Market Update - Russian Invasion of Ukraine
With Russia launching its attack on Ukraine and investors understandably nervous, I thought it would be worthwhile to quickly review how Thomas Financial Advisors designs our portfolios to balance the competing interests of safety and growth that all investors face. Because every client’s financial strategy is unique, almost all our clients have customized portfolios. That said, there is a common foundation for our client’s investment strategies, including:
Small & Value Tilt – Our portfolios have US stock positions that are generally tilted towards smaller and value companies. Increasing the proportion of small and value companies relative to the overall US market has shown to increase performance over time. Small companies tend to have more control over pricing and can respond quicker to rising costs, which is important during periods of high inflation. Value companies, including the financial, consumer staples and energy sectors, can help provide diversification as banks make more money with higher interest rates, consumer staples tend to maintain demand in economic downturns and energy has historically performed better relative to the overall market during inflationary times.
Short-term Bonds – When interest rates rise, asset prices decline. Our portfolios have bond positions that are generally short-term in nature, on average loaning money out 4 years into the future. Bonds are very sensitive to interest rate changes and the longer out you loan your money the more volatility in prices you experience. Staying short dampens this volatility and adds to the ballast of the portfolio.
Inflation-Protected Bonds – The US government offers bonds whose principal increases with inflation. Our portfolios utilize an allocation to these bonds to add stability while minimizing the risk of inflation.
High-Quality Bonds – Our portfolios generally invest in high-quality US government and corporate bonds. Investing in high-quality US and corporate bonds decreases the risk of default relative to more speculative, lower grade junk bonds. Staying high-quality decreases bond price variability and adds to the ballast of the portfolio.
Active rebalancing – We actively monitor our client portfolios for opportunities to sell when prices increase and buy when prices decrease. In addition, we are continually reinvesting dividends as they are distributed, thereby adding to the amount invested in a particular security.
I continue to actively monitor our client’s portfolios and investment strategies for changes that may need to occur. During times of unrest, it’s important for us as investors to remain levelheaded and look to our long-term strategy as a guide through volatility. If you would like to schedule a call to discuss your specific strategy and how the current unrest affects you, please reach out.
- Andy