The Importance of your Portfolio’s Asset Allocation – especially today…

Is there a market correction on the horizon?  Some say “yes”, as the market recovery is eight years long and thus we are due for a recession.  And some say “no” as businesses continue to do well.  However, what we can count on is that no one knows.

Last week I was in the USA and met with the CEO of a private equity firm.  We discussed this topic and I was blown away by how well he articulated his thoughts – much of which I agreed with

In summary:

  • It is quite possible that interest rates stay low for many years to come;
  • Governments’ quantitative easing after 2008 may have pushed out the length of the economic recovery. So that we may not see a recession for another eight years.  There is no magic in a business cycle having to be 7-10 years.  This one could be 14-20 years;
  • Yet there are many high-priced stocks (like many technology companies). We could see a rotation in the market where these stock prices fall and other out of favour stocks (like CDN energy stocks) rise (please note these are simply examples and not predictions); and
  • Generally, the prices of equity, debt and real estate deals are very high across the board and thus to ensure you do not overpay for investments, you must be working with good managers which are good at finding appropriately priced deals to avoid the disasters waiting to happen.

What to do with this information:

  1. Make sure your asset allocation (mix between stocks and bonds) is right for your risk tolerance. This means it is right for you in positive and negative markets – however mostly negative markets.  Review Step 3 provided under June Inc. Online tab; and
  2. Ensure the managers – the people – you are using for each asset class (bonds, stocks, domestic and foreign) have a proven record of doing well. Review Step 4 provided under June Inc. Online tab.

These two important steps will ensure:

  • you are prepared for a market downturn if it happens tomorrow or years from now; and
  • your investments that your managers are making for you today will be good today and in the future.

Have a great day!

 

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