But even if you decide to make portfolio changes, I urge all investors to remain diversified across a broad range of asset classes that are appropriate for their investment objectives, rather than making large allocations or bets on asset classes that may do well over the short-term or may do well in a particular economic scenario.
Such moves, if taken too far, could actually backfire and/or actually decrease the chances of moving toward your long-term investment objectives. Although it is true that diversification in many forms was not an effective strategy last quarter, this approach may remain very useful since the outcomes about inflation, interest rates, and their impact remain highly uncertain.
The financial markets almost instantaneously price in new information everyday in a rapidly changing economic and global landscape. Spreading your investments around many sectors may reduce your risk of being on the wrong side of unexpected developments.
Why do I make the recommendation for patience? After all, markets have shown resilience and bounced back in the past. Diversifying strategies have often rebounded very quickly. But this time might be different.
Although I am very optimistic that stock and bond prices may not decline together for a long time period, I also recognize that a move toward more normal inflation and market conditions may require an undetermined period of time than past market disruptions. It could test the patience of all of us as investors and tempt us to lose discipline at exactly the wrong moment.
There are many reasons to be optimistic and keep the faith. The economy remains quite strong and the outlook in the private sector suggests that corporate profits may continue to grow, which could support and even fuel an increase in stock prices.
Patience through these periods of market fluctuations may get us to the other side, just as it did through the Covid-19 pandemic. In that respect, we may want to follow the words of Mahatma Gandhi: “to lose patience is to lose the battle”.
As always, please contact my office if you have any questions, or if you need a complimentary review of your situation.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Asset allocation does not ensure a profit or protect against a loss. Investing involves risk, including possible loss of principal. Bond are subject to market and interest rate risk if sold prior to maturity. Bond values will decline if interest rates rise and bonds are subject to availability and change in price.