The state of the US Economy has been featured more prominently in the news lately due to a recent inversion of the yield curve. An inversion of the yield curve occurs when the 10-Year Treasury yield falls below that of the 2-Year Treasury yield. For investors, this may cause concern as an inverted yield curve can be considered the canary in the coal mine for a future recession. This along with the effects of trade and currency wars, have caused markets to be unusually volatile.
Primarily through diligent financial planning at the forefront of a client relationship, Hyland Financial Planning ensures that no more of our client’s assets are put at risk than necessary. For example, while stock investments may be the growth engine for a client’s portfolio, we only allocate as much to stocks as necessary to help make a financial plan a success. With exceptions for aggressive portfolios, part of client portfolios are invested in bonds that can serve as a counterbalance, because in many cases like Friday, when stocks sell off, bond prices can rise as investors purchase them as a safe haven. We also advise maintaining a cash cushion so that assets need not be sold in an emergency to meet your near-term obligations. Not putting all your eggs in one basket is the pinnacle of diversification.
In terms of our process, we believe in taking the emotion and guesswork out of portfolio management. Rather than trying to figure out if this week's slide will continue or whether it will reverse, we have systematic processes in place, namely “rebalancing” your portfolio back to its target allocations. This keeps your risk profile in check, but also allows us to lock in profits by selling securities that have appreciated (sell high) and buying securities that have fallen (buy low). By repeating this process over and over, and especially buying in a sell-off through systematic rebalancing, we put you in a better position to gain than trying to guess the market’s next move.
If you would like to talk in more detail about the current environment or your personal portfolio, please schedule a call on my calendar here.
Ryan M. Bayonnet, CFP®, MSF