To take you back in time, 2010 was “the Year of Uncertainty and Volatility,” as expressed by CNN Money. As we started 2011, there was fear and there was worry. In conversations with people from one end of the country to the other, we heard their concerns about the financial markets. There were questions about the resilience of the stock market. Is it different this time? Are the markets fundamentally altered? Should we get out of stocks completely? Should we buy gold? Should we only hold bonds?
Today, three years and almost 600 points on the S&P 500 later, the fear and worry aren’t gone, but the questions have shifted. Should we own only stocks? Should we hold any bonds at all? Should I take a loan against my home to buy more stock? Or should we sell all of the stock because the stock market can only go down?
If there is anything we know for certain, it is that no one knows for certain what the market is going to do on any given day. Bill Gross and Mohamed El-Erian, co-Chief Investment Officers of PIMCO, the global investment firm, are some of the smartest people in the bond world. They got it wrong in 2013, and the PIMCO Total Return Fund, the world’s largest bond fund, had its worst performance in 20 years. NO ONE, no matter what they advertise, knows what the market will do from day to day.
What prudent investors can know, based on solid research and good numbers, is what may be probable over the long term. Looking at 2014 and beyond, we know that various parts of the world are poised for growth. We believe the US economy is going to grow. As prudent investors, we want to capture the growth of the world so we will continue to have a global perspective. As prudent investors, we also will continue to keep a sharp eye on the risk level of our portfolios. We will maintain an appropriate weighting to bonds and other asset classes. As a colleague likes to say, there is nothing like a high-quality bond portfolio to provide ballast if a storm arises.