A Rising Tide Does NOT Raise All Boats

A Rising Tide Does NOT Raise All Boats

 As investors wait for the Federal Reserve’s decision on interest rates next week, (and let me tell you nothing is more important right now; they better lower rates!), “some” stock market indexes are rising steadily and making new highs.

This has become very confusing for investors. On the one hand they see the headlines that stocks are going up. Yet, on the other hand when they look at their portfolio online they don’t seem to be making as much money as they expected. So what gives?

This is what we officially call a divergence. As you can see from the *chart below, the S&P 500 is enjoying nice gains but the majority of stocks, such as the Russell 2000, mid-caps and international indexes are severely lagging the S&P and the Dow.

Everyone’s first reaction is that they should be doing what the market is doing. However, does any investor want a non-diversified portfolio of only the 30 stocks in the Dow?

Of course not! Successful portfolios designed to deliver returns with the least risk possible have two ingredients. They should be:

  1. “Tactically” managed – never buy-and-hold, aka. “Buy-and-hope”
  2. Properly diversified in all six asset classes: stocks, bonds, real estate, commodities, international and cash. Naturally, not every asset class rises at the same time, but with the proper mix you can hedge your risk this way without the wild swings.

This is how we manage our clients assets every day, and strongly suggest the same to the do-it-yourselfers.

For more information on our powerful investment management and financial planning process, simply give us a call for a free no-obligation consultation today.

Cheers -Keith

916-925-8900

 




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