Yesterday the market lost 3.3%, we didn’t. Hello, my name is Paul Carroll, I’m the CEO and founder of Efficient Wealth Management. A quick recap, yesterday the S&P 500 lost 3.3%, the euro is up about half percent, which is great because that has offset euro losses for a net of just one percent, an example of the importance of international diversification. In fact, euro denominated bonds rose last year.
The president right now is busy busting the feds chops and it’s not really fair because the feds job is to control inflation. The problem is when you pour gas on a fire through huge tax cuts, you’re going to have inflation if you don’t do something and sure enough it’s feeding through the economy, the fed has seen the warning indicators and has raised short term interest rates as a result.
You can’t create wealth overnight and the fed has taken what the administration has given in terms of the cost of interest rates. Equities and markets are A-political and it’s extremely important that we remember that. They don’t care who’s in office, they care about fundamentals in the long term. The greatest risk in the markets and the greatest impact yesterday is tech, the FAANGs, we’ve done previous videos on this, Facebook, Apple, Amazon, Netflix, and Google, they’re all very, very highly priced.
So what is the takeaway from yesterday’s events? It’s been frustrating to play the game by the rules. We’ve got a lot of push back on our reluctance to increase our domestic equity exposure the last six months. But diversification is not sexy, it’s not exciting, done right, it should be painfully boring. Asset allocating requires patience, this is a long game.
Last spring we went short on bonds because as many people know, long duration bonds are very negatively impacted by increases in interest rates. We were able to protect the portfolios as much as reasonable from the rising interest rate environment.
This route will be over sooner or later, this repricing of equities will be over sooner or later. We don’t time markets because that’s a fool’s errand, but we have been prepared for this, and when this is over, we will be wonderfully positioned to rebalance our clients into reasonably priced equities.
You see, at Efficient Wealth Management, job one is protecting the client’s wealth, job two is growing it. We wish you the best of investing success.
Sources:
Hajric, Vildana and Sarah Ponczek. “Stocks Sink in Turbulent Trading, Treasuries Gain: Markets Wrap.” Bloomberg. 10 October 2018. https://www.bloomberg.com/news/articles/2018-10-10/asia-braces-for-losses-after-u-s-stocks-plunge-markets-wrap.
“US stocks suffer worst falls in eight months.” Financial Times. 11 October 2018. https://www.ft.com/content/aac5addc-cc9e-11e8-b276-b9069bde0956.
