Monthly Outlook: October 2020 

It’s been a long summer as most of us muddle through an endless list of uncertainty and stress: coronavirus, recession, schools, work, travel, politics, and more. Of course, these issues all factor into markets and volatility, too. In 2020, US stocks first went up 5%, then down 33%, then up 58%, then down 9%. Would you believe that for the year, US stocks are now up just 5% after all this (that’s how the math works). That’s a lot of volatility and stress for a modest return.

International stocks have had a similar wild ride in 2020, but they are down 5% YTD. Bonds, on the other hand, have had steady returns and are up about 6% YTD. Gold has delivered a gain of 24% YTD. Even with the volatility, our clients’ portfolios are doing well. Our iFolios 75 portfolios, for example, are up about 4% YTD and up 9% for the last 12 months.


As we manage portfolios and maintain client relationships, we spend a lot of time reading, watching, talking, and listening. It’s evident that the stressors of 2020 are taking a toll, and everybody is doing a lot of thinking. I’ll bet I hear “I think” at least 100 times a day. Comments like “I think the economy will go up/down” and “I think the election will be bad/good” are just the obvious “thinks.” I wonder, though, if all this thinking, supposing, guessing, and rehashing isn’t adding to our stress? Sometimes it seems we take one problem, replay it ten times, and feel like we have ten problems.

It might be more beneficial and less stressful to focus on what we actually know. It certainly reduces the number of things to focus on! Around the office, we frequently remind each other, “You don’t know that” when we start pontificating or guessing. It’s a reminder to focus on facts and not slip down the rabbit hole, tempting as it is. Focusing on what we know for sure allows us to have a sound basis for making decisions. It reduces the number of “what-if” scenarios that are only exercises in keeping uncertainty and frustration alive.

iFolios Focuses on Facts

Focusing on facts and not our thoughts and guesses is at the core of our iFolios investment strategy. I can only imagine how stressed most money managers are in these volatile markets trying to manage their clients’ portfolios using estimates, hunches, and guesses. We are different. We start by designing a strategic mix of assets including bonds, stocks, and cash. We select about 12-15 index ETFs to build the portfolios according to the mix. And here’s the important part: We allow a wide percentage range for each holding, based on that holding’s trend. For example, US Value stocks might have a 5% to 11% allowable range in a portfolio. When US Value stocks are trending higher, we’ll invest 11%. When they trend lower, we’ll trim/sell back to the minimum 5% for protection.

So, how do we know when it’s trending higher or lower? We focus on what we know, and not on what we think.  That is, we observe the trend using moving averages and facts. We don’t guess about the next unemployment report, potential revisions to earnings forecasts, or political polls. Our signals are akin to predicting that it IS raining by observing raindrops. Our signals provide measurements much like a thermometer measures the temperature. Either a particular index ETF is trending higher or it’s not.

As we start the fourth and final quarter of 2020, our factual signals are telling us this: Bonds continue to trend higher and so we remain fully invested within the percentage allocation of our models. We prefer investment grade and shorter maturities. US Stocks are mixed. Growth stocks remain up-trending, but Value and Small company stocks are trending lower, so we’ve underweighted those. International stocks are generally trending higher. And gold is strongly trending higher. We’ve positioned clients’ portfolios, accordingly.  Given the unusual stock market volatility of 2020, you can imagine that our factual trend signals have vacillated a few times and so we’ve had to trade back and forth. We don’t know what the fourth quarter holds for the world, but we know we’ll focus on what we know to manage portfolios for growth and protection.