Trump and Your Investment Portfolio

If you were watching the results on election night, you saw the financial markets react. In the wee small hours of November 9, Dow futures plunged just over 4% while gold and US Treasuries soared. (Markets are funny and tend to be unpredictable in the short term). Since the election, however, the Dow Jones Industrial Average has reached an all-time high.

Sure, Donald Trump is an unconventional politician and has said that he likes to be unpredictable. At this time, we’re not sure what to think or how he’ll govern. Once his cabinet is in place, we’ll have a better idea. Still, you may be thinking that a Trump presidency is “different,” but market volatility is certainly not something that we haven’t seen before. In the past 18 months, we’ve had several instances of investors feeling that “this time it’s different.”

Back in July 2015, the Greek financial crisis dominated the headlines. Investors feared Greece’s problems would spread to the rest of Europe. Then the following month, it was “Black Monday.” When the Chinese government devalued the Yuen, markets went tumbling down. At the beginning of 2016, the Dow Jones Industrial Average got off to its worst start ever dropping 5.5%. And most recently, we had Brexit. Shortly after Britain announced it was exiting from the European Union, the market lost 6% but days later gained back 8%. The bottom line is: Markets, like people, do not like change. But through all this hubbub, U.S. markets continue to hover around historical highs.

Back to your investments. What should you do to protect yourself during a Trump presidency? Nothing. If you’re diversified, you don’t need to sweat the headlines. We can’t predict the future, and we sure as heck can’t predict the markets. That’s why it may be wise to follow the investment ways of some of the world’s wealthiest families and most sophisticated investors. They manage risk through diversification.* This means not weighting one’s investments in with any sector of the economy such as energy or banking, or falling in love with an individual stock such as Apple.

Besides, your investment portfolio isn’t designed for a four-year presidential term. You’re in it for the long run. Investors who stay the course have historically been rewarded. Here’s one thing we can anticipate during the next four years. The markets will go up, and the markets will go down. And parts of your portfolio will do better than other parts. My advice is to stay disciplined, diversified* and focused on the future. If you’re not sure whether you have enough diversification*, a fee-based financial advisor can help you.

*Diversification does not guarantee a profit or protect against a loss.

The Dow Jones Industrial Average is a widely watched index of 30 American stocks thought to represent the pulse of the American economy and markets.

Why You Should Have Bonds in Your Portfolio

You scarcely read or hear much about bonds these days. The stock market, especially in recent weeks, grabs the headlines all the time. Bonds just aren’t glamorous. Sure, Michael Milken, “the junk bond king,” brought some glamour and headlines to bonds back in the late ’80s, but they haven’t received that kind of coverage since.

Yet that’s no reason for investors to forget about this important asset class. Bonds are one of the three major asset categories — along with stocks and cash — you should have in a balanced portfolio. Investing in a mix of these assets is a good strategy for achieving your financial goals.

Having bonds in your portfolio can help reduce risk, which is a welcome proposition given the market volatility we’ve seen since the beginning of the year. Stocks tend to be more volatile than bonds — they go up and down further and faster — and that makes them a riskier proposition for the short-term investor. Think of stocks as cleanup hitters. They’re going to hit a lot of home runs, but they’re going to strike out a lot too. Bonds are more like leadoff hitters, the guys who can consistently hit singles and get on base. They can be a stabilizing force amid volatility.

Inverse movement
The stock market, like most things, tends to cycle. Right now, the decline seems to be a reaction to the dramatic drop in oil prices and the slowing of China’s economy. Bonds cycle, too, but they’re not as volatile as stocks. Instead, bonds often have acted as insurance by reducing portfolio volatility.

This is because bonds often move inversely to stocks, and this tends to be mostly true when stocks are falling. However, bonds are in an unusual place right now because of historically low interest rates. When rates rise, the value of bonds will go down. But this should not deter you from holding bonds in your portfolio because they are still less volatile than stocks, and if the stock market takes a big hit, bonds usually rise. This means bonds and stocks work in concert with one another in your portfolio.

In designing a portfolio, you want to have a mix of assets that can move inversely under different market conditions. Diversifying in this way reduces your risk and thus your chances of getting hurt.

