Managing the Current Investment EnvironmentSubmitted by Bond & Devick Wealth Partners on October 4th, 2021
“To every problem, there is a most simple solution.” Agatha Christie
Managing the Current Investment Environment
The most published fictional author of all-time has a quote for almost any situation, including September of 2021. The current investment environment seems so challenging that most investors are searching for new solutions to our current problem: how to allocate portfolios where interest rates are at an all-time lows and stocks are near record highs. As our team researches this conundrum, we have seen a great deal of advertising around “alternative investments”. Wall Street and its purveyor of products see the problem as an opportunity to create new products and make more money by marketing the cure: buy alternative investments. The old way of doing things will no longer work, so try something new (and, perhaps untested?).
Our firm has used select alternative investments for decades. Straightforward, plain vanilla types of investments like covered call and market neutral strategies. The limited number of alternatives we have used need to pass a few guidelines: 1) Are the strategies simple to enact and easy to understand? 2) Do the strategies use excessive leverage (borrow money to make outsized bets) and 3) Are they liquid? If the answer to #1 and #3 are yes and the answer to #2 is no, then we may consider the investment for our portfolios.
Investors will no doubt be inundated with advertisements for alternative investments in newspapers, magazines, television, and the internet. Whenever you hear about a new investment product, especially if it is an alternative investment, ask yourself the above three questions. In our experience, the opaquer and more complicated an investment, the greater the chance to lose money.
There are times when it pays to be patient and accept what the markets give you. This isn’t to say that we are not making changes or reviewing our asset allocation strategy. However, the changes we make are based on our clients’ long-term goals, risk tolerance and investment objective, not what is currently fashionable on Wall Street. Complicated, illiquid, alternative investments that use excessive leverage are an opportunity to move money from the pockets of investors to the makers of these products – investor beware. To paraphrase Agatha Christie, stick to the simple solution.
Enjoy the beautiful Autumn weather and stay healthy.
The Bond&Devick Team