Tag: Portfolio

Is the 60/40 Portfolio Dead?

A short but necessary reflection on the “60/40 Portfolio”. (Hint for those wanting to move on to the weekend and stop reading here: the 60/40 portfolio is not dead.)

It would help first to define what a 60/40 portfolio is: an overall investment allocation of 60% stocks and 40% bonds (or bonds and cash). But even “stocks” and “bonds” can be too subjectively defined by the average investor. When it comes to a diversified 60/40 portfolio, the stocks category includes globally diversified equities of all sizes (large & small), styles (value & growth) and industries (all tech – not only super-AI tech – financials, energy, consumer goods, etc.). The bonds category can open a huge “can of worms” because a typical bond fund in a 401k account contains far riskier and longer-dated bonds than meant for the “steady, safe” portion of a retirement savings portfolio. Therefore, the bond category can do its best long-term work when invested in high quality, shorter-term bonds and cash instruments. Please ask me more about this topic.

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What Could Happen in 2023

What is in store for 2023? Is the stock market overvalued? In answer to the second question: perhaps yes, perhaps no. When most people ask, “Is the market overvalued or undervalued?” what they really are asking is, “Where is the market going next?”

Of course, no one knows for sure. But a bit of historical data can offer information for comparison. Below (top) is a chart showing how over-priced US growth stocks (yellow-ish line) have been over 100 years and how over-priced US value stocks (greenish-blue line) have been over the same period. It would seem that growth stocks are still over-valued. But look at the period for growth stocks between 1974 (the last time inflation was as high as it is today) and 1998. Can you say that it was obvious in 1992 that growth stocks were overvalued? Probably not.

Fast forward to 2023. What could happen next? See the bottom chart for more data.

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2021 What A Year So Far

Wow… year-end 2021 is fast approaching. As if 2020 was the year we all wanted to turn the page… it is deja vu all over again in 2021. BUT a positive spin can still be put on year-to-date 2021, especially with respect to market returns.

It may be too early to say that stock market gains, to date, have been better than decent in 2021. From the US small-cap index up 12%, to large-cap S&P 500 up 22%, to Nasdaq up 19%, to the Dow Jones up 13%, these are all solid year-to-date returns.

Take the time before year-end to evaluate portfolio gains and asset allocation.

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A Quick 2Q Wrap-Up

Just like that it is July 2021! That means both the 2nd Quarter and 1st Half of the year have come to a close. Here are a couple of quick notes about the quarter including a few things that changed and did not change on the year.

Stock and bond markets along with portfolio performance continued to be strong. It seems there is less caution in the air with an economy continuing to come out of the pandemic. Although the expression “the most unloved bull market” is still on peoples’ minds. Reason being that worries abound as the US Fed and Treasury continue to pump record amounts of money into the US economy. And there are plans for the stimulus to continue. This state of affairs risks inflation among other economic maladies.

Stock and bond markets along with portfolio performance continued to be strong in 2Q.

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Portfolios & Back Pain

Have you ever had back trouble? Boy can it be a pain in the ### (pun intended). Recovery is usually possible by seeking – and taking – proper advice and treatment. Believe it or not, there is a way to relate the recovery process from back pain to the recovery and durability of investment portfolios. Stay with me here!

I will credit my excellent physical therapist, who knows very well my profession as a CFP®, for coming up with the concept. He said to me, “like your advice about my 401k allocation, the physical strength work a person does for years can make recovery from back trouble much swifter and even easier.” Hooray! While the recovery process for a person’s back can take several weeks to several months, the recovery process for properly positioned investment portfolios has been actively taking place for over 12 months and could continue over the life of a portfolio.

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Investment Talk at the Weekend BBQ

With Memorial Day fast approaching…and summer BBQs possibly starting soon… here’s a good one from the Archives of TGIF 2 Minutes….

May 2020:

A popular topic that inevitably comes up over holiday weekends and even at socially distant BBQs is “the latest hot investment” or the brilliant neighbor who made a killing in “Fund A” or “Investment B.” But did you ever notice that rarely does the conversation highlight the losing investments?

The person who starts talking about Asset Allocation and patient investing over the long-haul is the lonely person at the cocktail party or BBQ.

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Quick 1Q Wrap-Up

In the interest of the upcoming Easter and current Passover holidays today’s edition will be quick. Similar to the 1st Quarter of 2021 which seemed to FLY BY!

Market – and my clients’ portfolio – performance was strong to start the year. There is caution in the air, however, as 10-year US Treasury yields climbed to levels not seen since early 2020 before the pandemic began. The swiftness of the rise in bond yields warrants caution in the overall stock and bond markets.

The swiftness of the rise in bond yields warrants caution in the overall stock and bond markets.

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Zero Interest Rate World

Low and near-zero interest rates have become a fact of life. Rates could likely remain low for the foreseeable future based on the economic and US Federal Reserve environment. This statement is not meant to be a predictor of where interest rates are going. Still, the fact of near-zero interest rates needs to be on investors’ radar screens, as boring as the topic may sound!

The bond market and interest rates involve far, far more complicated math than stocks. Trying to predict bond prices and interest rates is mostly not worthwhile.

Near-zero interest rates needs to be on investors’ radar screens.

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The SoftBank “Secret”

By now, most investors know that in late February of this year through mid-March the stock markets kind of crashed. It was a matter of 31 days from February 20th to March 23rd….not that I had to look that up or anything.

It was swift and ugly. And then, the stock markets both suddenly and slowly recovered, hitting it big in April and then gradually reaching new all-time records by September. Hmmmm… how does that work? Is it “free markets”? More buyers than sellers? Individuals throwing money at stocks?

SoftBank reported $4 billion of options trades representing $50 billion of underlying value in the same handful of technology stocks in the US.

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YTD Market Performance Broken Down

After talking with a number of clients and friends in the past couple of weeks it became apparent that a breakdown of YTD stock market performance would be informative. There are major pronounced differences currently in the various stock categories. An explanation of these differences could illuminate why certain portfolios have gone up (or down) more than others. 

Please note that this discussion is not meant to minimize the importance of performance. Performance is critical; however, the time frame of performance evaluation and the concept of progress toward achieving goals are even more critical to successful investing.

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Performance is critical; however, the time frame of performance evaluation and the concept of progress toward achieving goals are even more critical to successful investing.

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