With the current bull market at its 10-year anniversary, this is longest bull market in history. Is there complacency yet? So far it looks to be ok with no euphoria insight, and there could still be more upside.
Nonetheless, at current market levels we believe that investors should be diversified and prepared for market pullbacks. In addition to diversified holdings of stocks and bonds, we recommend having a portion of your portfolio in diversified alternative investments. These investments reduce risk while still allow for capital appreciation. Such uncorrelated investments are an integral part of an overall portfolio to protect against downside risks in any market condition.
This is a great time to be thinking about this type of investment because we recognized that many investors had too much exposure in the great recession and decided to sell at the very bottom because the losses were so great they couldn’t fathom losing more. Don’t let history repeat itself and lose touch with the risk you are willing to take for the potential reward possible, and be proactive at diversifying your portfolio.
Now, you might be asking yourself what is a good way to be proactive and add these lower risk investments to my portfolio yet not fall too far behind in performance. Is it real estate? Commodities? Hedge funds? Bonds? There are many ways to diversify and find low risk alternatives to the typical “stock portfolio”. We recommend finding a professional manager to oversee your investments. They have an eye for good investments and their investors are rewarded for it. Find one and go with them, they will help you properly diversify a portfolio that is right for you.
Below is a graphical representation of what could or would happen in a downturn in the market on a traditional portfolio. People fail to recognize the amount of pain they’ll endure while losing 40% of their hard earned money. Panic, capitulation, and headline news always seems to make humans react irrationally. Professionals in the business such as fund managers know how to navigate tortuous waters of a recession or calamity. Do yourself a favor now and allocate 10% to 35% of your total assets in a risk mitigation fund with a great manager and team, you’ll thank yourself later.
“One byproduct of volatile markets can be significant downturns, which require even larger recoveries. For instance, after a 40% decrease in an investment’s value, you need an increase of nearly 70% in order to return to where you started. - BlackRock”