Investment Model Update - Investing for Returns in a Low Return Environment

A lot of us have been around long enough to remember buying safe government bonds yielding six, seven or even eight percent annually, and twelve-month bank-issued CDs at five percent. Today, these "investments" yield less than one percent. Why is this important?

Investopedia describes diversification as "a risk management technique that mixes a wide variety of investments within a portfolio." By assembling a broad group of assets, an investor can reduce the chance of portfolio losses while maintaining expected returns. This is what some refer to as a "free lunch," resulting in less bad news and more good news, simply because you hold different investments. But what kinds of investments should you own?

There are four major categories of investable assets to consider:

  1. Stocks
  2. Bonds
  3. Real assets (including gold, real estate, and oil)
  4. Cash equivalents (money market funds, CDs, and savings accounts).
Historically, the returns of these different asset classes have not depended on the movement of the others. That is what makes diversification so special. If one asset is performing poorly, it is likely that another is doing well. Only on occasion will everything move together.

Putting the right mix of these assets together, though, is complicated. Ideally, your portfolio will reflect two important considerations; how much time you have to achieve your investment goals, and what kind of tolerance you have for taking on risk. A portfolio balances your personal financial goals with your risk comfort level. Just because you can afford to lose principal does not mean you can personally stomach the losses. An ideally diversified portfolio is, therefore, also a personalized one. Some financial experts even argue that how you decide to allocate your assets is more important than which individual securities you choose to own within that specific asset category .

This last point is particularly relevant today. With stock prices at all time highs and interest rates at all-time lows (meaning bond prices are at all-time highs as well), how does one construct a portfolio that will generate meaningful returns without too much risk?

One way we are doing this is by buying new and different kinds of assets, thus broadening our universe of owned securities and attempting to capture extra returns. Because bond yields are so low in general, we purchased a floating rate bond exchange traded fund (ETF) for some portfolios. Investing this way provides our clients with a flexible income stream, so if rates eventually go up, they participate quickly in those higher yields. Another example: whereas we historically bought traditional stocks to meet our equity exposure goals, we have introduced a preferred stock ETF. Like the corporate bonds we bought for the first time ever this spring, preferred stocks give us exposure to the underlying security, stocks in this case, with the added benefit of higher, more reliable consistent dividends. All in all, we are working hard to identify new asset classes that will boost your expected returns, without taking on unnecessary risks.

Should you have questions about any of the recent transactions in your portfolio, every advisor at WT Wealth Management is able to discuss the reasoning behind it. Just don't be shy to ask. We are honored to work on your behalf.


WARRANTIES & DISCLAIMERS

There are no warranties implied.
Any opinions expressed on this website are the opinions of WT Wealth Management and its associates only. Material listed on this website is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETF’s carry certain specific risks and part or all of your account value can be lost.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

View Disclosure
WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. adviserinfo.sec.gov) or from WT Wealth Management directly. WT Wealth Management 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 WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

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