What is Working Right Now in Financial Markets and Your Investment Portfolios?
Can you imagine how much slower you would have to drive your car if you had one flat tire slowing you down?

Why would you do that, it makes no sense? If it’s not working the tire should be replaced.

And yet, that is the way many firms manage your portfolios for you. Taking long term historical statistics from different asset classes and putting them together in a “historically return and risk adjusted average” way to give you a portfolio that fits your “return and risk level” expectations from a questionnaire. They can then set it and forget it.

Because they use long term data many asset classes are included that have not helped you get better returns in years. But the theory is “you never know when they will get better.” Another reason for designing a portfolio with everything in it is that they can set it and forget it. Just rebalance to keep the allocation from changing.

For example, using publicly traded ETFs as proxy asset class indexes:

EFA iShares MSCI Foreign Developed Country ETF - Current price levels are the same as February 2011
EEM iShares MSCI Foreign Emerging Markets ETF - Current price levels are the same as January 2010

               Price has been higher and lower but have not made anything but dividends since.

SPY SPDR US S&P 500 Index ETF is up $112.05 to $383.25 since January 2010.

             Over 10% per year plus dividends instead of no growth.

Data from finviz.com July 6, 2022.

I recently reviewed 5 large firms’ websites of their recommended allocations to foreign stocks, I found that 30% to 46% is the range of percentage of foreign equites out of all equities recommended by those firms. Are you paying a fee to have 30% to 46% of your investments be a flat tire slowing you down?

If they have been rebalanced to keep the allocation/risk level from changing they have almost always been selling some of the US equities, the ones going up, to buy some of the foreign equities, the ones not going up for 11 to 12 years. Since they never take foreign out when underperforming or put it in when it is doing awesome. They can set it and forget it.

We do portfolios differently. Our philosophy is “what is working now.” We therefore, try to fix the flat tire ASAP. And sometimes, areas that have gotten high risk need to come out to protect and preserve.

For example, we moved out of growth stocks and long-term bonds on January 4th. We moved out of all stocks and even short-term bonds on February 4th as we saw air leaking from all tires. As you have watched asset class after asset class take it’s turn in losing 10%, 15%, 20% or more our clients have enjoyed not continuing to lose when we got out of those asset classes, instead of the stress and wonder of what will happen next. This works great in retirement or other tax deferred accounts.

Investors that hear from us and not their own financial advisors have called and walked into our office because of their concerns over these issues: getting no changes and no communication.

And when you do drive your car with four good tires, there is a reason your front windshield is much bigger than the rear-view mirror. You know you need to pay attention to what is in front of you, “what is happening now,” when you are driving, not what is in the past.

Think about this too. Many investment strategies still being used were developed when we used paper maps to make sure we got to our destination. Now we all use GPS on our phones. Investment technology has advanced just as fast and helps us make changes quickly to stay on course.

If you are not getting the attention you deserve, or the answers you need, or you want more then set it and forget it, give us a call (520) 325-1600, click here to set up a time, or stay up to date by signing-up here for our emails

All my best,
David W. Shepherd, ChFC, CFP®
6300 E El Dorado Plaza, Suite A200
Tucson, AZ 85715

Phone: 520-325-1600
Fax: 520-325-9097
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Shepherd Wealth & Retirement ("SWR"), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from SWR. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. SWR is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of SWR's current written disclosure Brochure discussing our advisory services and fees is available upon request. 

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