The erratic tariff policies of the new administration have caused chaotic disruptions in both the stock and bond markets. The sharp market declines earlier this year considerably elevated investor anxiety levels, especially for those nearing retirement! With the Administration's 90-day tariff pause[1], the market has provided investors with a temporary reprieve by recovering back to market levels attained earlier this year. If volatility was a concern during said market swoon, now is an opportune time to consider changing your portfolio’s asset allocation.
With increased bond fund dividends resulting from higher rates over the last couple of years, there is a less compelling reason to have more equity risk than needed to get the desired rate of return, especially given market valuations. Also, bond funds should now provide better diversification than when interest rates were near zero. Moody’s downgrade of the U.S. credit rating[2] caused interest rates to rise, which will significantly increase the cost of servicing the U.S. National debt[3].
Commercial Real Estate, astracked by the NCREIF index[4], appears to have bottomed out and has had positive returns for the past few quarters. Commercial Real Estate, as an asset class,has a low correlation to both stocks and bonds and therefore makes a good portfolio diversifier[5]and inflation hedge[6]. Also, Commercial Real Estate has an elongated business cycle[7], which enhances its diversification benefits.
With the market once again richly priced, Caution is the Watchword!Given the behavior of the markets as of late, more diversification is probably better but ONLY time will tell where markets go from here[8] because of tariffs and trade tensions. In volatile markets, the best defense is a highly diversified portfolio and asset allocation that meets your long-term investment needs, objectives, and risk tolerance.
If you’re concerned about portfolio volatility, a member of the Iron Belt Partners Team will gladly discuss those concerns and options with you. We can be contacted via phone at (724) 493-9473 or via Email at:
Lindsay M. Turchetta LTurchetta@lpl.com
John D. Martin JDMartin@lpl.com
Working as a team to better serve our clients!
Iron Belt Partners is a name used by independent advisors associated with LPL Financial.
This communication is meant to be general in nature and should not be construed as investment or financial advice related to your personal situation. You should consult your tax, legal, and/or financial advisor prior to making any financial decisions. The views expressed here are those of the authors, John Martin & Lindsay Turchetta, and not necessarily those of LPL Financial. Information is based on data gathered from what are believed to be reliable sources. The opinions and other information contained in this article are subject to change continually and without notice of any kind. Forward-looking statements are subject to assumptions, risks, and uncertainties, which change over time and may not happen.
Past performance does not guarantee future results.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that the strategies promoted will be successful.
Stock investing includes risks, including fluctuating prices and loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise, and bonds are subject to availability and change in price.
Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.
[1] Source: “Risks Linger Despite Tariff pause” on Morganstanley.com by Lisa Shalett
[2] Source: “Apollo spotlights 10 market headwinds that investors should focus on” on msn.com
[3] Source: “US Debt Costs Hit $1 Trillion a Year” on msn.com by Michael Rainey
[4] Source: “Quarterly Returns under NCREIF Property Index (NPI)” on ncreif.org/data-products/property
[5] Source: “Diversifying with Real Estate and Infrastructure” on Investopedia.com by Brian Bloch
[6] Source: “How Commercial Real Estate Can Be Seen as an Inflation Hedge” on amnestymedia.org
[7] Source: “The GREAT 18-year Real Estate Cycle” on CATO.org by Steve H. Hanke
[8] Source: “Don’t Look at Stock Markets. Look at the Ports” on msn.com by Juliette Kayyem