(Photo courtesy of David Rosell)
Has Your Portfolio Been As Turbulent?
As welcomed summer-like weather has visited Central Oregon early this year, many are excited to watch surfers, paddlers and tubers navigate the tumultuous waters at Bend’s new Whitewater Park. My son Jack has certainly been enjoying it and was the first person to experience the Passageway channel when it opened last September– even making the front page of Bend’s daily paper.
People floating the river may now do so continuously from Riverbend Park to Drake Park. It is made up of twelve drops and pools to accommodate a change in river elevation and to facilitate fish migration. River floaters no longer have to get out of the river to avoid a potentially life threatening entanglement with steel pilings that were once part of a dam in the turbulent Deschutes river.
Speaking of turbulence, investors also witnessed a lot of in the markets over the first quarter of 2016. Despite this, the markets recently rallied and first quarter returns were positive. That outcome seemed quite unlikely in January, which was the worst month for stocks since 2009. However, by the time the seven-year anniversary of the 2008-09 Bear Market lows rolled around in March, a solid stock market recovery was well underway. Also in positive territory were bonds. Overall a much more positive start to the year than originally expected. Diversification is important to the overall success of a portfolio and while diversified portfolios had been on trial the end of 2015 and beginning of 2016, they ended up faring relatively well by the end of Q1.
I believe there two factors that may continue to impact investor’s portfolio strategies and results in 2016:
- Financial market volatility
- The importance of diversification
Financial Market Volatility
While returns were not spectacularly strong in Q1, the relief factor at the end of a very volatile period made them feel pretty good. Investors feared much more painful results when the S&P 500 was in the midst of its worst-ever first two weeks of January. Stocks plunged down, rallied a bit and then fell again into February as the list of worries seemed overwhelming. Investors around the world were further unnerved by new lows in oil prices, worries about China’s economy, volatile currency swings and the apparent ineffectiveness of Central Bank actions. By mid-February, US stock indexes were trading at two year lows.
This volatility continues to demonstrate the difficulty of timing the market. For those who gave in to their emotions and dumped stocks in January, the reversal to the upside in February was not only baffling, but costly. When you time the markets you have to be lucky twice. You must not only get out of the markets at the right time but you need to get back in at the right time. To be successful over the long term, it is time in the markets not timing the markets that counts.
The Importance of Diversification
You already know the drill on diversification— the more securities you own in an asset class, the more protected you may be when any one of those securities takes a nosedive. The one-two punch of a strong USD and weak oil prices hit diversified portfolios hard in 2015. There has been good news for US large cap investments — typically one of the largest equity holding inside portfolios. Your restraint should not allow you to speculate through overconcentration of positions, so your portfolio will always have significant exposure to diversification that enhance the longer term risk/reward characteristics of your portfolio.
Natural resources were strong and both U.S. and International REITS also did very well in the first quarter of 2016. MidCap and SmallCap U.S. and Emerging Markets all contributed to equity results that beat the S&P 500 index. The bottom line with regard to diversification is that nobody knows exactly what the future holds. Broadly diversified portfolios embrace this reality.
Portfolio Strategies Moving Forward
2016 began without great enthusiasm for the prospects of global economic growth. The two largest economies, America and China, will probably rank fairly high in terms of GDP growth rates, but neither one shows signs of acceleration. European growth appears to be improving slightly, but the key hopes for the Continent rest on continued easing by the European Central Bank. As a result, global growth seems likely to remain sluggish overall.
Frequent fliers are accustomed to hearing the pilot remind them to keep seatbelts fastened when turbulence is likely. I suggest investors do the same as we fly through this turbulent stretch. I believe a prudent strategy for managing globally diversified portfolios is focused on optimizing risk adjusted returns.
Have a wonderful Spring and if you have not done so yet, get out there and enjoy the Bend Whitewaterpark— a true asset to our community.
David Rosell is President of Rosell Wealth Management in Bend. www.RosellWealthManagement.com. He is the author of Failure is Not an Option- Creating Certainty in the Uncertainty of Retirement. You may learn more about his book at www.DavidRosell.com or Amazon.com. Ask for David’s book at Barnes & Noble, Newport Market, Cafe Sintra, Bluebird Coffee Shop, Dudley’s Bookshop and Sunriver Resort.
Investment advisory services offered through Rosell Wealth Management, a State Registered Investment Advisor.
Securities offered through ValMark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Ste 300 Akron, Ohio 44333-2431.
800 765-5201. Rosell Wealth Management is a separate entity from ValMark Securities.
Diversification and asset allocation cannot guarantee a profit or protect against a loss. All investing involves risk, including the possible loss of principal.
