Second Quarter 2018 Commentary                                                                 

July 3, 2018

Dear Clients, Colleagues and Friends:

Our mid-year commentary will start with a riddle for you: How much older are you really on your birthday?  Hint: not one year, but first:

Halfway through 2018, the investment landscape continues an uncertain path. Day-to-day stock market volatility has been high, the world is bracing for the uncertain impact of newly invoked protectionist tariffs, interest rate increases and continued political uncertainty. US stocks have clung to modest gains year-to-date, but much of this return has been achieved within a small number of growth, technology, and small company shares – think Amazon, Apple etc. Safer assets such as bonds, alternatives and value stocks have experienced mixed returns this year, with long bonds, international stocks and many hedge funds reporting negative returns year-to-date.

I use the term ‘year to date’ often when referring to returns. It does seem like a reasonable time period to consider how your portfolio is doing. But is it really? This brings me to the answer to the riddle above. “How much older are you on your birthday?” Answer: only one DAY. Corny, I know. However, the real correct answer is that it depends on what point you’re starting your measurement from. So, you may, in fact, be a year older on your birthday, darn.

When thinking about investment returns and ‘how am I doing?’ it’s helpful to consider the ‘riddle’ above. Investing is simultaneously about the long term, short term, and intermediate term. ‘Year-to-date,’ ‘one year’ or ‘three years’ are all commonly used time periods for comparing investment returns, but these are arbitrary markers and the numbers are constantly moving. What truly matters is whether your portfolio is outpacing inflation and responding to your specific needs. This means growing with the long-term investment strategy (for money that is not needed for ten years or more), earning income and carefully growing the ‘intermediate’ capital (to be used within two to ten years), and earning the most yield possible while protecting short term capital, (to be used in the next one to three years).  When constructing and managing portfolios, we build each one to suit, keeping in mind your specific time horizons, risk tolerance, historical returns, and a host of other factors. The result is a jumble, but a purposeful one.

Trailing periods are still useful for us to evaluate and compare performance. Indeed, it’s still the best way to ensure your investments are keeping pace with the broader markets and their peer groups. It also is useful to see which markets are outperforming or not. All of this helps guide our decision-making and the selection of the elements that comprise your portfolios.

Speaking of birthdays, a Happy 242nd Birthday to the United States of America! I wish you and your families a safe and happy summer! Call or email with any questions at all.

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Scott Lasky, CFP