Weathering storms

April in Wisconsin offers countless opportunities to develop life skills like patience and adaptability. A single spring day could feature a romp through all four seasons, with a couple of extras like gnat and lake fly seasons rolled in. The same daily forecast that allows daffodils to bloom can include measurable snow and a wind so brisk it hurts your face. So, you adjust. You wear layers you can remove when the frost burns off, and boots that won’t wilt in the ensuing mud. You prepare for any weather on any given day. Investing is like that too. Days that begin with sunshine and optimism can end with headwinds and dramatic dips. As inflation updates or corporate report nuances swing sentiment, markets react accordingly. Sometimes, they even act inexplicably in their initial runs. So, we build layers into our portfolios, some conservative allocations designed to protect and some more aggressive positions to take advantage of growth opportunities. We mine sectors and industries for long-term investment opportunities. Our investment team members understand both the seasons they face as portfolio managers, and the seasons our clients move through as they make their way to and through retirement. That understanding informs the investment decisions they make. Harry Chapin wrote about the seasons spinning round again and years that keep rolling by. It’s our job and our privilege as investment managers based in Wisconsin to understand and appreciate the swift passage and specific beauty of each fickle season.

Diversification is the key, even in a bull market

While most financial news reports focus almost entirely on the equity market, the real value in a retirement portfolio lies in its diversification. That’s because Newton’s third law relates to investing as seamlessly as it applies to motion. What goes up, must come down. For this reason, diversification remains a critical component of any investment plan, even during a bull market. Diversification adds two key layers to a portfolio; it increases the opportunity for profit and reduces the chances of loss. It may seem counterintuitive to dilute the resources you can direct to a rising equity, but what happens when that stock price falls? The best defense against inevitable downsides in the equity markets is exposure to multiple asset classes, each with unique returns, risks, and correlations to one another. We like to include dividend stocks in our diversified portfolios because they add an income source that transcends the stock market.  Whether a dividend stock is currently in a rising trend or a falling trend, the dividend payment per share never changes.  Having this kind of reliable income source as a portion of your investment portfolio allows you more freedom to take risks in other asset classes. We also like to diversify across sectors within the market.  The overall portfolio retains its value because while one sector may be falling, another sector may be rising.  We saw this just recently when, after the election, Technology and traditional “growth” stocks fell while the Materials sector and traditional “value” stocks gained ground.  Due to the portfolio’s diversification among all the sectors, the rise in Materials offset the drawdown in Technology. Additionally, we use exchange traded funds (ETFs), which offer the diversification of mutual funds with the agility of stocks, all for a relatively low cost. The judicious selection of all these elements leads to a well-balanced portfolio positioned for the long term goal of making your assets last your whole life.