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Can Your Portfolio Withstand a Recession?

At the moment, I don’t believe we’re going to slip into a recession.  Our economy is growing. It doesn’t feel like it if you’re one of the millions of workers that is “underemployed”.  I hate that word. Our official unemployment rate is 5.3%.  Our reality is probably more than twice that high but it isn’t reflected in our official number due to the vagaries of statistics.  Mark Twain was correct when he asserted that “there are lies, there are damn lies, and then there are statistics”. 

The solution to our economic conundrum lies with Congress, not the Fed.  For the past nine years, the Fed has been “creative” to make up for the shortcomings of our legislators.  Congress should be renamed the Economic Expansion Prevention Team.  Our economy is a reflection of the fiscal policies that have been enacted since 2008. That being said, we need Fed policy to return to normalcy and interest rates to rise such that we get back to a historically normal yield curve.  That’s going to be a tricky process and it’s going to take time.

When we design an asset allocation our goal is use risk effectively.  Most years, investment returns will be positive.  Occasionally, investment returns are going to be negative.  This is how financial markets behave.  But if your allocation is correct for your situation, and you own the best components in each asset class (domestic and international stocks and bonds), you will be alright in the long run.

It’s impossible to time the market.  We don’t buy and sell securities in anticipation of potential market movement.  We’ve managed money in the most tumultuous economic times in modern history.  We’ve seen the Asian Crisis or the late 1990’s, the internet bubble of the early 2000’s, the credit crisis of the late 2000’s and the Congressional malaise of this decade.  Most of our clients are retired and living off of their portfolios.  They are still retired.  This is not by accident.  It’s by design.

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