More Questions and Answers
The world continues to be uncertain. Who knows what disease news will look like? The economics of it all is a bit more understandable. But still; incredible.
What is clear is that the Federal Government and the Federal Reserve are ramping up their efforts to help the economy maintain its footing. While there is some delay in legislative action, you can most likely expect to see something in the next couple days which will be dramatic.
I was asked about this last night by CNBC London. Here are a few of my thoughts.
One question I am asked, which is covered in our video update below, is what causes DWM to change our equity and fixed income allocation balance in portfolios. It's a good question and I thought it might be helpful to provide detail on how we make this judgement.
While it might seem obvious that we will reduce equities if we think the market is going to go down, the reality is no one really can predict that with any certainty. Likewise, it's basically impossible to predict whether the market will rise on any given day as well. Market timing is historically a very poor way to invest a portfolio.
Instead, we focus on something we call our DWM Uncertainty Assessment. This assessment drives our equity versus fixed income allocations and is a measure of uncertainty relative to current conditions. Here's a brief summary of this strategy.
DWM Uncertainty Assessment
The trigger for allocation changes are based on levels of uncertainty. For example, if we cannot clearly define what damage might be created related to current events due to a high degree of uncertainty, we will likely reduce our uncertainty level resulting in a repositioning of assets. There is an uncertainty level we deem to be acceptable for each allocation.
While we might buy at a lower price in the future, we might also buy at a higher price if uncertainty levels have decreased. This is different from timing strategy which is merely focused on price. The uncertainty measure instead is focused on levels of lack of clarity and how we manage risk based on that uncertainty.
Perhaps this helps illuminate how we make decisions. That’s my goal; to be as transparent as possible.
Take 15 minutes and watch our latest video update. In this update I answer a number of questions and provide my comments on current conditions.
Adjustments Will Continue
Given conditions that have been developing over the last several months, in some cases we have made substitution trades moving from one asset to another. I expect this to continue. In some instances, our equity versus fixed income allocation balance has been adjusted as well. Given current conditions, you will likely see additional adjustments beyond what we have already implemented in portfolio strategies.
As always, all of us are here working diligently on your behalf. Please let us know if we can answer any questions that you might have. If you reply to this update, it comes directly to me and I will personally answer you.
Next update will be on Friday of this week. We will continue for the foreseeable future (until the world calms a bit) to provide you a video and written update each week.
Be well everyone. Be safe. We will get through this.
The opinions expressed herein are provided for informational purposes only and are not intended as investment advice. All investments involve risk, including loss of principal invested. Past performance does not guarantee future performance. Individual client accounts may vary. Although the information provided to you on this site is obtained or compiled from sources we believe to be reliable, Destination Wealth Management cannot and does not guarantee the accuracy, validity, timeliness or completeness of any information or data made available to you for any particular purpose. Any links to other websites are used at your own risk.