Spring has sprung and if we weren’t in the middle of a pandemic, you’d likely see your gym crowded with folks trying to get their bodies ready for Summer. If you’ve ever started a workout regimen or a new diet whether to shed a few pounds or just to feel better overall, you know that it takes time to see your progress. There are a ton of products on the market that promise instant results, like fancy weight loss teas and cool wraps for your midsection. Does anyone remember the baby food diet? Yuck. While popular, none of these fads have proven to be effective, long term solutions when it comes to your overall health and fitness goals, trust me, I’ve tried most of them at some point or another. Nothing trumps good old-fashioned exercise and a well-balanced diet. It’s not the fanciest thing in the world, but it works.
Crash dieting for a week in hopes that you’ll hit a weight loss goal is like changing your asset allocation in a down market in hopes that you’ll somehow get out before things get worse. Both approaches may work for you once or twice in the short term, but neither have been proven to make a positive, long lasting impact on your body or your portfolio.
2019 was a great year for investors, the US Stock Market was up over 31% with the rest of the world following in line with positive returns. Bonds also fared incredibly well in 2019, and while we like to think of bonds as what we call “mattress money”, it was nice to see bonds finish as strong as they did here in the US and abroad. Fast forward to the end of first quarter, we are fighting a virus no one saw coming, and stocks experienced double-digit negative returns across the globe. Bonds, however, held their ground. The US Bond Market was up just over 3% at the end of March, showing us that bonds are still doing their job by providing stability in portfolios while other asset classes plunged into the red.
In hindsight it’s easy to look at performance data for those two quarters and think about when you should have invested in stocks and when you should have bowed out, but the market tends to be ahead of the news, in good times and in bad. So, when you read the feel-good headlines talking about stock market highs and think, “okay things are good, now is a good time to get in”, it’s a safe bet that the good news you’re reacting to has already been factored into market prices. The same applies in down markets, if you sell out of stocks because you fear things are heading south and want to flock to the safety of bonds, or perhaps even cash, the market has likely adjusted prices for this very train of thought. In this scenario you’d be selling stocks while the market is down and purchasing bonds at a premium. I think the rationale makes sense in our heads, get out of what’s not working and get into what is, but the real-life application of this idea is impossible to time.
As investors, we know that down markets are a part of investing, we just lack the power to know when exactly we’ll experience them and how long they’ll last. All we can do to adequately prepare is to build, and maintain, an asset allocation that takes into consideration the goals we have for our lives, as well as our tolerance and capacity to take on financial risk. Whether we’re talking about fitness or finance, you’re more likely to sustain positive, lasting results with consistency and time. Drastic, last minute changes rarely work out well in the end.
Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Barclays Global Aggregate ex-USD Bond Index [hedged to USD]). S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2020, all rights reserved. Bloomberg Barclays data provided by Bloomberg.