AUGUST MARKET COMMENTARY
What Should I Do Now?
Many wealth management professionals tend to get this question from clients. While this question is quite common among the average market participant, we view it as somewhat superficial. It is more appropriate to understand your goals and risk tolerance and then set the appropriate level of risk within your portfolio. As legendary investor, Howard Marks, puts it, “every investor should think of positioning their portfolios in terms of a speedometer in a car that goes from 0 to 100. The first requirement…is that every investor or every manager for each client should have a sense for the appropriate, normal risk posture. Clearly it varies from investor-to-investor and client-to-client.”
Some of the current macro developments, such as higher interest rates and a high degree of geopolitical turmoil, would argue for a more defensive posture. The other side of the coin is the fact that even as the Fed raises rates, their overall stance will still be quite accommodative from a historical perspective. Low rates have become normal. As we have observed, governments really like low rates and everybody wants growth. Going back to historic interest rate levels would likely be too much of a shock. This means that the Fed will likely lean towards easy money conditions.
Speaking of the Fed, the markets were on edge waiting to hear from Federal Reserve Chairman, Jerome Powell last Friday. Investors awaited his comments to gain clues on interest rates and inflationary expectations. An article in the Friday edition of The Wall Street Journal stated, “Investors are holding off from making big moves until economic data and comments from central bank officials offer greater clarity on the state of the economy and the likely course of monetary policy.”
While waiting for “greater clarity” sounds like a reasonable strategy, we feel as though that stance assumes that after Chairman Powell speaks there will be a clear and obvious path for outsized returns. This rarely, if ever, happens. This approach also assigns too much skill to the average investor. Assuming the typical market participant can decipher “Fedspeak” and profit from it is extremely unlikely, especially given most professional and institutional investors have difficulty with that endeavor. The path of least resistance and the path of highest probability of a successful outcome is simply to always stay invested at a level that is comfortable for you, given your goals and risk tolerance. With the current level of uncertainty out there and the inherent level of ambiguity that always exists, we see a stable level of investment as the most favorable strategy.
For example, it is not so prudent to add risky assets to your portfolio when your neighbor tells you it’s a good time to invest in dogecoin (can’t miss!), SPACs (everyone’s doing it!) or AMC (ride the wave!). Conversely, it is also likely not a good time to move everything to cash after the market drops and your eye doctor tells you that everyone knows the market is going to drop further. Take advantage of the positive underlying trend, maintain a long-term view, and enjoy the long-term benefits of investing. When one looks back on their investing career, it’s typically time, not timing, that produces great results.
This is why we, at Wolf Group Capital Advisors, view the goal-defining process as so important. Why are you investing? What do you want your money to do for you and your loved ones during your life and beyond? What are the most important things that you want to prioritize in life?
Our clients typically do not have a goal of dying with a huge amount of wealth. It may happen for some but that is usually not their goal. However, each and every client has, in one way or another, let us know that they would like to “live richly.” As advisors, it is our job to help our clients think through what living richly or having a fulfilling life means to them. Once that unique definition is determined, we then give them the best chance of achieving that vision as efficiently as possible through thoughtful financial planning and disciplined investment management.
Written by Charles Verruggio, Chief Investment Officer