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Perspectives

The benefit of balanced portfolios

by Fortem Financial February 28, 2020

We wanted to share with you some background on why we invest in balanced portfolios. During periods like February 19 through February 28, 2020, when the stock market comes under pressure, bonds tend to perform quite well. Over this period, the S&P 500 was down 12.4%, the Nasdaq was down 13.2%, and the Dow Jones was down 13.3%. The Barclays Aggregate Bond Index however was up 1.6% during this period. Because of this inversely correlated relationship between stocks and fixed income, fixed income in a portfolio serves a number of purposes:

  1. It reduces volatility, meaning a portfolio with both stocks and bonds will typically not sell off as much as an all stock portfolio during periods of stress.
  2. It provides an opportunity to take advantage of market selloffs, meaning that after a sharp draw down in equities, some of the fixed income within a portfolio can be sold to purchase stocks at lower prices and bring down the overall cost basis of the portfolio. This type of rebalancing may also help a portfolio return to its previous highs more quickly.
  3. It provides a source of capital should distributions be required from the account during a period when stocks are down, allowing the stocks in the account time to recover from their losses.

While we did not “predict” the sharp selloff the market has just experienced, it did not surprise us either. It is actually quite common for the stock market to experience an intra-year drop of 10% or greater. A drop of 20% is less common, but also not unheard of. Because timing the market is an exercise that often leads to undesirable outcomes, we do not engage in the practice. However, that does not mean that we will not engage in tactical rebalancing. Tactical rebalancing is “short-term” reallocation to take advantage of market anomalies, like a sudden, sharp drop in the stock market. Because we do not expect the Corona Virus to create long-term disruptions to the economy, we believe this pullback may be an opportunity to tactically reallocate portfolios adding to stock positions within portfolios at very attractive prices.

Please call or email us with any questions.

Sincerely,

Fortem Financial
www.fortemfin.com

 

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

Disclosures:
Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client’s experience or of the Firm’s future performance. Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
Fortem Financial 2016. All rights reserved.

Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

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The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

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