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What's Going On?

There is an old Chinese curse – “May you live in interesting times.”

For investors this January gave us a most “interesting” start to the year, and it is one that we could probably have done without. A drop in equity prices of over 5% in any one month gets everyone’s attention. Is it something that heralds more pain to come, or is it an uncomfortable, but normal, correction that occurs every few years?

For savers, those who prefer to keep all their money in the guaranteed world of the banks, there is not much cause for celebration either. While bank accounts didn’t go down and inflation is very low, there has been little or no interest on savings deposits for quite some time. And we should expect that interest rates will stay low to zero bound for a while longer.

Most experts that have an opinion on this subject suggest that we are not headed for a recession of the kind that may follow a steep bear market decline in the equity markets. Rather this correction is just that, a pullback in the equity markets that are adjusting to the lower for longer economic environment. While downright scary on some days, we should expect our portfolio valuations to reemerge at some point in a not too distant future. As I suggested in my last article, investor expectations need to become aligned with the low inflation, low interest, lower equity returns that the slow growth Global economy is creating.

So what is a person to do with a retirement portfolio? Take on risk in the face of extreme volatility or sit in cash with no real earnings? These times are way too interesting.

I urge my clients to stick to a discipline which has worked over decades, that is,

  1. Create a plan for growth or income depending on the needs of the account.

  2. Design an Asset Allocation model you can stick with through good times and bad.

  3. Rebalance that design regularly – and that means at least once every year – even if that means pulling money from your fund that is up (or at least losing less) and putting that money into your fund that has declined to heart stopping levels. Remember to Buy Low and Sell High.

  4. Consider placing your investment dollars with a low cost active manager as opposed to an unmanaged Index. In volatile markets active management usually performs better than passive indexing.

  5. Avoid looking for higher than market yields. If the yield on your position or account is higher than what is available everywhere else, there is probably more risk associated with that investment or CD. High Yield generally means High Risk.

  6. Consider working with a Financial Advisor who can help you understand ‘What’s Going On.’


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Durham, NC 27707

P: 919-595-0619

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