Asset allocation
Asset allocation — holding the right proportion of stocks, bonds and cash for your situation — is important because it can impact your financial and personal goals. However, designing the best asset-allocation model or portfolio can be complex. You need to look at your time horizon and your tolerance for risk.

Your mix of stocks and bonds also should be determined in part by the amount of money you need and when you will need to withdraw it from your accounts. If you don’t include enough risk (think stocks), your investments may not earn an adequate return to meet your goal. However, with too much risk (think not holding enough bonds), the money may not be there when you need it.

For instance, an older person should have fewer stocks and more bonds in his portfolio. A 25-year-old, though, can have a higher ratio of stocks. She’s in it for the long run and can take more risk than someone who’s nearing retirement.

Stay diversified
We’d all like to know what will happen to our money in 2016. While we can count on the media to offer plenty of headlines and opinions about the economy and markets, the danger comes when we base our investment strategy on these headlines.

We can’t know what will happen to stocks or bonds, and we can’t outguess the markets. If I could, I’d probably have a cult following. But we do know this: The markets will go up, and the markets will go down. And some parts of your portfolio will do better than other parts.

Having the right mix of stocks and bonds will reduce your portfolio risk and your potential losses. So instead of trying to pick a bunch of hot stocks, investors should stay diversified and goal-oriented — and not forget about bonds.

(This article was originally published on (

Market Volatility: Don’t Panic. This is Only a Test.

Do you remember this public service announcement? “This is a test. This station is conducting a test of the Emergency Broadcast System. This is only a test.”

The Emergency Broadcast System was created in 1963 during the Kennedy administration and used until 1997. If you were watching a show during that time, you knew not to change the channel or adjust the dials on your TV set. (And in the early days, the three or four other channels you could get were all usually conducting the same test anyway.)

Now let’s add a few words and phrases to that PSA in terms of your investments over the past year: “This is a test. This is only a test of your will and patience.”

This past year, most of your investments were flat (at best) and some even lost money. But if you have a well-diversified portfolio, you should not change your investments — and you should certainly not attempt to guess which investments will be the best performers in the coming year. Investing is inherently unpredictable. But as a long-term investor, you must not be swayed by volatility, even when the grass looks greener elsewhere.

Market cycles

In 2015, many investors may have asked, “Am I in the wrong investments?” Well, if your portfolio is well-diversified, probably not. In fact, it’s likely that it was the markets that performed poorly, not your investments. The reasons for that vary, from economic uncertainty in China to the dramatic drop in energy prices and concerns over potentially rising interest rates.

But none of this is unusual. Markets, like many things in life, tend to cycle. They go up and they go down, and we don’t know when they will do so. The markets have had a pretty good run since 2009, so it seems to me that we were due for a flat or negative year (of course we couldn’t know exactly when that might occur).

What to do?

One of my clients recently asked, “Did anything do well?” As a matter of fact, international small companies did pretty well. (For instance, Dimensional’s International Small Cap Growth fund (DISMX) yielded around 10.5% last year.) He then asked me if he owned shares of any of those kinds of companies. I told him that his broadly diversified portfolio has a small portion of international small companies in it.

Then he wanted to know if he should move most of his money into international small companies. I responded with a resounding “No!” Besides being a riskier investment category, international small companies show absolutely no evidence that they will do well again this year.

No memory

I asked my client to imagine that he was flipping a coin and trying to guess which flip would result in heads and which flip would result in tails. Of course, after numerous tosses, we agreed that he’d have an even distribution of heads and tails. But, more importantly, we agreed that a coin is an inanimate object with no memory. Just because five flips have landed on heads doesn’t mean that the next flip will land on tails.

I explained that stocks are the same way. They have no memory. There is no guarantee that international small companies will continue to do well next year. Sticking to the discipline of having a broadly diversified portfolio helps us avoid falling prey to the false notion that last year’s best performers will be the winning performers the next year.

Keep it boring

A well-diversified portfolio doesn’t speculate or gamble on what is going to happen next. “Investing should be boring,” I told him. “If you want excitement, try hang gliding. If you want to gamble with your money, go to Vegas.”

