Monthly Outlook: August 2024
Global stock and bond markets continued to trend higher through July, although the Big Tech stocks waffled a bit this month. YTD through July, the US stock market is up 15%, the international stock market is up 8%, and US Bonds are up 2%. Importantly, nearly every market remains above its price trendline, which is our signal to stay invested for growth.
As we look forward, we know we’re in the “100 Days to Go” mode with the elections coming on November 5th. Investors are also on “Fed Watch” as there are multiple hints that the Federal Reserve is getting ready to cut the Fed Funds interest rate at their September 18th meeting. And, to pleasantly distract us through it all, we had the Tour de France in July and now the Olympics in August. It’s a lot to take in and people have a lot to say.
The never-ending streams of opinions are making life more chaotic than it already is. “This candidate will win because of this.” “They’ll win the gold because of that.” “The Fed should cut now to stave off recession.” “Stocks will rise” and “stocks will fall.” My favorite are double opinions like “stocks might rise and fall,” which is unhelpful to everyone. Are you as tired of these incessant opinions as I am? It takes a discerning listener to separate all the opinions from facts that are supported by evidence.
Focus on Evidence
A lot can, and will, happen in the next 100 days. We can speculate and opine until we’re blue in the face, and some people will do just that. But that’s a recipe for anxiety, poor decision making, and exhaustion. I suggest we take a more evidence-based approach and sift through the noise to look for facts, consider them, and make logical decisions. We can use this strategy with politics, economic outlooks, our personal health, and of course investments. There aren’t always enough facts to make error-free decisions, but at least your course of action will be based on sound logic and evidence, and you’ll have a better chance of success. And, instead of blathering on with unknowable opinions like other people, you can say (maybe to yourself), “Based on the facts, I think this will happen.” Let’s stay in our lane as a money manager and apply this strategy of using evidence to invest intelligently and for better results.
Investing Intelligently – No Opinions Needed
Investing involves risks. There’s no way to escape that. But there are ways to reduce risks and improve your odds of making money and meeting your financial goals. Nearly every investor starts off with deciding which markets to invest in and how much to allocate to each market. Sometimes they do this on their own and sometimes an advisor helps them. Maybe they conclude that a globally diversified portfolio of stocks and bonds in a 70%/30% mix is suitable for them. But maybe they decide to put their savings into 10 “hot stocks” and Bitcoin. This is just the first decision. It’s the ongoing management where the opinions and guesses start in.
Let’s use an example to make a few points. Say an investor finds a qualified advisor working at a reputable, fiduciary-based firm. They invest in a typical growth allocation of 70% global stocks and 30% bonds. They might have individual stocks and bonds, mutual funds, or index ETFs. The details don’t matter that much. Going forward, the portfolio needs to be managed. Does the advisor listen to myriad opinions from their own firm, TV pundits, blogs, newspapers, neighbors, and social media to make investment decisions? Does the client/investor do the same? This results in the portfolio being managed using a bunch of educated guesses and opinions, many of which will prove to be faulty. Those guesses that do work out probably can’t be consistently duplicated over time. It’s less than ideal.
At Ryan Investments, we use an investment strategy that is based on evidence. We call it iFolios®. Our goal is to invest for growth and manage drawdown risk. For each holding in a client’s portfolio (we use low-cost index ETFs), we define a price trendline using moving averages. Each ETF is either above or below its trendline at any one time. We stay invested as long as the ETF remains above its trendline, and we sell when the ETF dips below its trendline. It’s a systematic way to capture available growth and reduce the risk of loss during inevitable drawdowns. It’s rules-based and repeatable, which is comforting. The best part is we don’t rely on opinions.