Broker Check
Important Investment Lessons from Last Year

Important Investment Lessons from Last Year

| April 15, 2019

As I write this, we have just finished the best quarter for the stock market in 10 years!


The only problem is, it followed the worst quarter in 30 years...

Source: JPM

The “normal volatility” that we hadn’t seen for some time has come back in full force. Today the Federal Reserve is relaxing, Brexit might finally be happening, and hopefully, we will have a China trade deal signed off before summer.


You will still see some lackluster performance numbers, particularly on the five-year number because we just dropped 2013, when the market was up over 30%. Thanks to my friend Randy to pointing this anomaly out.


Year to date, your US stocks have bounced back significantly. International stocks are coming back, but still down. Then fixed income has really popped with the more accommodative Federal Reserve. Finally, if you have alternative investments with us, they are doing well, still better than the bonds but with less risk than the stocks.

So what are the lessons?


1. “Boring bonds” can be a great comfort, especially for those nearing or in retirement. Sometimes they give us frustration because they aren’t sexy or generate a ton of gains as stocks can. But when the market is down, we can depend on them to fund your income needs and let the stocks recover.  A nervous client recently asked me if we should sell stocks in her account given everything going on in the world. I did some math and said, “We already have about 12 years of safe money set aside, how long are you going to live?” She joked, “Definitely not that long!”, we had a good spirited laugh and decided she probably had enough safety to carry her through the next drop. Even though it’s not fun, it’s the smart long-term strategy.

Plus, lately your bonds are putting up good numbers again, and for those of you with tax-free bonds, the tax equivalent yield can be almost double your official interest rates!

2. Trying to time the market is not wise despite what our ego may suggest. We had a huge run-up and dropped twice last year, about 12% in February, and 20% at year-end. Only to have the market rebound in a relatively short fashion. This doesn’t happen all of the time, but volatility on the downside comes with the opportunity for growth. The growth in your portfolio today did not come from speculating or gambling with your hard-earned money; rather, patience and diversification have been the key to repeatable returns. We believe in prudent evidence-based investment techniques and throw out more ideas than we implement. Having a good filter is important.

3. Diversification works. We never know where the outsized risks or returns will turn up in our global economy with thousands of inputs going into economic numbers, and oftentimes investor psychology. Having a carefully constructed portfolio of well-diversified investments helps achieve a higher expected return with less risk. We regularly review your accounts for rebalancing needs to buy more of what’s on sale, capture gains, and sometimes, proactively harvest losses to help with your taxes.


Please call or email if you would like to review how much risk and safety is in your portfolio, or if you would like to brainstorm around other topics for your own situation.


Thanks for taking a look!

Your Team at ISC

This article represents opinions of the author and not those of his firm and are subject to change from time to time and do not constitute a recommendation to purchase and sale any security nor to engage in any particular investment strategy. The information contained here has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy.