What Are We Going To do For Growth?

If you are looking to your stock portfolio to help bring you that "promised" 7% rate of growth (which is more or less the average for a 60/40 balanced portfolio over the last 10 years), I would suggest that based on the outlook for economic growth and company earnings over the next few quarters, you will need to manage your expectations. Past performance, we should all remember, is not a guarantee of future growth. At least in the near term.

If you are a passive investor, you can sit tight. But why are you paying an advisor a 1% fee to do that when you can likely build your own portfolio of simple index ETF's and do it yourself (at a discount brokerage) and save the fee?

If you are getting the added advantage of financial planning built in, then perhaps you can justify some of the fee, but you are not getting portfolio management with simple passive investing.

If, as I suspect, the slowing global economic situation (which is likely not going to find an immediate fix with a China - U.S. trade deal or central bank monetary easing) will continue to send waves of volatility through global stock markets, passive portfolios are going to take some punishment: the 40% fixed income (especially if a good chunk is rate-reset preferred shares) is not going to be a good offset for lower stock prices. We witnessed that in the last part of 2018.

As portfolio managers with a disciplined process, we need to be defensive. We look at the probabilities ( approx. 50% of a recession, 70-80% of significant economic slowing) and position our portfolios accordingly:

Underweight volatile risk assets (equities) overweight the safer, no volatility cash and equivalent assets (that actually pay close to what stock market dividends pay, so we do not miss much there) and plenty of income generating assets that give us an annual cash yield better than 3%. So we can be paid while we wait out the storm.

Let's face the truth: the last 10 years have been, by and large, an upward trajectory for stock markets. Sure, some stock market "cheerleaders" want you to believe that this will continue (probability says that scenario is less likely, however, especially in the short-term). Of course, we all want to see stock markets go up forever, especially if 60% of our portfolios are invested in equities (advisors especially, who reap the benefits of the growing values of their client's portfolios). The reality however, is that nothing goes up forever.

So, either brace yourselves for a difficult period or bring in a professional to manage it for you and perhaps take advantage of the opportunities that this will ultimately bring (when we at High Rock will utilize some of the overweight cash to get back to our target weight in equity holdings). That part you should not try to do yourself (timing). It could end in disaster.

If you are paying a fee to an advisor, think about what value they are adding with that fee. There are alternatives to traditional investing with banks and old-school style financial institutions.

 You may be surprised at what you find.