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2019 - Keep Looking Forward

2019 – Keep Looking Forward

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I want to begin by saying that a well-defined risk assessment forms the core of any good financial plan, and “risk” incorporates the assumption of both good markets and bad.  I stress this point because, despite the recent correction and bombardment of headlines announcing the perils of rising interest rates and geopolitical pressures, this is not uncharted territory and has been factored into your long term financial plan.

Though market conditions may shift, your  long-term investment objectives usually do not.  And we have worked with you to craft your financial plan according to these objectives, taking into consideration the inevitability of challenging markets.  So, as we enter 2019, acknowledging that market conditions are likely to get more challenging, please keep the following in mind:

  • Though down markets (or great markets) cannot be predicted with certainty, they are factored into a risk-based investment allocation.
  • Investment portfolios are adjusted based on changes in market dynamics; your financial objectives are not.
  • “Recency Bias” and fear drive emotional, often disastrous, investment decisions.
  • We, along with the investment leaders with whom we align ourselves, are monitoring the changing market environment and making adjustments within equity and fixed income portfolios as needed.

Below is a summary of my thoughts on recent market activity and positioning going into 2019.  But I would love to hear your thoughts as well, and ensure that your financial plan continues to reflect your long term financial objectives. I am forever mindful of and grateful for the trust that you place in me as your financial advisor, and I look forward to helping you navigate the 2019 financial landscape.

Summary:  Throughout 2018, I have recommended that we remain invested – “risk-on” mode in investment parlance, in the face of  increased risks from rising interest rates, increased volatility, and mixed messages regarding a possible economic slow-down. Despite the recent market correction, I am not substantially changing that recommendation, as valuations across asset classes are more attractive now than they were at the beginning of 2018, but I have to acknowledge that market conditions are likely to get more challenging in 2019.​

The Question: How can we stay invested as the world gets tougher?

The Answer:  Stay actively invested and adjust portfolios to prepare for a more defensive environment, acknowledging both the good and the bad.

The Good:  In general, I do not support the concept that I the world’s major economies will enter recession. The investment leaders with whom we work expect modestly better returns across asset classes that what we’ve experienced in 2018.  Interest rates have risen, yields have climbed, credit spreads have widened and equity valuations have fallen. That creates opportunities

The Bad:  What if we’re wrong? It is my obligation to ask that question.  What if growth slows more than expected or if geopolitical issues, at home and/or abroad, worsen? We can and do make adjustments to equity and fixed income portfolios in anticipation of downside risk, and we incorporate the assistance of the many investment leaders in this regard.  But unless your financial objectives have changed, these market shifts do not demand a change to your overall allocation.

The Balance:  2019 is likely to be a balancing act within equity and fixed income allocations, requiring that we walk the line between optimism and being defensive, i.e. taking advantage of opportunities to buy and own high quality assets without becoming too defensive.

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