Most clients know we preach asset allocation, which is an investment approach that helps spread your risk and opportunity across a variety of stocks, bonds and other investments. Well, it hasn’t worked so well this year. Despite some equity indices being up for the year, the average stock is up only about 1% so far and bonds are generally down again, after having their worst year in generations. What is one to do?
I come to work each day thinking about how to increase returns and/or reduce risk in client portfolios. I travel and take meetings with all sorts of investment companies (I’m actually in NY right now on an investment tour). Whereas each of these companies tends to preach positive expected experiences over time, it seems very few have shown stellar returns over the past few years (and if they did they were likely taking a lot of risk).
Although recent tepid investment experiences make us challenge ourselves to consider alternatives to certain investments (like emerging markets, high yield bonds, and illiquid alternatives for certain clients), we believe spreading our risk and opportunity across a variety of assets remains the most prudent approach to investing. And if returns remain tepid over the near future, patience is going to be the key to long term success.