Markets are simply either bull or in recession and bear. Those are the only two scenarios we get. We are currently in a bear market recession with high inflation. This dictates how securities are selected for our clients and, although it is painful to go through these times, prudent rules of investing are quite clear and experience has taught us well. We know how to manage through.
Reducing risk and having adequate cash are cornerstones of investment strategy now. Risk reduction can be accomplished in the following ways:
- Quality of holdings
- Investment grade fixed income offerings
- Cash for living expenses
There are positives in all of this. With rising rates, we have the ability to begin returning bonds and fixed income offerings to normal weighting in portfolios for the first time in 21 years. This is not just “good”; it is fantastic! Investors and money managers like Dimensional that favor value and the discipline of rules-based investment selection suit these conditions very well.
Remember why you are investing, work with us to make certain your cash level is where it needs to be for recession, do not incur debt and keep the portfolio invested. This will pass.
The average bear market recession lasts 9 to 18 months and the ECRI Weekly Leading Economic Indicators, published by the Economic Cycle Research Institute, tells us we have been there for several weeks if not months already. The major indicators have declined for over 100 weeks.
You can review this data and more at www.businesscycle.com.
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