JourneyTree looks at investment returns over a long-term cycle that includes both up and down markets to ensure that clients get the returns they need with the least amount of risk. Due to a variety of factors, we have just been through an abnormally prolonged period of positive performance for both stocks and bonds.

That highly unusual period fueled by low interest rates, government stimulus, and low inflation appears to have ended. Stock and bond markets have been artificially inflated by these circumstances leaving poor investment choices for investors: overpriced stocks and bonds vulnerable to large declines, historically low-yielding bond interest, and money market rates stuck near 0%.

One of the keys to good long-term returns is to attempt to minimize losses in down markets. Anticipating the dangers present in overvalued markets, we have taken these steps to protect client accounts:

  • Reduced intermediate and long-term bonds which get hurt the most when rates rise
  • Increased short-term bonds which get hurt the least by interest rate increases
  • Focused on the more attractive parts of the stock market such as “value” stocks
  • Increased holdings of alternative investments that are not tied to stock or bond markets

With rapidly rising rates and inflation, both stocks and bonds have declined steeply so far this year, with bonds dropping the most in over 40 years. It is highly unusual that both stocks and bonds would drop so much at the same time. The actions JourneyTree has taken, as noted above, has helped to cushion the decline in client account values. We are also in a position to move money into more attractive investments as they become available as they always do in declining markets.

Protecting accounts, to the extent we can, from periodic declines and taking advantage of good buying opportunities, are the keys to providing the returns clients will need in future years.