Another good couple of weeks for the markets and for all of our managed portfolios. With the current market environment being quite cooperative, we continue to be nearly fully invested in all major market segments, including U.S. dividend-paying equities, U.S. growth equities, foreign emerging markets, U.S. real estate, commodity-based equities, and high-yield fixed income. Positions in high quality fixed income are at minimum levels at present.
The recent deterioration in foreign emerging markets has abated (at least for now) and as such we’ve returned to a fully invested posture in this area. All of the other positions mentioned above continue to demonstrate supportive, rising price trends as they have since the end of September, 2010.
Our preference (as always) is to be fully invested in these market segments as the rewards can be great, but only so long as the risks of owning them are at the very least reasonable. For investors that have been with us for some time, you know that we focus a lot on playing defense – limiting losses, being prudently conservative. However, our true preference has always been to play offense as much as possible. Getting ahead is the reason we invest in the first place! Given the current rising price trends and continued evidence of an accelerating economic recovery, we believe that the market risks right now are reasonable. Our “offense” came on the field back in September when the market turbulence of the 2010 summer months subsided, and we’ve been “marching down the field” ever since with very positive results. It has always been our belief that periods of sustained and helpful market advances are inevitable, and that when they do occur they can often produce more than enough growth to meet our clients’ investment needs, sometimes in abundance.
So what are those needs? First and foremost, all investors need to experience positive portfolio returns over time that are large enough to make their own financial engine run smoothly. Put simply, if an investor needs to average somewhere between 7-9% over time to sustain their lifestyle (which most investors do), that’s their true bogey. While many investors will say that beating the market (like the S&P 500, for example) is their true goal, this statement has always confused me. Over the past eleven years the S&P 500 index (with all dividends) has returned just a hair over 0.75% on average per year. That’s it. Beating the market could have produced as little as 1% per year and still beat the market.
If an investor needs to make 7-9% to stay solvent (and having enough money to go golfing and fishing and build airplanes and doing everything else that makes life worth living) but makes only say, that 1% per year, it’s likely that investor will simply run out of money (which makes life a whole lot less enjoyable). The investor beat the market, but that’s cold comfort when you’re out of the game entirely.
As we make our way back to the top of the market (a level that hasn’t held up very well in the past), the temptation for many investors is the same as it was in 1999 (the first time we arrived here) and again in 2007 (the second time around): take on more risk than is really needed to make your financial engine run. Being fully invested right now as we are isn’t exactly conservative, but it reflects the current market environment and it is the prudent and correct posture right now.
So here’s our current “bird’s eye view” of the markets – our five-year ETF charts with both their respective short- and long-term trend-lines. Full steam ahead right now – we’ll continue to sport this decidedly bullish posture until such time as a significant adjustment is warranted.
As always, I welcome your comments and thoughts…