Investing in a world where there is an around-the-clock stream of economic news, and an ever-increasing multitude of complicated investment choices can be confusing and overwhelming. Over 30 years of investment experience has taught us that it is absolutely critical to have a well conceived strategy and to stick to it.

Our top priorities for investing clients’ money:

  1. Strive to generate the income required to achieve their financial goals.
  2. Take the least amount of risk necessary to do so.

Notice that we didn’t say “beat the stock market every year” or “find the hottest stocks.” Regardless of what happens in the stock and bond markets, we are focused on getting the income that clients need.

Let’s see how client accounts are positioned with the above goals in mind by reviewing our four investment categories.

Our 4 investment categories:

#1: Global Equity
Global equity is ownership of stock in companies in the US or overseas. Stocks have averaged 8-10% returns over multi-decade periods, but they also have high levels of risk.

With stock prices at historically high levels (they have only been more expensive just 1% of the time*) many stocks are not likely to provide a good return in the near future, and there is significant potential for price declines.

At JourneyTree, we have a relatively low allocation to stocks in general. When making investment decisions, we emphasize undervalued and high-quality categories, such as small companies, overseas companies, dividend stocks, and infrastructure stocks. We will move more funds into this area when the risk appears lower and prices are more attractive from a historical perspective.

#2: Fixed Income
Fixed Income is a variety of bonds and preferred stocks designed to provide a high level of income. The returns they provide are primarily the interest that you receive, and any appreciation in price is incidental. Most of these investments are three or more years in length.

Now that Federal interest rates have risen over 5% in the last two and a half years, interest rates on many income producing investments are higher than they have been in well over a decade. As a result, we have moved more money into this category, currently paying interest of 4.5%-7% to reduce the impact of rates declining.

#3: Short-term/Liquidity
These investments provide a way to minimize the impacts of interest rate increases (which cause bond prices to decrease) and stock market declines. Money here is put into money market funds and short-term bond funds (usually two years or less in length). Short-term bonds lose much less value than long-term bonds when rates rise, and money market funds are designed to maintain a stable share price.

Fortunately, these shorter investments are currently paying attractive interest rates of 4-6% as well as losing less value when interest rates rise. This also means the money is making a good return and is accessible to use in purchasing investments in the other three categories when they become more appealing.

#4: Alternatives
This refers to a broad range of investments that act very differently from stocks and bonds, providing an important element of diversification to portfolios.

Up until a few years ago, most alternative investments were limited to institutional investors such as pension funds, endowment funds, or high net worth investors. Now they are becoming increasingly available to individual investors. They are more complicated to understand and evaluate. However, they have the potential to provide strong risk-adjusted returns compared to stocks and bonds.

We have been focusing more on alternative investments are an area we are focusing on more and more, particularly with stocks priced so expensively. Examples of alternatives include real estate funds, private credit, private equity, and bank loan funds. Interest rates on these investments range from 3%-10% or more and often are much less volatile than stocks or bonds. So, in some ways, they may be the “sweet spot” for investments right now. The return of alternatives is highly dependent on the quality of the management team, so extensive due diligence is essential.

Our investment strategy is centered around providing income while managing risk. By allocating funds across Global Equity, Fixed Income, Short-term/Liquidity, and Alternatives, we aim to meet our clients’ financial goals while maintaining a cautious approach. Having a well-conceived investment plan that you consistently follow will improve your chances of success considerably.

*Source: Shiller PE

ARE ALTERNATIVES WORTH CONSIDERING?

READ MORE ABOUT THEM

 

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