Investment Committee Update: Allocation PositioningSubmitted by Connecticut Wealth Management, LLC on March 27th, 2020
In our blog post from Monday, we alluded to ongoing discussions our Investment Committee has had regarding allocation positioning in this recent market turmoil. As we mentioned, we have purposely kept the stock allocation below target during this period of volatility as an additional form of risk control. Our investment committee has approved a systematic approach to rebalancing portfolios back to target allocations. It is important to note that:
- We are not trying to time the absolute bottom of this market decline. Trying to do so is near impossible and almost always results in sacrificed investment performance. Future economic data that is worse than market consensus will almost certainly trigger more volatility. That said, the natural course of rebalancing to a target innately involves the theme of “buying low, selling high”. We subscribe to the long term direction of the markets and to the emotionless discipline that rebalancing brings to the investment process, and in so doing we are adding to stocks at what will, in the long run, be considered an attractive buying opportunity.
- This step is the first in a series of steps to move back towards the long-term stock targets. We prefer to take a conservative, measured approach instead of increasing the allocation to riskier assets all at once.
- We will be individually assessing each client’s current allocation and determining exactly what trades will be needed to bring the portfolios back to their unique target allocation.
- Cost control is another central component to our investment philosophy. As such, the majority of our recommended investment vehicles are low cost index trackers. We also hold the belief that whether to invest in active managers or in passive vehicles is asset class dependent and, in this case, market cycle dependent. This particular trade includes introducing the T. Rowe Price Growth Stock Fund, an active large growth manager. This selloff has been widespread where we have seen the indiscriminate selling of high quality and lesser quality companies alike. We believe there could be an opportunity for an active fund manager to sort through the wreckage and find companies that may benefit from secular trends that allow it to weather the remaining downturn better and ultimately recover faster than peers.
Ultimately, we strongly believe that the critical work in constructing portfolios has already been done through building your financial plan, which includes aligning portfolio risk levels with plan needs, contextual asset allocation design, and model stress testing. This approach puts you in a position to take advantage of an eventual market recovery through some of these smaller, tactical investment decisions.
Please do not hesitate to reach out to us with any questions. We recognize that living through these uncertain periods is not easy, seeing red numbers is unsettling, and we thank you for your continued confidence in us.
The foregoing content reflects the opinions of Connecticut Wealth Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.