For Thanksgiving, I thought I might do something a little different this year. I might actually try to strike a healthy balance … and not eat too much.
Yeah, right…
The thought left my head just as soon as it entered.
After all, I don’t get many opportunities to gorge on the staples I had while growing up. Here’s looking at you chicken n’ noodles over mashed potatoes (Keto dieters, beware!).
But the notion of finding balance elsewhere does have its appeal … especially in my retirement portfolio.
That’s because this has been a year marked by extremes for investors. There’s evidence of that everywhere.
Valuations are either the most expensive or the cheapest ever, depending on where you look.
And you’ve seen an unending tug of war between growth and value sectors, while correlations have plunged to historic lows.
That means stocks are moving all over the place, and the traditional tools for navigating the uncertainty are useless.
Toss Out the Old Investing Playbook
Oftentimes, investing styles follow a nice curve plotted to the business cycle … such as the one below:
Source: Stockcharts.com
I wish it were that simple. But this recovery is hardly following a normal path.
Take your pick from any major reason: The Federal Reserve’s uncertain path forward, the federal government’s spending spree on stimulus and infrastructure, supply shortages, the rise and fall of COVID-19 cases…
That’s just to name a few, and it’s sending stocks all over the place, I mean look at the sudden sell-off in growth stocks this week.
It’s not like the markets were easy to predict before, but these new challenges make it darn near impossible!
Instead of making the next rotation a guessing game, here’s a different strategy to deal with the ups and downs of your core, long-term portfolio…
Hit the Weights
Trying to time rotations could do more harm to your portfolio than good because you end up chasing returns … and doing the wrong thing at the wrong time.
Rather than trying to follow the path laid out under the old framework, try a barbell approach instead.
That means balancing out your exposure to opposing areas of the stock market, such as holding a core position in both growth and value investments instead of taking an all-or-nothing approach. Or guessing which reopening trade or stay-at-home stock will work next.
The truth is, there are great opportunities in both growth and value segments if you know where to look.
The barbell strategy is another way to diversify your portfolio and help smooth out the bumpy ride for the long term.
So, as you settle into a lively discussion about the stock market over a heavy Thanksgiving meal, you can at least find balance in a barbell approach.
Best regards,
Clint Lee
Research Analyst, The Bauman Letter