Recent days have seen a surge in financial market volatility, resulting in headlines making dramatic pronouncements designed for clicks rather than to promote real understanding of complex issues.
We are grateful for the stewardship you have given us to manage your savings and investments. Traveling this path together for many years has helped us all recognize that volatile markets are part of the journey to building and maintaining wealth. As Mark Twain famously said, “History does not repeat itself, but it rhymes.” More than 25 years of daily immersion in the sounds and songs of financial markets has helped us to learn its tempos and rhythms. We love the resulting music!
The spotlight is on U.S. Federal Reserve policy, with some market participants wondering if they kept interest rates too high for too long in the face of a weakening economy. Less attention is focused on last week’s rate hike by the Bank of Japan, which has significantly impacted global currency markets and has been a catalyst for global money flows. Market concentration with a handful of companies dominating market movements has also played a role in the volatility.
What does this mean for investment portfolios?
Each investment allocation inside portfolios we manage are behaving as we would expect. Diversification by asset class and by strategy is again proving valuable. Our investment framework of building portfolios for a Lifetime is designed to be durable and resilient. We continue to follow disciplined and sound investment processes, and we will adapt as market conditions change. We love the resulting music as we play all the keys on the investment piano (see my article Playing All of the Keys on the ETF Investment Piano January of 2020).
Financial writer Morgan Housel provides some perspective as he sized up current markets by stating that “This is the biggest market decline since the last decline you don’t remember or care about anymore.”
We care about and remember each market move so that you don’t have to!
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