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Investor Alert November 13, 2024

Investor Alert – FormulaFolio Investments, LLC and Retirement Wealth Advisors

Prior to the Covid crash in March 2020, FormulaFolio was employing proprietary software —formerly, AssetLock™ then, WealthGuard™ — to track the values of its clients’ portfolios and to issue an alert when the value of a client’s portfolio fell below its high-water mark by a prespecified percentage agreed to by the client at account opening. After receiving the alert, FormulaFolio would, in some cases, automatically liquidate the client’s portfolio. After liquidating the portfolio, FormulaFolio would then keep the client entirely in cash or cash equivalents until it observed certain technical indicators that it interpreted as “buy” signals, at which point it would re-enter the stock market.

Beneath all of the jargon, FormulaFolio’s strategy was nothing more than a flawed market-timing strategy. There are many studies debunking the claimed merits of such strategies. By and large, these studies have found that there is no advantage to drawing an arbitrary line in the sand at which to exit the stock market. The obvious problem with such strategies is that nobody has the clairvoyance necessary to consistently reenter the market at the right time. Among the scores of investment experts who have criticized market-timing strategies is David Swensen, manager of the Yale Endowment Fund, who had this to say:

Market timing explicitly moves the portfolio away from long-term policy targets, exposing the institution to avoidable risks. Because policy asset allocation provides the central means through which investors express return and risk preferences, serious investors attempt to minimize deviations from policy targets. To ensure that actual portfolios reflect desired risk and return characteristics, avoid market timing and employ rebalancing activity to keep asset classes at targeted levels.”

(Swensen, David. Pioneering Portfolio Management. New York: The Free Press, 2000, pp. 73). As alluded to by Mr. Swenson, market-timing strategies like the one that FormulaFolio employs are a gimmick, eschewed by serious investors, and have no place in a prudent investment management strategy.

While the stock market was consistently going up in the last decade, the dangers of FormulaFolio’s flawed strategy remained hidden. The chickens came home to roost for FormulaFolio, however, in March 2020 when the markets precipitously crashed in response to growing concerns about the spread of Covid 19. The crash caused WealthGuard™ alarms and automatic liquidations followed. For some FormulaFolio clients, this locked in losses at the bottom of the market. FormulaFolio’s then failed to reenter the stock market for months on end, even though the markets were soaring well past pre-Covid levels, meaning that many FormulaFolio clients missed out on the recovery.

By exposing its clients to its flawed and insufficiently vetted market-timing strategy, FormulaFolio may have acted negligently and contrary to its fiduciary duties to its clients. If you missed out on the 2020 market recovery as a result of FormulaFolio’s market-timing strategy, contact securities attorneys Mika Meyers, PLC immediately for a free no-obligation consultation. We will evaluate whether you have a claim, and then proceed with meritorious claims on a contingency-fee basis to recover your losses.


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