Mid Year 2018 Update From Jason
It’s a new quarter, it’s halfway through the year….time for an update from Alternative Strategies Group.
What is in the news that has you concerned so far this year?
- The Stock Market?
- North Korea?
- Interest Rates?
- White House Investigations and scandal?
- President Trump’s Twitter feed?
Admittedly there are a few “new” items on the list this time, but are things really that different than any other time in our history? Politics makes the news, interest rates change, markets go up and down, and it is a global economy and a global “world”. You do not need me to tell you the obvious.
So let’s dig into what might not be so obvious.
Tariffs – will they really affect us and our portfolios? There are many legitimate questions to consider. Will it affect the agriculture producers (many of my clients), will it affect only certain industries, will prices of most consumer goods go up noticeably, will it create better wages and profits for US companies, will it affect the performance of your investments?
I believe the answer to all these questions is two-fold.
Answer one – at what level and for how long these new tariffs stay in place remains to be seen. Some statistics suggest that the percentage of total goods affected is less than 10% of all imports into the US. Don’t be so quick to panic by what you hear in a 30 second news piece any given afternoon.
Answer two – my belief is whether legitimate or not, this issue will be a major excuse for a stock market slowing and possible decline over the remainder of the Trump’s first term in office. So, yes, tariffs will affect how our portfolios perform in the coming months.
But what do we do about it?
There are as many different investment philosophies as there are stars in the sky. However, two very basic camps emerge over time – the index proponents (buy and hold a basket of all stocks) and the tactical proponents (buy targeted areas of the market through individual stocks and ETFs of sectors, and make changes as market conditions dictate). I generally subscribe to the tactical approach. The tactical approach doesn’t work so well in an overstimulated, raging bull, everything is going up, market. A market like we have had since about mid-2009, thanks to trillions of government dollars pouring into the market to keep interest rates low, stimulate growth, and create jobs.
We are approaching ten years of this situation and the train may be coming to the station. The government has all but halted its stimulation of the economy with bond buy backs. Interest rates have gone up significantly since 2016. The markets have not had a significant correction or negative year in almost a decade. I hate to tell you this, but that is not normal.
This is why you will start to see a shift away from indexes in my models, and an increase in exposure to individual stocks and cash. My allocations across the growth models are currently all more than 50% cash. This means that I am positioned to take advantage of price drops in the market, and positioned to protect a significant part of your portfolio if we have a prolonged sell-off.
We are also coming into the two historically strongest weeks of the entire 3rd quarter. Meaning what we can squeeze out of the next 10 days may be the best we get for a couple months.
(Courtesy Asbury Research)
For all the noise of 2018 so far, the markets have done little or nothing, with the exception of the NASDAQ. It was up a little over 7% for the first half.
I cannot stress enough the fact that short-term returns and comparisons are not a path to a solid financial plan. We certainly don’t want to sink our ship, but key to a life-long plan for financial health is to have a forward looking mentality, not a get-rich-quick approach. I need only remind you of all the phone calls I received about Bitcoin late last fall. The conversion to US dollars reached close to $20,000 at one point late in 2018. Today it is $6,552. Don’t chase short-term ideas you picked up in the locker room at your gym.
I believe the major market index returns will be much less this year than in 2017. Therefore, I am focusing on cultivating great individual stock ideas that will hopefully perform in spite of tariffs, politics, interest rates, and other outside factors.
I always welcome conversations about your financial planning and the money you have entrusted to me to manage for you.
I have seen a significant uptick in interest from prospective new clients (thank you all for sharing my name with those you care about) which suggests there is some nervousness in the marketplace. A common question from referrals is “should I be doing something different?” If they have been in the same funds since 2008 or earlier there might be a reason to be concerned about the next chapter.
I am hoping for opportunities to deploy the large amount of cash we are holding currently, but the seasonality chart suggest I need to be patient throughout the rest of the summer.
Thank you all for your kind and caring words for Tracey as she goes through this difficult time, and for your trust in my advice.
(For those of you who may not have received my email, Tracey Paulson, my administrative assistant, lost her husband, Don, on June 24th. Don fought a long, tough battle with cancer for over 9 years. He was only 48 years old.)