The active strategy seeks to evaluate return and risk on a continuous basis. The potential benefits of active portfolio management are to exceed typical investor returns, and to manage downside risk. This is important since the typical investor historically obtains about 1/5 to 1/3 of S&P500 returns as reported by Dalbar Inc. for several 13 to 18 year periods. This is most likely due to poor buy-sell timing capability. Investors typically give up near market bottoms.
#6 Most strategies usually stop working. Most strategies are empirical and have to be constantly fine-tuned. At some point the market character changes and the strategy stops working. In contrast to this approach, our new technology has been developed with goals that it doesn't need empirical adjustments, is universal, and works in all markets. Our technology is not available to Wall Street. There is very little original technology available to any investor. We have been developing our technology, using skills of a university and industry trained Ph.D. scientist.
#7 Investment management is crowded in terms of how many advisors there are, but is untapped in terms of skill and ability. Our mathematical modeling makes all the difference and gives our firm a definite advantage over our rivals.
Investment advisor background
Harloff Capital Management, Harloff Inc. is a money management firm conveniently located in Westlake, OH. The firm was started in 1981 and registered as an investment advisor in 1994. Dr. Harloff earned a Ph.D. in AeroSpace Engineering and worked 27 years in Aero and Energy including 10 years at NASA in computational propulsion and aerodynamics. He began his investment research in 1970. He rejects the buy-hold and count 3-year-star approach employed by nearly all advisors and does his own original analysis. His new technology was developed to analyze any fund in any market in any country and is employed in our portfolio allocation process.
Next step
We want to help you reach your investment goals. If you need more help and expertise than your advisor is providing, please stop in or call us. We can set up a free meeting to see how we can help you. Contact us today as the markets are ever changing. For faster service, call 440-871-7278 .
Sincerely,
Gary J. Harloff
Dr. Gary J. Harloff, Ph.D.
Harloff Capital Management, Harloff Inc.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Inherent in any investment is the potential for loss as well as the potential for gain. A list of all recommendations made within the immediately preceding year is available upon written request.