As we approach the end of the third quarter, we want to update you on our views about the markets and the positioning of investments in your portfolio.

YES – 2019 has been another volatile year for the investment markets

NO – We have not changed our long-term focus or investment discipline

YES – Interest rates have been declining in the U.S. and abroad

NO – A recession is not imminent

YES – We have maintained our close contact with all the investment firms with whom we have invested your wealth

NO – None of the investment firms with whom we have invested your wealth are panicking either

What are the changes that we have made in client portfolios in 2019?

While we have maintained a constant level of exposure to the stock market, we have not been adding incrementally to stock positions. Despite the market volatility we have experienced the last two years, the major U.S. markets reached all-time highs this summer. In fact, the U.S. stock markets have risen over 300% since the end of the recession in March of 2009. As a result, several investment firms have reduced their exposure to stocks this year. They are attempting to time the stock market in anticipation of a near-term decline. Market timing is rarely successful.

We have not reduced stock allocations in client portfolios other than to retain target allocations. The results from our not trying to time the markets have been really well received by our longest tenured clients who have seen positive performance relative to their benchmark returns. Our consistent exposure to the stock market has also allowed us to capture the strong stock returns in 2019. As we enter the final quarter of 2019, we are holding stock allocations constant and trimming the growth-style stock investments when clients need cash from their portfolios. These growth-style stock investments have fared best recently; however, their higher relative valuations make them more susceptible to an eventual stock market decline.

In response to the decreasing interest rate environment, we have made some adjustments to the bond investments in client accounts. We have replaced bond mutual funds that had benefited from the rising rate environment of the last several years with bond mutual funds that perform well in a declining interest rate environment.

We also made some portfolio adjustments to address the inverted yield curve. The inverted yield curve means that you can now get paid the same rate of interest on bonds that mature in one year that you can on bonds that mature in 7-10 years. In fact, the interest rates available on bonds maturing in two years or less is actually greater than the rate being paid on bonds maturing in three to five years. The inverted yield curve creates a different set of investment opportunities than were previously available. The trades we made to change the bond mutual funds in our client portfolios were done to take advantage of these new opportunities.

We have also sold some investments due to their performance falling below our expectations. We do our best to find mutual funds that can add value in a diversified portfolio. When the investments fail to meet the expectations, we replace them with others which we feel have greater future potential.

The good news for 2019 is that the investment markets have been delivering returns in client portfolios that are well above most people’s expectations. We expect that the investment markets will finish the year with above average returns for most asset classes. While market volatility cannot be predicted, our exposure to various types of investment market risks can be managed. We will continue to manage portfolios with close attention to the amount of investment risk being taken relative to each client’s investment policy.

Please find important disclosures about this resource HERE.