2010Feb21 Market Turmoil & Confidence Lost
2010Feb21 Market Turmoil & Confidence Lost
Depending on the season, investors are either fearful of a decline in stock prices or fearful of missing a recovery. No one can tell if we are in the eye of a storm heading into double dip recession or if the economic recovery really has legs and will surprise us on the upside. Despite the best year of the decade in 2009, investor confidence is still very fragile. Does this describe you?
Amid that backdrop, investors have responded by clinging to cash. According to a recent article in Investment News, more than $9 trillion is on the sidelines in low yielding savings instruments. Do you need to figure out some way to get back in the market?
Of course, your angst is understandable. Most investors diversified and tried to be patient. That was the very behavior they had been counseled to follow. Then 2008 came along and they got whacked when almost every asset class dropped. In other words, they did what they were told and it turned out disastrously for them. Are you among those who don't know what to do or who to believe? Keep reading. We have some answers.
We believe that investors aren’t playing ostrich. Do you see the current environment and understand that there are multiple risks you must address such as inflation, deflation and currency depreciation? Your savings accounts and money markets are yielding almost zero. You know you can't sit in money market funds forever and reach your investment goals.
Perhaps, you are among those investors who recognize that a broader approach to asset classes could be helpful. However, with no idea how to implement a wider ranging asset allocation policy, it is easy to be paralyzed with fear. It's not so much being afraid of the market as it is afraid of jumping in (or out) and getting it wrong.
Have you been beaten half to death by the proponents of sit-and-take-it investing? The world has changed! Are you open to a tactical approach that offers flexibility for exposure to more asset classes? Are you confused about how to handle the timing of multiple asset classes and reluctant to attempt it on your own? Well, we use a global portfolio implemented with exchange traded funds (ETF) that offers a possible solution.
Our global ETF portfolio may reduce your angst because the timing and market exposure are handled for you. If conditions are harsh and risk is high, the portfolio may be in fixed income and cash. If risk is being rewarded, assets such as domestic equities, emerging markets, and real estate might be better assets to own. In an inflationary environment, there might be exposure to basic materials and commodities. If the dollar depreciates, the portfolio can shift to international equities and foreign currencies.
In addition, our systematic relative strength process continues to adapt to new conditions as markets change. We have a specific strategy that is followed--it won't be optimal in every environment, but it won't be driven by fear and greed.
If you are using a traditional asset allocation model, you have anchors tied to your investments. You will always own some of everything through thick and thin. When markets decline, your anchors pull your portfolio down and may virtually “sink your ship.” If you can free yourself from the anchors, you will have more freedom to benefit from a changing global marketplace.
Remember, “…the key to good performance is the ability to identify those (investments) that are detracting from the performance of the portfolio. Most portfolio managers spend most of their time and effort trying to find the next big winner in the stock market but good portfolio performance depends more on finding and eliminating the bad (investments) from the portfolio.”
You have heard that traditional asset allocation models have “been the way we have always done it.” Not really. They weren’t widely used until the mid-80s. Have you forgotten the demise of Long Term Capital? Twenty five Ph.D.s and five Nobel laureates responsible for Modern Portfolio Theory applications lost their entire investment – and then some. The Fed provided more than $3.5 billion to bail out the banks that had lent money to those investors who were “too smart to fail!”
Their conclusion? The theory is flawed.
Are you ready to consider a more responsive, risk adjusting process?
Call us to schedule a chat about what else you might consider doing to preserve your account and improve your returns. 800-317-9119.