Marc Cuniberti: Diversify your portfolio
When meeting with clients and discussing strategies, these discussions go a lot farther than stocks and bonds. Unlike many others in my field, I am of the opinion holding only a basket of stocks and bonds is woefully lacking as to true diversification.
The word “diversification” means exactly that, not holding one or only a few things but instead holding many things to provide a wider exposure to assets.
By holding more types of assets than just stocks and bonds, this subsequently may also lessen loss exposure due to the fact you hold a wider number of asset classes. After all, stocks and bonds add up to only two asset classes. Stocks and bonds. But there are many other asset classes which include but is not limited to real estate, precious metals, real estate investment trusts, energy trusts, mortgages and mortgage back securities, floating rate and auction rate securities, to name a few.
Many traditional portfolios I see can be stacked with just stocks and bonds with no exposure to other asset classes. I suppose one could make an argument for such, but if stocks and bonds fall in concert with each other during a severe market sell off (such as what happened in 2008-09) an investor might see severe damage to his balances. In 2008-09, many investors witnessed just that: a stomach churning drop in account net worth.
We can’t shovel the entire blame on their advisor however, as many advisors held (and still do) the traditional belief that historically stocks and bonds move opposite of each other.
Not to say that the correlation of stocks and bonds doesn’t hold true on occasion. In fact more often than not the price of stocks and bonds can move opposite of each other. But not always and certainly this correlation failed to materialize during the crisis that was 2008-09.
Many investors were told “hold for the long haul” and indeed many investors believe in never selling.
Not to put too much water on that belief, but had not the powers to be, mainly the Federal Reserve and the U.S. government cobbled together too many rescue programs to count, the outcome may have been quite different. Specifically here we are 10 years later and the Dow is at or near new all-time highs while in 2008 the financial world looked to be coming to an ugly end.
Although the markets seem to always be able to stage a recovery, the very premise that markets cannot be predicted puts every market theory, belief, quip, rumor or precedent into question.
Simply put, just because markets have gone up over the long haul for almost as far back as the beginning of the Dow market itself, doesn’t mean it will continue to do so or even not fall to zero tomorrow. At some point all things will likely happen again and no amount of “long haul” holding, bond and stock complements or real estate holdings will insure against a the possibility of a partial or complete wipe out. It may sound dire and even impossible to some, but the truth of the matter is no one can guarantee anything when it comes to the markets and where they might go.
Regulators monitor advisors like myself (known as compliance) to insure we don’t say anything predicting it as 100% certain. This presents a bit of a conundrum. After all, how many advisors repeat the parrot like mantras such as “hold for the long term” or “the markets always come back”.
Markets may not go up forever, holding for the long term may not work, stocks and bonds may not move in opposite, the Feds might not be able to rescue the markets again and not having many more assets than stocks and bonds may or may not help. That’s the market-awful truth and there are no ifs, ands or buts about it.
No one can say for sure anything market-wise will happen. Not the regulators, not your advisor, not your uncle, your Harvard Econ professor or the head of the Federal Reserve. No one. And just because history might show a tendency, the old saying “past performance is no guarantee of future results” rings true.
What we can say is that common sense may dictate (may mind you) that holding more than just two asset classes like stocks and bonds may not be as safe as holding more stuff. And just because the Dow may have always shown an upward trajectory for the past hundred years doesn’t mean it will always do so.
Plainly put, not all things held in long belief may save your retirement should something nasty like the 2008-09 crisis reoccur or worse. Thinking this time won’t be different and the old tried and believed-to-be-true methods of traditionally investing will always hold up flies in the face of the truest statement of all. No one, no how, no way at no time can predict what markets will do, not now, not ever.
We can safely suggest however holding more “stuff” than traditional stocks and bonds in your portfolio might (might mind you) be the obvious answer to better protect a retirement plan and your hard-earned money. And if I was a betting man (which I am), I would recommend doing so.
This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at SMC Wealth Management, 164 Maple St #1, Auburn, CA 95603 or 530-559-1214. SMC and Cambridge are not affiliated. His website is http://www.moneymanagementradio.com. California Insurance License # OL34249
Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.