With the stock market charging ahead, how should you be investing your money?
At a program presented May 15th by Boston Private Bank & Trust Company, while noting that each portfolio should reflect that investor’s goals, time horizon and risk tolerance, the panel suggested some generally salient issues to be considered:
- Is the classic allocation of 60% stocks/40% bonds still wise? Is 70/30 the “new normal?” While reviewing history suggests that 60/40 returns averaged a healthy 9% per annum, recent trends suggest that the classic allocation may not enjoy similar future results.
- Analysis is complicated by inclusion of riskier investments into recent macro allocations, making historical comparisons difficult.
- Bond returns are low, but as always provide a counter-balance to equity risks.
- Recent developments suggest the end of a strong cycle for commodities. This does not necessarily mean negative returns, and commodities now may provide strong diversification.
- While about 80% of reporting S&P companies beat earnings estimates in the first quarter, less than half did it by beating gross revenues; this may foretell a need for greater selectivity.
- Real estate is strong and is part of many portfolios; REITs permit diversification coupled with both yield and liquidity.
- An historical argument was made in favor of dividend-paying stocks for total return and indication of company quality.
- If you are looking to retire, a careful portfolio analysis should be undertaken; draw-down rate from a portfolio is intimately related to how long a portfolio will last. Drawing lightly in early years may be key.
- The $64 question is, where is the market going? Aside from history telling us that there will be corrections and cyclical “pull backs,” fundamental indicators became more confusing in April and should be consulted as leading indicators; the regional Feds shortly will be announcing results, which are important measures of these fundamentals.
Nothing startling here; basic analysis by a traditionally oriented asset management team. One overall impression: asset allocation and selection within asset classes are seen as heavily informed by history, which reveals some remarkably constant dynamics. This fact alone might well lead an investor to look for a professionally managed portfolio, which I am sure would not be a bad result for the advisory community, including Boston Private.