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That’s not technically a question, but there are any number of questions contained in that sentence: “Are other people worried right now?  Should I be worried right now?  Are you guys worried right now?. . .”

When I hear this question from a client, I always take it to mean there is some amount of worry being experienced on the other end of the phone, but my client doesn’t know if he or she should be worrying. Rather than admit to that worry straight out, it feels safer to ask if other people are experiencing the worry.  So, when a client says, “I suppose you’re getting a lot of calls,” I always take it to be akin to asking “Should I be worried right now?”

With an armed conflict in Europe pulling many countries in deeper every week, with global stock markets being down -12% to -15% at times this spring, and with inflation at 40-year highs, I feel it is very natural for an investor to wonder if they should be worried right now.  My short answer to that question, were it put directly to me by a client right now, would be “no”, and here is why.

Readers of our newsletters know that we at Cadence have been concerned with both the valuation on equities, and especially US equities, for a while, and in more recent months headwinds to global economic growth.  Both predict some level of stock market decline beyond what we have experienced so far this year.  Additionally, with interest rates being held unnaturally low for too long and the sudden need to get on top of inflation by raising them relatively quickly, this was not set up to be the year to expect much growth from bonds either.  That is why we have invested a meaningful amount of client assets in investments that can be considered either alternatives to stocks and bonds, or favoring those slices of the stock and bond worlds that can still do relatively well given current market, economic, and geopolitical conditions.

Currently, our core client portfolios contain up to six investments that we have selected to give us a chance to perform better during conditions such as exist today.  When you compare them (blue text to the right) to Large Cap US Stocks, Developed Market Foreign Stocks, and US Aggregate Bond investments, as represented by their popular exchange-traded funds (red text to the right), you can see that all of our alternative investments are outperforming all of these stock and bond indexes:

The graphical representation makes the outperformance quite clear:

There are time periods where stock and bond index returns go through the roof and alternatives have a hard time keeping up, and in those times our returns may be lower than they would have been had we fully embraced the risks of traditional stock and bond only investing.  However, a full market cycle experiences any number of time periods where stocks and bonds do relatively poorly, and as a result, an allocation toward alternatives can not only smooth out many of the bumps along the way, but also lead to a higher average annual return.

Within Cadence actively managed portfolios, there is an even larger commitment to alternative investments than in the Core portfolios.  As a result, since volatility increased in the fourth quarter of 2018, the actively managed portfolios have outperformed the S&P 500, including this year where they have outperformed the S&P 500 by a wide margin.

Like everyone else, your Cadence Wealth advisor does not enjoy war in Europe, overpriced investments, and runaway inflation.  However, the steps we have taken to protect portfolios from corrosive conditions as we have experienced so far this year means that not only do we probably receive far fewer calls in troubled times than most other advisors, we are also happy to answer that, no, we are not getting a lot of calls right now.  We prepared in advance for these conditions, so you can spend your time navigating the higher prices at the pump and the grocery store while we continue keeping an eye on your investments.

Editor’s Note: This article was originally published in the May 2022 edition of our “Cadence Clips” newsletter.

Important Disclosures

This blog is provided for informational purposes and is not to be considered investment advice or a solicitation to buy or sell securities. Cadence Wealth Management, LLC, a registered investment advisor, may only provide advice after entering into an advisory agreement and obtaining all relevant information from a client. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Past performance is not indicative of future results. It is not possible to invest directly in an index. Index performance does not reflect charges and expenses and is not based on actual advisory client assets. Index performance does include the reinvestment of dividends and other distributions

The views expressed in the referenced materials are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.