What Portfolio Is Right For You

Let’s start with learning about you. Answer a few important question, and we can start building your recommended investment strategy based on your financial objectives.

2019: Big Dreams. Bigger Headlines.
February 28, 2020

2019: Big Dreams. Bigger Headlines.

Ms. Alyssa Carson

Ms. Alyssa Carson is a dreamer. “Always follow your dreams and don’t let anyone take them from you” is her catchphrase. Her logo is her charming signature punctuated with a small swoop from a rocket. She has a website complete with contact info for booking speaking arrangements. Her Instagram has a quarter-million followers. That’s because Alyssa Carson—the starry-eyed, now-18-year-old— is aiming to be the first human to set foot on Mars. And who could doubt her? She’s the youngest to graduate from the Advanced Space Academy, the first to complete all seven of NASA’s Space Camps and is now certified in applied astronautics. That’s right, she’s technically allowed to go to space but not the local watering hole.

And of course, she’s an automatic media-sweetheart. Nonstop interviews, full-page spreads (see cover photo) and even a TED talk—all have us Americans happily cheering a courageous young ingénue to the stars. Which is great. But are space-camp certifications and media circuits hallmarks of a destined astronaut?

Before Sally Ride (1951-2012) decided to become the first American spacewoman, she knabbed a PHD in physics, concentrating in astrophysics and free electron lasers [1]. She did that while also researching the interaction of X-rays with the “interstellar medium.” Or how about 8-year-old Adhara Perez, who has an IQ of 162 (two points above Einstein), currently enrolled in two University courses (Industrial Engineering and Mathematics)—she too has goals to become an astronaut and to explore our red-rocked neighbor.

It begs the question: why aren’t either of these other women parading around touting Disney-esque parables to inspire American youth to follow their passion? Did Sally Ride aspire to be a female icon?

In other words, is Alyssa Carson really destined to make a giant leap for womankind— or is she a mere product of media hype?

Look, Ms. Carson could be the real deal. In fact, we’re cheering her on right alongside you. Our point is that the media survives off sensationalism and lofty premonition. The more lovable or hate-able —the more clickable. And though it’s fun to buy into the hype, it is rarely reliable. Could this big dreamer make it to our red planet in 2030? Possibly. But would you bet on it?

As Predicted, 2019 Was Unpredictable

And on cue, as interest rates dipped in the beginning of the year, the headlines rolled in. “Uncertainty looms ahead as we transition into 2019”[2] read one. Also on cue, investors responded with knee-jerk trades or pulling out of the market altogether. And that probably left them kicking rocks by the end of October when the S&P 500 was back up 20% on a total-return basis. It actually was a pretty good year.

But the media might have had you thinking otherwise. To their credit, there were some mishaps.

We heard churns of chatter around the inverted yield curve— which signified that short-term notes carried a higher yield than the long term. This, of course, set off the usual cannon of media hoopla with talking heads warning of certain economic implosion.

The “trade war” with China left us wondering if we would see extreme price hikes of everyday goods or if it may bludgeon agrarian industries across the US. In fact, on August 23rd the DOW dropped 223 points, five minutes after US President Donald Trump asked American companies to “immediately start looking for an alternative to doing business in China…”

We saw Greece’s stock market drop to negative 37% in 2018 and climb right back up to positive 37% in 2019. Other markets had a similar experience.

If anything, all of this illustrates that the randomness of events and influences make predicting the market a fool’s errand. Does waning investor confidence really spell recession? Possibly. But would you bet on it?

A Quick look at Global Markets

A performance of equity markets in 23 developed and 24 emerging markets

Global markets were reliably unpredictable, which brought good news for some. Among emerging economies, as mentioned, the Greek market swung from a harrowing -36.84% in 2018 to a near-miracle 36.95% as of December 2019. A stunning change for some who expected Greece to even abandon the euro at the start of the decade—then experiencing one of the strongest stock market performances in the emerging sector. In developed markets, Ireland similarly overcame an uncomfortable -25% to a cozy 24% in just a year. Again, demonstrating the weather-like fickleness of market performance.

