With major changes in Washington, you may be wondering things like the following:
- Where is the market going?
- Is it the right time to invest more or should I get out of the market?
- Should I make any major changes to my asset allocation or investment portfolio?
We all desire certainty, but we live in an uncertain world.
Based on who is President, we would not recommend changes to your investment strategy or plan. We didn’t recommend major portfolio changes when President Obama was elected and we are not recommending specific changes now.
President Obama was first inaugurated on January 20, 2009. The S & P 500 has been positive every year of his 8 years as President, from 2009-2016. Did you realize that?
While some were concerned about the country’s future when Obama was elected and some of his policy views, investors who remained patient have been very well rewarded. Others may now be concerned about the upcoming change in administrations. We want to stress the importance of trying to leave your political emotions aside from your investment actions.
Stock markets are efficient. Another way of saying this is that the market knows more than any one individual, firm or money manager. This means that professional money mangers cannot consistently outguess and beat the stock market, which is supported by years of industry performance data.
This is good news for you. It means we, and you, can focus on what you can control. It means you can capture good long-term returns without having to spend time and energy trying to forecast, predict or worry about the market or the future of specific stocks.
One of the most important things you can control is your allocation to stocks. This is the amount of risk you want to take, such as having a 40% allocation to stocks, versus having 70% of your portfolio invested in stocks.
We work with clients to determine an appropriate asset allocation between stocks and fixed income (such as bonds, CDs and cash) based on your personal needs, not necessarily on your view of the world or current events. Factors such as your age, need for future growth or your withdrawal needs, time frame and your goals impact this decision.
It is more important for you to establish proper expectations and an allocation you are truly comfortable with, which requires you to accept the volatility of investing in an uncertain world.
If you are in retirement and in the withdrawal stage of your life, we work with you to determine an optimal, appropriate allocation based on your withdrawal needs. We would review with you your assets, sources of income (Social Security, pension, etc.) and cash flow needs. We would discuss your need and comfort to take risk. These factors, and not who is President, drives our investment focus.
By managing your risk through your stock allocation and our belief in broad, global diversification, we can help you to handle the uncertainty which exists in investing.
Your confidence is important. As we adhere to a consistent and successful investment philosophy and we provide you with transparency about your investments, these should increase your confidence that our strategy will deliver upon its objectives.
We recommend a globally diversified portfolio, with an emphasis on small stocks over large stocks and value stocks over large company stocks. While this strategy has done particularly well since Trump was elected, this is not a new strategy for our firm and its clients. We have adhered to this strategy and our overall investment philosophy since our firm was started.
Unless there is convincing academic evidence to the contrary, we plan to continue our investment philosophy, as it works. We recommend that you base your asset allocation on your personal situation, not on who is President.