The last several trading days have proven to be quite wild in the markets. As of yesterday's close, stocks are down 13-14% since the beginning of August, and are now down 15-16% since July 1st and down around 10% for the year.
Fortunately, DWM portfolios have done far better. Most of our clients' portfolios have dropped only slightly. The major reason is that our clients have balanced portfolio which includes some but not lots of equities, some fixed income and some alternatives. Even though equity has sagged so far this month and is the component always in the spotlight, the fixed and the alternative components continue to perform quite well.
Its been a tumultuous start to August. First, the markets agonized as Washington finally raised the debt ceiling at the 11th hour. Then, the focus shifted to economic numbers that have continued to soften; including employment, retail sales, and overall GDP. On Friday, Standard & Poor's downgraded the U.S. Debt from AAA to AA+. You may recall that in our newsletter last Tuesday, we identified the real possibility of the downgrade of the U.S. Debt, the likely impact of such a downgrade, and where to go from here.
These are very challenging times, both economically and for investors. The media these days is so over-the-top glamorizing events that historically were not so glamorous, creating undue anxiety for many investors. Furthermore, the media acts as if everyone were 100% allocated to the stock market which we see as an absurd notion; we and other seasoned financial advisors have positioned our investors using a balanced, diversified approach with some allocation to equities, some to fixed, and some to alternatives. By utilizing multiple asset classes, short-term returns can be smoothed out and long-term returns can be enhanced.
Our fourth article last Tuesday was devoted to investment strategy. We believe in these times for most investors, the first objective should be to protect your assets and the second objective to grow them. To do this, a portfolio needs to include not only stocks and bonds, but also alternative investments. We pick alternative investments designed to participate in up markets and protect in down markets. The result: less volatility, less anxiety, more consistent returns and more peace of mind.
Last week, while the stock market was losing 7-8%, the liquid alternative securities we employ for our clients' portfolios were down only about ¼ of that as a whole. In addition, our client bond holdings have continued to shine.
With many clients having only a small allocation to equities (generally 10-40%), we don't think now is a time to sell or trim any of this exposure. Our diversified stock holdings include both large, mid, and small domestic stocks. They also include international stocks, both of emerging and developing countries. After the dip last week, price/earnings multiples are just over 14, low relative to historical precedent. Generally, corporate earnings are up and there continues to be growth in the emerging countries. Whereas equities at the component level is typically the most volatile with proof of that happening right now, we think some exposure to equity is prudent long-term. After this recent swoon in the stock market, there may be a lot of bargains out there.
Overall, taking into consideration our clients' combined risk tolerance and return profile, we think our DWM portfolios are very well positioned for the future. We are always watching the economy, market events and clients' portfolio continually.
Not every investor is fortunate enough to be working with seasoned financial/investment professionals such as us. That said, if you have any family or friends in need of financial/investment management assistance during these turbulent times, please send them our way.
Last Tuesday's newsletter: http://www.archive.constantcontact.com/fs043/1102433536754/archive/1106901959450.html
