Calendar year 2019 delivered excellent stock and bond returns to investors. The S&P 500 returned approximately 31%, the MSCI ACWI (representative of a global stock portfolio) returned approximately 27%, and the Barclay’s Aggregate Bond index returned approximately 9%.

Meanwhile, 2019 has likely solidified the past eleven-year bull market as the ‘Most Hated Bull Market in History.’ That nickname is appropriate because it has coincided with significant investor angst about when the next big correction is coming (which, in hindsight, may be mental residue from the 2008 crash), along with many investors who went to cash, missing much of the higher returns. It has been said that the market has climbed a ‘wall of worry’ in recent years.

Our belief is that this past decade further exemplifies the value of a well-diversified portfolio. An underrated aspect of investment management is the construction of portfolios that help investors ‘stay the course’ in order to achieve their long-term goals. Notwithstanding the above preamble regarding long-term investing, it is also true that in the short-run the stock market can be viewed as a risk/reward pendulum swinging back and forth. We believe the pendulum has swung less favorably over the last twelve months, as bond yields have fallen and stock valuations have risen. Higher realized returns lead to lower expected returns [and vice versa].

We are rebalancing the portfolios to start the year with the primary purpose of bringing stock-to-bond ratios in line with the objectives of the portfolio (i.e. minimizing drift). Concurrently, there will be a small tactical positioning towards higher credit quality bonds and more defensive value stocks in congruence with our view on the short-term risk/reward. It is a delicate balancing act between staying the course with long-term strategic allocations while using smaller tactical adjustments that reflect changing market conditions.

As always, we finish with the reminder that the most important aspect of investment management is an asset allocation that is aligned with an investor’s financial plan (including need, ability, and willingness to take risk). This allows the navigation through short-term volatility in favor of long-term returns. We encourage you to call, email, or use our online portal at any time if you want to check-in on your journey or have questions about your IEM portfolio.


Daniel Schoenecker, CFA, MBA
Vice President of Wealth Management

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The MSCI ACWI is a free-float adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities.