Diversification & Patience

The third quarter of 2023 was another challenging one for the markets as both stocks and bonds lost value against the backdrop of continuing rising interest rates. We are now 20 months from the market highs and markets are now down 10-12% from their highs.

These seasons with market volatility may be a bit painful, but there is a need to keep our eyes on the horizon: longer-term performance and longer-term goals. 

Cause for Market Caution

With geopolitical unrest spreading, interest rates at 25-year highs, massive debt refinancing pending and government deficit spending at unsustainable levels – there is no shortage of reasons for the market to have trouble finding its legs right now. 

Compound this with the fact that stock market indexes are up year to date because of a high concentration in 7 mega cap technology stocks... Owning a diversified portfolio of stocks, bonds, and annuities this year feels like we are missing out. 

We are indeed in a period where owning a diversified portfolio is lagging broader market indexes for the Year-to-Date period in 2023. However, the opposite was true in 2022 and if we simply extend our timeframe to the point of the market highs (late 2021). 

Don’t Sacrifice Tomorrow’s Stability for Today’s Headlines

I know I continue to be a “negative nelly” of late – this is so opposite my actual personality that it is hard for me to keep it up. However, the preponderance of the data calls for sobriety, patience, protecting before we advance and not jumping into over inflated sectors, concentrating your assets in individual industries that historically have wide swings up and down. 

It has been said:

“Diversification is the conscious decision to never make a killing in exchange for the all-important blessing of never getting killed.” 

This is as true today as it ever has been. As your advisor, we are required to act as a fiduciary, which demands prudence. Let’s just say that sticking nearly 40% of your money into 7 big tech stocks doesn’t represent prudence – yet that is precisely where the S&P 500 sits today and that’s what you are doing when you own that index. We would rather participate in slower, steadier growth with more stability than chase the shiny object.

We firmly believe diversification still matters and still wins the race in the long term. Give us some upside in up markets, avoid cliffs in down markets and keep your eyes on the horizon.

Looking to the 2024 Markets

We anticipate economic volatility moving into 2024 with a market that follows. As a result, we are continuing to hold a conservative allocation strategy with an eye toward rebalancing as the market gives us opportunities.

I long for the days of “normalization”. No one knows what will happen with the markets tomorrow, next week, or next month, but we can make measured and informed decisions to maintain diversification and adjust our proverbial investment sails to meet the winds of the day.