Balanced portfolios create portfolios prepped for any season
There’s an old Wall Street adage that if you “Sell in May and go away,” you’ll avoid the seasonal decline that tends to befall equities during warmer weather. According to Investopedia, the summer months have yielded only 0.3% gains in the Dow Jones Industrial Average. That’s compared to average gains of 7.5% between November and April.
Still, past performance does not guarantee future results. What’s more, investors are historically terrible at timing the market whether following conventional wisdom or not.
For much of the past decade, Crispin Odey has been waiting for inflation to rear its ugly head. The fund manager has been positioned to take advantage of rising prices in his flagship hedge fund, the Odey European Fund, and has been trying to warn his investors about the risks of inflation through his annual Read More
So, is there a way to keep your portfolio working hard while you’re away from the office in the summer?
Much like you pack the essentials for a vacation, you can smartly pack your portfolio with all the essentials to sail through the summer and enjoy your downtime.
Balanced portfolios don’t have a season
There are certain essentials you need to pack no matter the season: toiletries, shoes, pants, shirts, maybe a book or a tablet, too. Portfolios packed properly can weather any part of the year and its market tendencies.
Like the weather, the investment environment can be difficult to predict. Last June’s Brexit left many investors flat-footed as “buying the rumor” led to a major “sell the news” event when the U.K. voted to leave the European Union.
A balanced portfolio that has a blend of investment strategies that take different types of risk allows you to be ready for this scenario. For example, managed futures funds were up as much as 7% the day after Brexit while other parts of that balanced portfolio would have been down.
Rebalancing helps selling in May work for you
The Trump rally has allowed investors a boost going into the year by steepening the yield curve on bonds and lifting the stock market to new highs.
Investors tend not to sell high and buy low. Instead, they often fall into the trap of selling too late and catching a market decline. Then, they don’t invest soon enough to gain the benefits of the inevitable correction.
Much like swapping out swimsuits for rain boots to match the weather forecast, harvesting the gains from those well-performing assets and placing them into undervalued assets better prepares you for the types of markets we might see in the future.
Just because you’re on vacation, your money shouldn’t be
Seasonality and market timing strategies are notoriously damaging to the long-term health of a portfolio. By thinking long term and building a balanced portfolio, you will be prepared no matter the season or the environment.
Article by Longboard Funds