But any way you slice it, 2019 was a good year for markets. And you didn’t have to leave home to find proof.

The Russell 2000, a broad index of the US stock market, returned 25.52%, continuing what has become a historic bull run for US equities. The US led non-US developed and emerging markets. Value was negative in US, non-US and emerging markets. Small cap outpaced large cap non-US developed but slipped below US and emerging markets. US bonds ended with 8.72% and global finishing out with a similar 7.57%.

2019 Market Summary - Index Retuns

We’re happy to report that we also captured this performance in our portfolios.

Our 50/50 portfolio, Model 08, returned 13.03%. You probably noticed that’s about half of the return of the Russell 2000—but the Model 08 also reduced risk by 63% compared to the Russell 2000. Whether you move up or down in our portfolio range, that relationship holds true. It also shows diversification and risk-mitigation at work: shedding risk without also shedding an equal amount of return.

To put that in perspective, just look at the previous year.

2018 logged steady growth throughout the first 9 months, only to crumble due to a turbulent 4th quarter. When all was said and done, our Model 08 returned -5.43%, while the Russell 2000 finished the year at -11.11. Many email exchanges, phone conversations, and meetings we had with you that year addressed concerns about performance, market volatility, and future threats to the market. “Why am I trailing the S&P 500?” “Does diversification still work?” “What happens if [insert politician name of choice here] actually [insert action here]?”

Our advice consistently drives to the same themes. Diversify. Don’t time the market. Keep your fees low. Invest for the long-term. Stay the course and remain disciplined. These pillars are rooted in the wealth of data that suggests human beings are overwhelmingly bad outperforming the market. These are our anchors because they are always within our control. We cannot control whether markets go up or down, but we can control how we react.

That is to also say, 2019 was a strong year for investors who remained un-swayed by media wolf-cries.

What Was All of That Inverted Yield Curve Talk?

Normal Yeild Curve vs Inverted Yeild Curve

In the 2019 summer, 2-year treasury yields overtook that of the 10-year treasuries—giving us the infamous inverted yield curve.

But why do we care?

The yield curve tracks the yields (or interest rates) of bonds of differing maturity dates. Economists and investors use it to anticipate upcoming interest rate changes and gage investor confidence in the market. The higher the yield for the longer duration, the sunnier the sentiment among investors. And for the first time in over a decade, the yield from short term bonds was higher than long term. This, to investors, meant that the public is fearful of what the immediate future may hold. And that could spell an impending market dip if that attitude started to spread.

And dip the market did.

The DOW fell more than 800 points, igniting murmurs of a looming recession [3]—reflecting the nerves of timid shareholders. And who could blame them? The inverted yield curve has been a pretty reliable indicator for recession [4]—at least it has been since 1980.

In October, the inverted yield curve righted itself, quieting recession talks a little. And the economy continued to shatter positive records.

But there’s no way of knowing for sure how long that will last. It at least demonstrates that if you start moving in and out of the market, you may escape sudden downturns, but you can just as easily miss important dates.

The United States-China Trade War

Though the trade war came as a surprise to some, many knew it might happen since Donald J. Trump has been complaining about “unfair trade policies” since the 80s. The news started to report dips in the market due to scares that China’s reaction may be hostile.

And some analysts offered their “analysis” in full hyperbolic display—one blog bemoaning:

“The trade war has fostered international political conflicts, sucking focus and energy from the healthy, gradual development of resources and culture in families and local communities and transferring attention to the ‘eye-for-an-eye’ global gladiatorial arena of historical grievances and economic retaliation.”[6]

News clipping about Chinese Traffifs

Some American companies did not mind going out on a limb whatsoever:

Headline from Bloomberg

Major effects of the trade war may still yet to be realized—at least for the United States. But we have seen some notable results. China, as a consequence of Trump’s tariffs, experienced the slowest economic growth since the early 90s [7]. According to the South China Morning Post, “China’s share of US imports of machinery and electrical equipment has fallen by around two percentage points since 2017, and its share of US electronics imports have fallen by six percentage points.” [8] Big news? Meh.

