What Are You Doing With My Investments These Days…?

A primary theme is to sit quietly. There are many factors that go into a portfolio allocation. Mostly it is risk. To reduce risk one wants to buy at the cheapest point – “on sale”, and never sell things to others “on sale” When the assets in a portfolio are at a disadvantage using this rule sitting is the best answer. Chasing returns in parts of the markets we don’t want to be, is a bad idea mathematically. Indeed one of your primary teammates won a Nobel Prize in Economics proving it. You like super smart teammates and following proven principals has proven advantageous to you, even when you are not aware of it.

You want to have assets in the market areas that offer the highest expected return. That is value stocks and specifically smaller value stocks. You also want to own the whole world of stocks with these characteristic. Please do note that if it was always the case that they provide the highest expected return – they would never provide the highest expected return. Only we who are willing to sit quietly when they are “out of favor” will be rewarded with the return “premium”.  Note that you stock holdings are in a place that they can sit for longer term. If you have more immediate cash needs we allocate to Bonds that reflect the time period in which you will – or might – need capital for lifestyle or another life requirement such as education, cars, real estate or real estate improvements. We specifically exclude these dollar amounts from the part that is assigned a long term need – say more than 5-7 years.  Next week we look at…Opportunities and Build a Philosophy.

Right now and for the last 10 years International stocks have been out of favor. For the 10 years before that US stocks were out of favor. Value stocks are also not the part of the market that is rising the fastest. Small cap stocks the same. Now you may ask – does that mean I am out of favor. Nope. Remember that you own all of the stocks. Yes you won ALL of the Worlds stocks – large, small, growth, value, US and International.   Your portfolio does own more of the value and small stocks and is balanced between US and International stocks.

There are 2 choices to be had philosophically when we consider – how do we care for the long term success and financial safety of your family? Do you believe that now is different than the 130 years of stock market behavior documented by our Nobel Prize winning teammates? Do you believe we should change our minds and discard what has been statistically proven to be a sustainable repeating market behavior(s) and simply begin to allocate your assets to what is in favor and seems to be a doing better and then switch money around as we go? Note volatility is higher and tax impacts are higher and outcomes are a lot more variable.  Note we also have experience doing it that way – indeed that’s how we came to find Dimensional Funds.

I share this note with you so you can be again assured – we are not parked here watching.  Your success – no matter a small account from a nephew or a large account from a stranger. Everyone we serve gets the benefit of our constant process of education, research and subtle adjustment as proven principles emerge.

How can we assist you? What is on your mind? Standing by if I can be of assistance.