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Is Your Portfolio as Vulnerable Now as it Was in 1999?
Probably not, but caution still warranted

By: Bob DiMeo, Chief Executive Officer

In your role as a retirement Plan Sponsor – or plan participant for that matter – it’s likely you benefited from the sharp rally stocks experienced since March. My bet is that now you stand distinctly in one of two camps:

A. You feel confident stocks will continue to perform well, and you may even be somewhat complacent given the gut-wrenching volatility we felt earlier this year is now a fading memory.

B. You are nervous about investments, the economy, and a lot more, and feel compelled to liquidate a portion of your stock holdings (if you haven’t already).

Which approach is correct, and which will benefit investors the most going forward? I suggest that some combination – essentially a dose of both optimism and concern – provides investors the best potential for positive long-term results.

A comparison to 1999 – a setting which preceded agonizing stock market losses and an economic downturn – to our current environment is a good starting point.

On the one hand, it is perfectly logical that today’s uncertain times would cause concern or even fear among investors. On the other, it is quite encouraging to have an accommodating Fed, historically low interest rates and signs of recovery in manufacturing. The numbers and forecasts are so disparate that it feels like one could grab hold of some statistic to support just about any economic or financial position… whether you’re a bull or a bear!

What should investors do?

Given uncertainty in the markets and economy, when a coronavirus vaccine will be distributed and the ultimate impact of the elections, we recommend against impulsive decisions or making large bets on macro events in your portfolio. Instead, we favor investors adopt this three-step approach:

1. Be as clinical as possible: The volume of news, data points, op-eds, etc. can be overwhelming… and have very little to do with your unique circumstances or how your portfolio should be constructed. We strongly encourage clients use our Three Levers exercise to examine their Inflows, Outflows and Required Return. This produces overarching guidance in building portfolios, allocating assets and selecting (or replacing) specific investments.

2. Diversify: Gamblers place big bets. Reasoned investors attempt to attain their goals (required returns) while mitigating risk. No one – and I mean no one – knows when this pandemic will end. Similarly, assuming large U.S. stocks will dominate indefinitely is ill-informed. One example of why an investor should diversify appears in the graphic below. Reasoned investors should benefit by avoiding “all-or-nothing” bets and instead owning broadly diversified portfolios. See An Examination of International Equities

3. Thoughtfully rebalance: As we’ve seen volatility pick up, portfolios may gyrate from intended target allocations. It is especially important – particularly if we again see wild fluctuations in stocks as we did last spring – to not only stick to your well-conceived plan (Three Levers), but to rebalance in a measured manner. See Time to Rebalance

It is doubtful that your portfolio is as vulnerable as it was back in 1999. However, with so much uncertainty on so many fronts, one could contend that it has never been more important to own a broadly, thoughtfully diversified portfolio. To access our Three Levers exercise or to examine the risk profile of your portfolio, please contact any of the professionals at DiMeo Schneider.

¹ OurFuture.com, Isaiah J. Poole, April 22, 2016
² www.bls.gov
³ Mortgage rates are for 30-year fixed rate financing. 1999 rate source: mortgage-x.com - 2020 rate source: NerdWallet Survey 9.22.2020

⁴ Indices represented from left to right: MSCI U.S., MSCI EAFE and MSCI Emerging Markets

This report is intended for the exclusive use of clients or prospective clients of DiMeo Schneider & Associates, L.L.C. The information contained herein is intended for the recipient, is confidential and may not be disseminated or distributed to any other person without the prior approval of DiMeo Schneider. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources believed to be reliable though not independently verified. Any forecasts represent future expectations and actual returns, volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is a possibility of a loss.

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