When Should Strategy Be Changed

Yesterday, the Federal Reserve increased short term interest rates for the first time in 2017 and just the third .25% increase in short term rates since 2009.

Prior to the Fed announcement, I was contacted by a Detroit Free Press personal finance reporter for my comments. She wanted to know what would happen to the stock market, are we changing our investment strategy and our outlook for future interest rates.

Our reply to the Detroit Free Press was the following:

“We expected very short term interest rates to rise by .25% at this week’s Federal Reserve meeting. We anticipate that there will be at least two-three additional .25% short term interest rate increases during the remainder of 2017. We view these as positive, as the economy continues to be strong and not headed into a recession. While it is difficult to predict the future, it is reasonable that the Fed will continue to increase short term rates throughout 2018, if the economy continues to remain strong and there is an infrastructure plan enacted.

We are not changing our investment strategy based on the Fed actions. We have a long term investment strategy to have our client’s very diversified, both in the US and internationally, so we would not recommend changes based on just today’s Fed actions. We have recommended that client’s should refinance mortgages, if they have not done so already. While we are positive about US and global stock markets for the long-term, we have been reminding clients that there has not been a significant stock market correction in over 9 months. Thus, a temporary decline, in the midst of a long-term rising market, should be expected and considered a normal occurrence.”

We were quoted in the Detroit Free Press article on the Federal Reserve action, which you can read here.

Changing a strategy should be based on evidence that a current strategy is not working or that evidence exists that modifications would be necessary or a better strategy exists.  The principles and general investment philosophy which we adopted when we formed our firm in 2003 are still valid and have stood the test of time.

We are disciplined and have a strategy that is well defined and transparent, which we adapt to the individual needs of our clients. The stock mutual funds that we have utilized since inception have excellent track records, over the long and short term, especially when compared to their respective category peers. They are some of the lowest cost mutual funds in the industry as well as provide excellent tax management, to minimize your taxes, as applicable.

We have avoided hedge funds, alternative investments and junk bonds (higher risk fixed income products) and making bets on certain sectors, such as energy. We are confident that these decisions were correct and have been significantly to your advantage. As Warren Buffett and a great deal of other evidence shows, most alternatives and hedge funds do not provide the long-term performance or diversification benefits which they claim.

If you are not a client of our firm, you may think you are doing well. But do you really know? That may be a relative term or feeling, until we meet and review how well your portfolio has performed or how your investments are structured.

  • When we meet with prospects, we nearly always find that their existing portfolios are:
    • taking too much risk in certain areas,
    • under-invested in asset classes that have higher expected returns
    • more invested in asset classes or individual stocks which have lower expected returns
    • paying more in fees than they should be
    • not being managed in a manner which reduces their taxes as much as they could be
  • All of our current clients were formally prospects. Nearly all of them formerly worked with other advisors, but after they met with us, they understood our rational approach to investing and the other benefits we could provide.

We are confident in the future and confident in our investment strategy.

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