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Be Certain Your Eyes are Wide Open if You Ride a Harley
By: Bob DiMeo, Managing Director
Now six plus years into this rather spectacular bull market, it’s understandable how investors might become complacent or less disciplined. But if this market has lulled you into behaving like a “lazy investor”, do so at your own risk. 

It’s human nature to get comfortable when things are going well and it’s especially common to extrapolate recent history. Look no further than your favorite sports team when they’re on a roll; we extrapolate and assume the winning will continue. Now it feels to me like the same thing is occurring for many investors with large cap U.S. stocks. 

Consider the remarkable performance of the S&P 500 over for the past 5-years compared to a not- too-distant 5-year period when investors felt like the “sky was falling”.
If it sounds like I’m suggesting that U.S. stocks are about to tank, that’s not my point at all. Rather, I advocate that investors take this opportunity, with the Dow above 18,000 as of this writing, to reexamine their portfolios and specifically the risks they’re assuming relative to their explicit financial objectives. Large cap U.S. stocks are appropriately a component of most portfolios seeking capital appreciation. That said, it’s a great time for investors to honestly address the following questions:

1. What is my Required Rate of Return and is my portfolio properly structured to give me a fighting chance of achieving that goal?

2. Given the run-up in U.S. stocks, am I thoughtfully diversified and do I have meaningful weightings to important asset classes that may have underperformed in the recent past?

3. Am I assuming greater risk than necessary?

I recently saw a very interesting piece that, to me, strongly relates to question #3. The chart below shows a staggering number of fatalities for those traveling by motorcycle compared to other types of travel such as air or even automobiles.
Traveling by motorcycle involves heightened risks as does investing in a portfolio that is dominated by U.S. equities. Is it wrong to ride a Harley or own U.S. stocks? Of course not. What is wrong, in my opinion, is underestimating or even worse, not considering the risks.

I often tell clients that if you can achieve your financial goals by investing in U.S. Treasury bills, you should. The fact is, most investors require a higher return and I get that. However, six-plus years into this remarkable bull market, we as investors should make every effort to not only identify our explicit financial goals but also develop an eyes-wide-open understanding of the risks.


For more information on these and related topics, please contact any of the professionals at DiMeo Schneider & Associates, L.L.C. 
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