2019 Portfolio Strategies - How to Invest in Volatile MarketsSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on November 30th, 2018
By Bob Reby, CFP®, November 30, 2018
“Dow tumbles nearly 600 points and all main stock market gauges wipe out 2018 gains as tech shares get rocked.” – MARKET WATCH
“Dow drops 700 points because everyone is afraid of something.” – BARRONS
These two quotes, among many others, have been in the news and seem to have a way of fanning the flames, since negative press sells. All of this, as corporate earnings (the long-term driver of value) and dividends are still rising sharply, consumer balance sheets are in superb shape, small business confidence is near record highs, we just became the world’s largest oil producer, and there are more job openings in this country than there are unemployed people! So what gives?
It’s a classic example of temporary emotions and fear overriding the facts. At this time, it seems appropriate to review some beliefs about diversification and asset allocation that have been reinforced by almost three and a half decades of actual real-life experience.
So, what does this mean to investors? The purpose of true diversification is to suppress short and intermediate fluctuation of your overall assets, while earning the full returns, of all elements, over the long run. The ultimate goal of this should be to balance conservative wealth management with sustaining your lifestyle despite rising prices and taxes.
Therefore, we generally invest our clients' money in thirteen asset classes. This is because growth funds tends to cycle in contrast to value funds; large cap equities to small cap equities; and U.S. to international. The same concepts apply to the fixed income portion of a portfolio. When appropriate, part of a fixed income portfolio is purposefully designed to allow access to 24-36 months of income needs. This approach acts as a safety net in the event of a temporary decline, a correction or even a normal cyclical bear market.
A properly aligned portfolio is designed to sustain one’s lifestyle (though it may need to be adjusted as the individual approaches different goals and benchmarks). However, many things change in short and intermediate timeframes. For this reason, rebalancing your portfolio and making rational, thoughtful adjustments over the business cycles will serve you well, although it does require patience and a long-term outlook.
2018 Seems as though it will go down in history as a challenging one even for a truly globally diversified portfolio. It reinforces the humility that has been learned over decades; meaning that as rational optimists, we have a very good idea of what’s going to happen in the long run.
If you have any questions about how to invest your money to maximize the changes that you'll achieve your short- and long-term goals, please do not hesitate to reach out to Reby Advisors. Call (203) 790-4949 or contact us here.