Investing for all Seasons
Outside all signs are pointing to spring – the budding trees, blossoming flowers, and cars covered in pollen. We start dusting off our t-shirts and shorts that have been boxed away since last year as we look forward to spending time outside after being cooped up inside all winter long.
So why is it that while it is finally spring outside, we are thinking about fall at GGM?
We believe our “investing for all seasons” analogy helps shed some light on a vital piece of our investment philosophy – if you do not know the weather forecast, how would you know what clothes to wear?
Think about what you would wear in each of the four illustrations below. The answer for the top left (summer) would be vastly different from the bottom left (winter). As you can imagine, the right outfit will lead to a more enjoyable experience. The same can be true for investing in different economic “seasons.”
Mapping and Measuring the Economy
Properly preparing your portfolio for the prevailing economic season is a key to prosperous investing. As part of our investment process, we are constantly mapping and measuring economic data to determine which season we are in (from an economic perspective). Unfortunately, the economy doesn’t follow the same smooth rotation we experience in nature.
For instance, notice the illustration below (where we plot the quarterly data points for growth and inflation) projects the economy to be in the fall season for the remainder of 2019.
Different types of investments (both stocks and bonds) act differently depending on which season they are experiencing. Our extensive research and back-tested results compellingly show higher returns could be generated by shifting a portion of your portfolio towards those “outfits” or categories that are more appropriate for the current economic season.
Here is a brief synopsis of the investment strategies we favor in each season.
Our Outlook: Neutral
In a season where the spread between winners and losers is historically the widest, we are cautiously optimistic. Combined with recent improvement in our quantitative risk management model, we have shifted to a neutral asset allocation posture.
Economic growth most likely peaked towards the end of 2018 and is expected to slow this year (from GDP around 3% to a little over 2%). Cooling economic growth and higher inflation (stagflation) characterize the “fall” season, as well as the potential for significant market volatility. However, this late cycle forecast and our “recession watch” indicators suggest the danger of the economy slipping into recession is not imminent.
Maintaining a watchful eye and responding to changes in both our “investing for all seasons” roadmap and our risk management model, will play a key role in delivering prudent risk-adjusted returns. For now, we remain focused on higher quality strategies and categories best suited for this late cycle environment.
How Can We Help?
At GGM Wealth Advisors, aligning your investments with the prevailing economic environment is just one of the ways we strive to add value to your portfolio. If you are concerned about whether your investments are prepared for what’s ahead, we recommend our complimentary portfolio checkup. Contact us today!