Contradictions on Parade

Sharing with you some of my thoughts on the world of investing as it stands today.

If you like to compartmentalize the financial world into a neat collection of causes and effects, it’s tough sledding for you right now. 3 quick examples:

• Housing prices have seemingly held their value in the face of exploding mortgage rates.
• Junk bond spreads over quality bonds have remained tight, when conceivably they should be widening in the face of risk in the economy and earnings.
• Unemployment remains near 60 year lows while the rest of the economy suggests the recession is ON.

Elsewhere in the culture,

• Zoom employees have been ordered to return to the office.
• I went to the Barbie movie with my Mother, sister and niece.

Essentially Julia Roberts just married Lyle Lovett.

With uncertainty comes market volatility as the different perspectives thrash it out. That said, a nice cushion for us at this juncture is the bond component of our portfolio can now make a meaningful contribution to the growth of our capital. In some ways investing has gotten easier, with bonds yielding 5%++ instead of the 2% we are accustomed to. Currently we are focusing on rebalancing clients’ bond allocations back up to the target weights we set for everyone’s individual portfolios before the bloodbath in bonds last year.

For stocks we continue to lean on diversification as returns this year feel like the market has priced for perfect results in a decidedly imperfect world. The Vanguard S&P 500 index fund you own (ticker VSP) is +12% for the year. It’s probably a curse to acknowledge a ‘but’ here…but the fact that return is driven largely by only 7 of the largest constituents in that basket of 500 stocks doesn’t feel great. Inside your portfolio diversification across multiple fronts around VSP dilutes its 12% YTD return, but feels like the prudent move to avoid investing whiplash (VSP was down -19.25% last year while your portfolio fared much better).

Please call with questions or to book a meeting. We look forward to our next conversation.