Investing with Perspective

PER·SPEC·TIVE:   (1) a measured or objective assessment of a situation, giving all aspects their comparative importance (2) a particular evaluation of a situation or facts, especially from one person’s point of view

 Last week my son turned 13 years old…a teenager!!!

[Queue the scary music… “DUN-DUN-DUNNN”]

As parents we try to pass-along all of our positive life experiences to our children in order to better prepare them for life.  We also bring up all of our negative experiences so they don’t share the mistakes that we, as parents, have made.  We hope that the lessons and words we use sink into our children’s scattered brains to ensure they are better prepared than we were!  However, the bottom line is that we have perspective because of our life experiences and it is difficult for our children to relate.

We need perspective as wealth managers to educate clients, just as we educate our children.  Two weeks ago, the Dow Jones’s dramatic 550-point 2-day sell-off, coupled with interest rates spiking over 0.5%, dealt investors a double whammy of stock and bond market losses.  In late May and early June we trimmed some US and International Equity positions to rebalance and shorten interest rate exposure in some of our Fixed Income in anticipation of interest rates increasing in the long term.

There have been over 270 instances when the stock market has corrected 5% or more and the average correction has been in the 8-9% range when all is said and done.  Investors need perspective when assessing market corrections.  Often times a little perspective can lead to opportunities instead of generating fear and uncertainty.

We have enjoyed 30 years of a bull market in bonds as interest rates have been lowered to 0%. With rates normalizing you can expect “lumpier” bond market returns over the next few years. We will always allocate to Fixed Income for safety, to generate cash flow, and to remain disciplined within our asset allocation strategy.  Bond market corrections are much less pronounced than stock market corrections and as rates increase, so will our cash-flow due to higher rates.

Investors desperately need perspective, the same as our children do, and sharing this perspective will allow them to make better educated investment decisions in the short-term as well as over their lifetime of investing.