Explore Our
“Off The Wall” Blog
Unique, straight-forward, unfiltered opinion on topics of concern for individuals with newfound wealth.
Go Beyond Traditional Asset Allocation
Use alternatives to protect your portfolio.
Most investors are aware of the importance of diversification across traditional investment asset classes, such as stocks, bonds and cash. We also understand that the stock market has historically moved in cycles over many decades.
Take the last few decades for the Dow Jones Industrial Average, which include extended bull markets when market values are rising, as well as long bearish stretches where markets move sideways or fall. Over the last 12 years (2000 to 2011), the cumulative return for the Dow was less than 12 percent, in contrast to the preceding 17-year bull market (1982 to 1999) where the Dow posted an astounding 1,003 percent cumulative return.
There’s a limit to what we can glean from those figures, but there’s one obvious lesson (especially if you think the market’s future looks more likely to reflect a continuation its recent results): Returns are unpredictable, and you might want to consider building a long-term investing strategy that includes managing risk as much as your return. That means diversifying even more.
By combining traditional asset classes with alternative investment options, like managed futures, commodities and others, as well as strategies centered on risk management and tactical management, there is a potential to increase returns and lower volatility.
It’s the sort of thing that university endowments do now, with some success. As reported by the NACUBO-Commonfund Study of Endowment Results, over the last decade, the Standard & Poor’s 500 index returned a modest 2.7 percent, while 472 university endowments of all sizes consistently outperformed the index. Interestingly, endowments with the greatest exposure to alternative assets performed the best, with average annual yields of 6.9 percent.
The goal is to grow your portfolio, so market exposure is an important consideration. The next step is to bring together investment strategies and options that help manage risk and keep you invested during uncertain times. Traditional investments tend to move in tandem during times of volatility which makes building a diversified portfolio a greater challenge. Portfolios that have included alternative investments have historically been associated with less correlation to traditional investments. This means they may perform differently under the same market conditions and can potentially provide further diversification, lower portfolio volatility, and potentially increase returns.
To address market unpredictability and volatility, risk management strategies seek to systematically reduce risk exposure when markets trend downward and increase exposure when market trend upward. Strategic allocation and tactical management may provide greater flexibility and responsiveness to the dynamics of the market, that seek to identify trends, risks and opportunities over time—and through business cycles.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Monument Advisory Group, LLC, a Registered Investment Advisor. Monument Advisory Group, LLC, and Monument Wealth Management are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Asset allocation does not ensure a profit or protect against a loss. Tactical allocation may involve more frequent buying and selling of assets and will tend to general higher transaction cost. Investors should consider the tax consequences of moving positions more frequently.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.
A copy of the Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.monumentwealthmanagement.com/disclosures. Please Note: Monument does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Monument’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Monument account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Monument accounts; and, (3) a description of each comparative benchmark/index is available upon request.
Please Remember: If you are a Monument client, please contact Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.