FOCUS:  In challenging times, a diversified portfolio can be good news

By Kyra Morris, contributing editor  |  We can always focus on the problems.  That is easy. But what if we change the focus to look for the opportunities or solutions?  Then, perhaps, we’ll accomplish something worthwhile.

Morris

The markets and world events in today’s financial markets are creating a lot of uncertainties.  The interest rate yield curve is inverted. Tariffs and their ultimate effect on our economy is unknown.  The stock market is a roller coaster, to put it mildly. Uncertainties such as these stir up our fears, and this often leads to poor decisions.  Our lives and investments are tied to the markets. What can we do to make sure that we do not fall into the trap of reacting emotionally from fear?

So we need to go back to the basics.  Does the fluctuating stock market truly make a difference in your day-to-day life?  If not, then let the markets do what they may, and see if you can invest as opportunities are created. If your daily life is affected, then it may be time to take a closer look at your total situation and revisit what is important.  Are the concerning issues temporary? Then won’t they naturally work themselves out? Are your issues more prolonged and need more analysis? Again, begin with what is important and determine the solutions.

If there were a magic bullet for investment strategies, we’d all use it.  There is not one. My firm adheres to strategies founded in academia based on creating a diversified portfolio of stocks that also has enough fixed income and reserves to allow you to feel some comfort riding through the ups and the downs of the markets.   Markets will always go up and down, and business cycles will always occur. 

Your investments should be based on your own goals and time frames.  Do not try to outperform the markets. Sending a child to college in three years lends itself to a different model than retirement in 15 to 20 years.  Your model(s) should relate directly to your plans and your goals – not what’s on the news tonight or what your neighbor’s goals are.  

The U.S. market is in the midst of the longest recovery ever recorded, whereas foreign markets have lagged significantly.  These differing markets do not follow each other, and there are times during which foreign markets significantly outperform our domestic market.  A diversified portfolio should have foreign markets represented.   

Tariffs are a troublesome question mark for investors.  Tariffs do affect world trade and commerce. If we continue to use tariffs as a way to control world trade, this may create another reason to have foreign markets represented in your portfolio.  Trading partners may arise outside of the U.S. These have strength within themselves. If you want to listen to an easy-to-understand podcast on tariffs that gives a history of their use and their effectiveness, go to “The Trouble With Tariffs” done by Charleston World Affairs Council member George Pope at this link.   The fixed income, or bond, portion of your portfolio may be best used as a stabilizer. There is enough volatility in the stock market.  When the stock market is going up, the fixed income piece lags, but when the stock market goes down, the fixed income piece is the better performer. An example:  In December 2018 when the stock markets were down 7 percent, the bond markets were up 0.5 percent to 2 percent.  

Diversification means not having the same type of investments, but different investments.  You want investments that represent different parts of the markets and that do not move together simultaneously.  Fixed income is not directly correlated with the stock market, and is a natural diversifier. It is diversification that creates less volatility in your portfolio over time.  

If your lifestyle is not altered due to swings in the stock market or if your spending and cash management are under control and if your investments are set up based on your goals and strategies, relax and adjust your focus: 

Reflect on the beauty and the goodness you have around you.  Take a walk with a friend. Have a romantic candlelit dinner with your loved one(s).  Play and laugh with your children, grandchildren or pets. Marvel at the creative ability of the artists in your community or the world-class chefs in your restaurants.  Enjoy a beautiful sunrise or sunset.  

Kyra H. Morris, a Certified Financial Planner, is CEO of Morris Financial Concepts, Inc., in Mount Pleasant. A national leader in the financial planning profession, she has been named several times by leading magazines as one of the country’s top financial planners.  

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