The continued rally in equity markets reflects several positive developments since the beginning of the year, including the Federal Reserve’s well-telegraphed “softer” stance on interest rate hikes and investor optimism that a breakthrough between the U.S. and China on trade is imminent.
Most of our research shows that economic growth is slowing, but is still positive. It also shows that inflationary risks seem to be low, and…
…recession risks are not around the corner. However, the recent yield curve inversion (the long term Treasury rate was eclipsed, albeit barely, by the short term rate) has historically been a pessimistic sign of things to come, and stock markets usually go down before a recession hits.
The moral is to have a game plan for when, not if, the market goes down.
At SRQ Wealth, our approach to portfolio management combines a “buy and hold” strategy with an “airbag,” or tactical strategy. The more conservative the client, the larger the “airbag.”
The “buy and hold” portion of the portfolio is composed of high quality managers and some exchange-traded funds (ETFs) with the goal to gain diversification, control taxes and to keep costs down. The “buy and hold” strategy holdings follow a 3-5 year outlook, are reviewed monthly, with changes usually made only once a year, a unless a significant trend or economic event calls for adjustment sooner.
The tactical portion of the portfolio is solely made up of index ETFs, striving to allow us to be more nimble and further reduce costs. This tactical segment follows a shorter 12-month outlook, is reviewed monthly, and changes are made, on average, about 3-4 times a year. Typically these changes are small “tweaks” rather than significant moves.
With this view of the economy as a backdrop, we made the following changes to our Strategic Wealth Management portfolios in the third week of April:
In our Income with Moderate Growth (most conservative) portfolio, we reduced our allocation to U.S. Small Stocks by 2% and added that to our U.S. Aggregate Bond position. Our allocation in this model now stands at 36% Stocks, 54% Bonds, 6% Alternative Asset Classes and 4% in cash, which we believe is appropriate given our outlook for 2019. Our bond holdings comprise a mix of investment and non-investment grade bonds, while our stock exposure is diversified across various global markets and market capitalization structures.
In our Growth with Income model, we reduced our allocation to U.S. Large Stocks by 3% and introduced a position in High Yield Corporate Bonds. At the portfolio level, we have a 55% allocation to Stocks, 35% Bonds, 8% to Alternative Asset Classes and 2% to Cash.
In our Growth model, we eliminated the Bank Loan position now that interest rates appear more stable and added 3% to a new Developed International equity position. We believe this model remains appropriately positioned with 80% allocated to Stocks, 11% to Bonds, 7% to Alternative Asset Classes, and 2% to Cash.
For our Aggressive Growth model, we added 3% each to U.S. Large stocks and Developed International stocks. We reduced U.S. Small Stocks and a Nasdaq holding that had done well in a very short period of time. This model currently has 94% allocated to Stocks, 3% to Alternative Asset Classes and 3% to Cash
This month, Tiger Woods returned to golfing glory winning the Masters golf tournament. Many had written him off, said he could never come back, and said that this time, it was different.
All too often we hear these same phrases from “investors” (speaking of them, a term I use loosely) that feel that markets will take too long to come back, they have written off their chances of success or feel this time is different. True investors (not speculators) have a game plan. Be a Tiger when it comes to your planning. Don’t leave it to the whims of the latest headline.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation does not protect against market risk.
Investing involves risk including loss of principal.
Transaction fees, expenses, and frequent trading of ETFs could significantly increase costs.