Change before you have to.
Jack Welch, author, commentator and former GE CEO
PLANNING COMMENTARY
Change is something we all deal with in our lives- whether it is in our financial, personal or social lives. There are different forces of change that occur all around us. One would be change that “collides” with us and that we are reactionary to. This is change that occurs on its own whether we like it or not and whether we’re prepared or not. Another force of change we initiate on our own, under our control, on our timing. We would argue that this second type of change is proactive in nature and can provide the path of least resistance when compared to being strictly reactionary.
In planning for our financial, personal or social lives, if one can confront the fear of change and be proactive about planning for the future they will arguably be more prepared for what’s next down the road. One of our primary goals is to recommend proactive changes in our clients’ wealth plans to help prepare them for what the future holds. We have found that individuals that sit and wait for change to occur in the economy, their income, family situation or family goals are grossly unprepared for the results of that inevitable change. In these instances the only action left to take is reaction- and the options are limited.
This is not to say that we (or anyone that we know of) can predict what changes will occur in the future and jump out in front of them. This inability to predict what change will impact us next is precisely why wealth planning and changing proactively is so crucial to remain prepared for the unknown.
MARKET COMMENTARY
For several months leading up to August, investors avoided equities with mutual fund flows instead favoring cash and bonds. In the month of September, the compelling valuations of stocks combined with somewhat favorable economic news to give stocks a lift. The S&P 500 returned 9% in the month of September, bringing the year-to-date return up to about 4%.
Investors have continued to invest with their eye on the rear view mirror picture of past volatility. This has resulted in continuing inflows to bond funds and significant strength in gold as a safe harbor. We wonder if all investors in gold understand that gold as an investment has no intrinsic value and pays no dividend or interest, or are people buying gold because it is going up and they have lost confidence in other choices.
Since the 2008 credit crisis we have changed our investment approach to be more tactical. Even though many market participants are driven away by market volatility, we believe this offers opportunity to buy lower priced assets at times and sell higher priced assets at other times. This is what we mean by being tactical. For instance in mid-July equities looked to be attractively priced and therefore we increased the portions of client portfolios that we put into equities.
Another example of change that we believe investors must recognize and adapt to is the rise in worldwide importance of emerging market countries like Brazil, Russia, India and China. A significant portion of worldwide economic growth will come from these emerging economies and we think client portfolios must reflect this strength with significant allocations to this area. Demographic forces generally favor these countries with younger workers who are improving their economic circumstances and will expand their consumption of goods and services.
