Penn Wealth Publishing

2019.09.15 Penn Wealth Report Vol 7 Issue 04

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Penn Wealth Publishing Subscription Information Penn Wealth Publishing 9393 West 110th Street 51 Corporate Woods Suite 500 Overland Park, KS 66210 4 penn wealth Report volume 7 iSSue 04 15 Sep 2019 Penn Wealth Report Copyright 2019. All Rights Reserved. From the Editor/ How brilliant would it have been to move from an 80/20 blend of stocks and bonds to a 20/80 blend back in March of 2000? Why didn't people do it? After all, equity valuations were through the roof, while there were plenty of 7%+ "safe" bonds to be had. ere are a number of reasons why so many got caught in an ugly place, but one thing is certain: if investors would have stuck with (assuming they had one in the first place) a proper allocation of assets based on their risk tolerance level, trillions of dollars of investor wealth could have been preserved. Instead, far too many rode the NASDAQ down 75% and the S&P 500 down 50% between March of 2000 and October of 2002, enormously overweighted in "new economy" tech names (remember that silly catchphrase?). As a professional wealth advisor who has managed client portfolios for a quarter-of-a-century, I can state two absolute facts about investing: 1. few things are more important than proper asset allocation, and 2. Very few Americans are properly allocated. But here is the conundrum: how should one "properly allo- cate" in a world of negative interest rates? Flipping through "fluffy" investment magazines, I always used to run across the sophomoric rule of thumb that one should let their age deter- mine their investment mix, literally. If you are 30, then you should have 30% of your assets in fixed-income and 70% in equities. If you are 75, then three-quarters should be fixed and one-quarter invested in the market. ink of how that advice would have devastated accounts that were so allocated when rates were low and heading higher. e spike in rates would have crushed bond portfolios but, by nature, they would have also accompanied a hot economy; in other words, that small portion of stocks in your 70/30 mix was probably doing great. When a legitimate fear of a market downturn or even a reces- sion begins seeping into the minds of investors, the one safe harbor has always been bonds. at is simply not the case right now. So, how do we reallocate that overweighted equity slice of the pie? Alternatives certainly need to be an important part of the mix in today's environment. Commodities (to include pre- cious metals), real estate, hedge funds, private equity, and long/ short funds can all be part of the answer. e key is finding the right non-correlated (to stocks) assets to help protect your port- folio. Depending on the degree of confidence that a downturn is coming, inversely-correlated investments could also be part of the mix. We always tend to think that we are living in unique times; such is the human condition. While the global bond market is in a strange place right now, we have faced similar challenges before. e key is to avoid the herd mentality, keep our wits intact, and look for opportunities others fail to recognize. MSH Michael S. Hazell editor-in-chief Rethinking the Traditional Asset Allocation Model e current state of the global bond market has us questioning the long-held style paradigm.

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