January 8, 2016 – As goes the market so goes….well, at least a portion of your portfolio. The beauty of a diversified portfolio is that it is designed to buffer the bad things that can happen to our clients. We knowingly give up riding to the high mark of a bull market in order to better manage the downside. Our portfolios have a large exposure to U.S. equities so news about U.S. equities is certainly pertinent to our clients. But we also have exposure to equities all over the world. We have exposure to the fixed income markets in the U.S. and abroad. We have exposure to real estate, commodities, and an asset class called managed futures that invests in the future price of things like commodities and currency. And we have exposure to hedge strategies, some of which are implemented to take advantage of downturns in the equity markets, just like the one we are experiencing right now.
So bad news about the markets is pertinent to our clients, but just because the news outlets are trying to push the panic button doesn’t mean we haven’t prepared for these times. It is important to remember that the equity markets are up about 70% of the time. Mathematics will tell you that the markets are going to be down 30% of the time. 30% isn’t as much as 70%, but it is a lot. If there were a 30% chance of rain today, it would not surprise me if it rained. In the same vein, it does not surprise me that the markets are down. Your portfolio has raincoats and umbrellas to use in down markets. It doesn’t mean you won’t get wet, but it makes the day more tolerable as we wait for better weather.
A note about China before I go. A lot of pundits are saying that China is the cause for much of this downturn. That shouldn’t be a surprise. China has artificially kept its markets higher than they should have been for years, which is not a sustainable course of action. The fact that China is causing problems just shouldn’t surprise anyone. Because this kind of thing is somewhat expected, the long-term effect of their actions should also be mitigated to an extent.
We will continue to manage our clients’ portfolios with a focus on long-term results and a hefty amount of skepticism for the impact of short-term news on your long-term results.
Because we manage the day to day business of your portfolio on your behalf, it is important to remind you that we are constantly working on your behalf and considering the impact of both short-term and long-term trends on your portfolios. Unlike the majority of the people who work in our industry who are required to call you before making decisions on your behalf, we have taken on a fiduciary responsibility to not only act in your best interest but to monitor everything we do for you. We may not get in touch with you as we think through times like this, but we always want to talk with you if you have questions, comments, or things that have happened in your life that might affect the way we manage your assets.
Thanks for your trust and commitment to the Hardy Reed investment process. We look forward to hearing from you soon.
Scott Reed, CIMA®, AIFA®