Other than that, most of that “sky is falling” stuff didn’t come true. Cooperative efforts with China have since calmed investor nerves— but even in December, click-thirsty op-eds still attempted to reignite fear.

Again, we’re not saying that just because the media cried wolf and no wolf came, means the wolf doesn’t exist. We’re just pointing out that crying wolf is a pretty effective way to increase advertising revenue.

So, Did Anyone Predict…Anything?

Now, let us first say we realize we say this a lot. You might have also heard statements like: “the headlines were wrong,” “timing isn’t everything,” “investors should invest for the long haul” …you might even call us predictable. But don’t mistake sticking to a tried-and-true trope for a lack of a better idea. These sentiments are our philosophy. We don’t change just because the year does. But we digress.

So, to answer the question: did anyone predict anything?—some did, some didn’t. And next year, some will, some won’t, too.

The only foresight we believe in is the foresight to know you can’t foresee anything. Or as one author put it, “Hindsight is 20/20. Foresight isn’t.”

Secondly, we want to stress we have no qualms with the media, itself. We’re only illustrating that their business survives off of your attention and not your returns. The press (and freedom of it, protected under the 1st Amendment) is integral to a balanced, prosperous society. Of course, there are many perceived missteps in conduct by our news correspondent-comrades—but find us an industry that didn’t need improvement, as well.

Finally, if we may, let us reiterate that investing in a diversified mix of low-cost index funds is the easiest way to stay clear of the vortex of emotions that inevitably accompany guessing market behavior. The future is sometimes fairly clear and maybe informed investors can appropriate their genius at the perfect moment. Maybe this emerging market or that value stock will quadruple by year’s end. The problem is they can’t do it consistently. We think it would behoove them to construct a globally diversified portfolio that may not give them adrenaline rush, but certainly give them piece of mind. And it undoubtedly keeps investing simple.

Which reminds us…

Keep it Simple (our new podcast)

As many of you know, we released our own podcast: Keep it Simple. Our on-air talent—fearless CIO, Michael French and one of our most veteran, knowledgeable RIAs, Adam Morse, explain everything from market volatility to IRAs. Each 20-30 minute episode aims to keep the you informed about the basics of investing and understanding our current global market and what that means for your investment. But of course, these sorts of subjects can get pretty convoluted. Which is why the genius of this podcast is to break it down and keep it simple. Each topic is shaped into bite-sized bits of information to help you digest complicated investment ideas that go down like a spoon full of sugar. Michael and Adam cover a wide range of concepts, all intended to keep you a shrewd investor.

We couldn’t be happier with how the first few episodes have been received, and we are looking forward to keeping your questions answered, your mind thought provoked—and most of all, keeping it simple.

To find our new podcast, subscribe via Apple Podcasts or follow us on Spotify.

Listen on Apple Podcast Listen on Apple Podcast

The Importance of You

We want to proudly reiterate that our “fiduciary standard” means we are not only ethically motivated but also legally obligated to act in your best interest as your financial advisor. This ensures we conduct ourselves with the utmost care and professionalism, the highest standard of ethic, and manage your investment based on your benefit, not our own.

That said, it has been an honor and utmost pleasure to work with you this 2019 year. Our clients continue to surprise us with their wonderful stories and warm personalities.

From the bottom of or hearts, alongside our families and with sincerity and gratitude, thank you for continuing to be a valued client at AssetBuilder.

If you have any questions about anything at all, we are a just phone call away.


Related Articles

This article contains the opinions of the author but not necessarily the opinions of AssetBuilder Inc. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Performance data shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

AssetBuilder Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and expenses carefully before investing.