What does "Chicken Little" have to do with my investments?
Is the sky falling?
Remember when an acorn hit Chicken Little in the head? He panicked, and his hysteria spread through the forest. All the nervous woodland animals were persuaded to seek shelter in the fox's den, and… well, you know how that turned out. Moral of the story: Don’t believe everything you hear.
Aesop's fable is a good metaphor for today's investment environment. Despite evidence to the contrary, many investors are scrambling for the fox's den - aka, cash. Global stock markets are up 20% YTD and 50% over the last three years while cash has earned a big fat chicken egg of around zero.
Regardless, there is no shortage of acorns falling on investors’ heads these days: North Korea, tax reform, fiscal cliffs, Chinese debt, expanded P/E’s, etc. While it is certainly possible that any of these issues or others may accelerate and cause a market pull back, it is doubtful they will keep the stock market from moving higher over the next five years. History teaches us that stock markets don’t die of old age or overvaluation, they end because of recessions. With global growth at its highest level in years, record corporate profits, and improving consumer sentiment, we believe a recession is unlikely. The sky is not falling. It may get a little gray and it might rain, but it is definitely not falling.
What does this mean for you?
What does this mean for our clients? We have clients who are asking about converting to cash, or are currently over-allocated to cash. Understandably there are concerns about protecting the downside. We actively take steps to protect the downside, but would never recommend that a client be fully invested in cash unless demands for that cash were imminent. Our position is that a portfolio of diversified asset classes is required to achieve a client’s financial goals. Losing out on returns is permanent and more damaging than the temporary losses of a market pull back. We strive to be prudent with your investments.
Our confidence in this position is grounded in the fact that our frameworks ignore emotion and look strictly at fundamental facts. We have designed portfolios for each investor’s risk appetite that allow participation in market upside while minimizing downside.
We recommend that any investor still in cash should consider one of our portfolios. Our conservative portfolio is 30% stocks and 70% bonds. Based on historical returns, this portfolio has less than a 1% chance of losing money over a three-year period and only a 10% chance of losing money over a one-year period. On average this portfolio has returned more than 7%.*
Historically, not participating in an up-market poses much more risk to wealth preservation than being invested in a down-market. Since markets rise over time, being invested is the right answer. We are happy to talk with anyone about their investment allocations and are always open for conversation.
The GreenPort Team
*Analysis is based on back-tested historical performance of asset classes, rebalanced monthly. Past performance does not guarantee future returns.