ALLOCATING ASSETS TOWARDS 2018! (building the portfolio to best achieve YOUR target return)
It ‘looks’ like we will see additional interest rate hikes in 2018, particularly in the United States. If these rate increases are spread out over a period of time they may be absorbed by the market without too much disruption BUT I suggest that most people be prepared for a HIGHER LEVEL OF VOLATILITY in 2018 than they had in 2017.
What does this mean? It means that if you were one of the clients who called in after a couple of negative months in the summer (but still up on the year) than you may need to adjust your portfolio and/or your expectations. However adjusting your portfolio to have lower risk USUALLY means lower returns :(
HIGHER RETURNS GENERALLY COME WITH HIGHER VOLATILITY! There is no magic formula…no strategy is perfect.
We have been almost a decade without a ‘true’ recession (2008-2009) so the next one (and there will be one) is probably closer than we would like. Most recessions have been triggered by the FED (federal reserve) increasing interest rates as the economy improves to prevent overheating and excess inflation. It will probably not be different this time.
What are the options? If you look at only the BIG PICTURE and volatility does not bother you at all (equities, including banks down 30% over 18 month period) than you can do nothing and ride it out. But the reality is that even those who say they can ‘ride it out’ get worried and emotional in the midst of the storm. When assets are going straight up we may think that will continue (CANNABIS, BITCOIN) and when assets are going straight down we think they will continue on that trajectory as well.
I suggest than some MODIFICATION to portfolios occurs over the next several months to mitigate (cannot eliminate) volatility without diminishing returns. I will outline what I believe can be done by MOST clients to achieve this.
Shorter term corporate bonds (5 years and under) which has less interest rate risk (CI Corporate bond is
Exposure to heath care sector (defensive)
Exposure to REAL ESTATE (REITS) in the health care sector and multifamily sector (apartments)
Reduce exposure to DYNAMIC POWER GLOBAL AND POWER GLOBAL BALANCED (extremely high calendar year volatility) and use Dynamic Global ALL Terrain (more tactical and able to use most asset classes)
Limit exposure to companies with high debt levels
Reduce exposure to I-shares XAW (pure equity with high exposure to US$ movement) and add BMO Tactical Dividend ETF Fund (will protect on the down side with active currency strategy)
Reduce exposure to BALANCED funds (10-15% drop during a recession) and replace with TREZ YIELD TRUST (commercial mortgages have returns in the 6.5% range with much less potential for volatility)
Replace some fixed income (investment grade bonds) with TREZ PRIME TRUST (commercial mortgages with 4.5% distribution)
Look at GOLD BULLION (near recent lows) to protect against inflation
The views expressed do not necessarily reflect the opinion of Argosy Securities Inc. The information contained herein may not apply to all types of investors. Please consult a professional before making an investment decision
Please contact me and I will review your portfolio with appropriate suggestion based on my thesis.
Those interested in specific stock suggestions and the current MISFIT/OPPORTUNISTIC list please let me know and I will forward ASAP.
All the best and have a great Holiday Season
The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Argosy nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any securities and/or commodity futures contracts. The securities mentioned in this report may not be suitable for all investors nor eligible for sale in some jurisdictions. This research and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without the prior express consent of Argosy.
‘historical analysis does not reflect future returns’