So in 2016, resolve to stick with your well-diversified portfolio. If you’re not sure whether you’re diversified enough, have a trusted advisor take a look. But remember, this past year was simply a test of your patience and your will to stay appropriately invested, even when the going gets rough.

(This article was originally published on

Stay Diversified and Don’t Get Hurt

Recently, several clients have asked me why their account has not “made any money” this year. My answer is always the same:  “There hasn’t been the kind of money to make like we’ve made the past couple of years.” That is, unless you had the foresight twelve months ago to put all your money into an International Small Company mutual fund which has yielded about 8% year-to-date returns. Except for nominal returns in bonds, most of the other market segments have produced flat to negative returns in 2015.

Does this mean your investments are bad investments? Of course not.  It just means that it’s been a tough year for markets in general. China’s stock market plunged back in June, and in the past couple weeks, it seemed as if the markets were anticipating the Federal Reserve Bank raising its benchmark interest rate.  Energy stocks, in particular, have taken a very big hit (but cheap energy prices have been good for our pocket books). None of what I’m describing is unusual. Markets, like everything, tend to cycle.  After all, the markets have been on a pretty good run since 2009, so we were due for a flat or negative year.

We can’t predict the economy, and we for sure can’t outguess the markets.  So, how do you minimize your risk in a flat or negative year?  The best thing to do is to hold as many diversified asset classes (international, domestic, real estate, small and large companies, etc.) as possible.  And that’s precisely how your portfolio is designed–to protect you in times of uncertainty or volatility.

The discipline of having a broadly diversified portfolio helps us avoid the faulty idea that there is a trend of higher returns in last year’s best performers.  Look, stocks aren’t human.  They are inanimate and do not have a memory!  If we try to predict trends or invest all of our money into one company, chances are we’re going to get hurt.

So let’s stay disciplined and stick by your well-diversified portfolio.  Let’s focus on the long-term and not speculate or gamble with your money.  Or, worse, make decisions based on today’s headlines or Wall Street hype. Of course, if you want to discuss “tweaking” or rebalancing your portfolio, we can sit down together in the New Year.  You can reach me at:  216-292-8700 or email me at:

“Man Smart (Woman Smarter)”*

Besides the obvious, there may be no greater distinction between men and women than when it comes to investing. Recent studies show:

• 70% of women say they are more comfortable saving than investing;
• Conversely, 70% of men surveyed were willing to take risks for higher returns;
• Over 40% of the men surveyed said they enjoyed the “sport” of investing (I have yet to hear that nonsense expressed by a woman);
• Both professional and amateur female investors take less risk and have more diversified portfolios compared to their male counterparts. This may translate to better investment returns!

Even women who have a basic understanding about investing do not feel they can parlay that information into better investment returns. (Women’s intuition wins again because it’s impossible for anyone to outguess the markets). Of course, men feel the opposite.

Well, gentlemen, I’ve got some bad news for you. It turns out that women, both professional and amateur investors, get better returns than their male counterparts. Why women do better, however, isn’t rocket science. First, women take less risk than men and, unlike men, are more apt to ask for advice. Women, as we all know, are more apt to ask for driving directions, too. (Do you see a pattern here, guys)? Also, women aren’t overconfident (like men) which means they are less likely to be deluded into thinking they know more than they really do. Ultimately, women realize they are not in control. This means that women are more likely than men to attribute success to factors outside themselves, like luck or fate.

Understanding that we have very little control over the markets allows women the rationale they need to avoid panic. What’s more, it allows them to admit when they have made a mistake. When it comes to investing, we can all benefit from both male and female attributes.

Men, your household’s investment portfolio will be less risky and more diversified if your wife helps manage it. Down the road, she’ll share what comes out of that portfolio. Shouldn’t she share what goes into it? Chances are, her ideas and emotions will complement yours, and you’ll both end up wealthier. And at least one of you will end up wiser.

If you have a problem with this, guys, just remember the title of the old Harry Belafonte song “Man Smart (Woman Smarter).”

*Together, we know more than we do alone. Watch this three minute video about “The Power of the Markets.” Just click the link and scroll down to the video.