Economics Investing

Adaptive Asset Allocation

There’s a lot going on in the world these days that is impacting or has the potential to impact investment portfolio performance and investment decisions. Here’s a quick laundry list in no particular order.

  • Just this week, we could probably say the official trade war has kicked off between the U.S. and China although I’m not sure how big of an impact it will have based on the relatively small dollar amounts of goods estimated to be impacted (I’m not a global trade expert).
  • POTUS shook up the ranks in DC yet again by installing a hardliner as National Security Adviser. Coincidentally (or not), the NSA was put in ahead of POTUS’ meeting with North Korea.
  • Tensions between Iran and Saudi Arabia escalated somewhat this week when the Saudi crown prince specifically identified Iran as his next “target”. A direct war (vs. a proxy war) between the two nations would probably wreak havoc on investment markets given the likely impact on the price of oil.
  • Vladimir Putin “won” another term as president of Russia. He’s sure to continue to be a destabilizing force for the world.
  • The Fed is tightening (raising rates and reducing its balance sheet)
  • USD is in a downtrend.
  • The yield curve is flattening.
  • Volatility is elevated again.
  • Money markets are being distorted (see WSJ today) for unknown reasons.
  • Corporate and junk bond yields are widening.
  • The US government’s borrowing needs are rising, potentially “crowding out” the private sector.

It’s safe to say that the uneventful, smooth sailing days of 2017 are long gone. Moving forward, there is going to be a lot more action, including ups and downs in investment portfolios. What’s worked over the past several years may not work as well going forward, even in the medium term (5-7 years). I’m an advocate for long-term investing but believe we have recently passed or are at an inflection point in the investment markets.

While I’m an advocate for long-term investing and staying the course, now is not the time to sit back and do nothing. There are enough changes occurring in different pockets of the world and investment markets that asset allocation reviews are warranted if they haven’t already occurred.