Multi-Dimensional Investing in Challenging Markets
Multi-Dimensional Investing is more critical than ever in today’s uncertain market environment. With recent market pullbacks driven by fears of tariffs and trade wars, investors are searching for ways to protect and grow their portfolios. This update from Brad Barrie explores how Portfolio Diversification and Asset Allocation, when approached through a disciplined multi-dimensional lens, can help manage Market Volatility. By combining buy-and-hold, tactical management, and alternative investments, investors can maintain a long-term investment strategy even in times of uncertainty.
Multi-Dimensional Investing in Challenging Markets
Hi. This is Brad Barrie, Chief Investment Officer and portfolio manager with Dynamic Wealth Group. Welcome to this market and economic update
In this video, we’ll provide an update on recent market activity and discuss how investors can not only keep perspective but take advantage of opportunities. The current market pullback is a result of concerns around the potential recessionary impacts of tariffs and possible trade wars. These concerns have spread around the globe, with markets in Asia and Europe declining alongside us.
Portfolio Diversification and Investment Strategy
Stocks, if we take a step back, it’s clear that successful investing requires a combination of both offense and defense, something we have been preaching for years through our multi-dimensional approach, which really involves three complimentary sleeves. One, a buy and hold portfolio of stocks and bonds. Two, tactical managers specialized in being active within stocks and/or bonds. And three, alternative investments, which offer differentiated drivers of return.
Over the next few minutes, we’ll discuss how to think about overall portfolio management during both good and bad times.
First, in this chart, we can see the historical minimum, maximum, and average annual return ranges for various portfolio allocations and time periods. This highlights that as time horizons increase, return ranges become more stable. It also shows that the more diversified portfolios experienced narrower ranges of return.
As you can see, the dark blue line represents 100% stocks. The orange line represents a mix of 60% stocks and 40% bonds. The red shows 40% stocks and 60% bonds, and finally, the green shows 100% bonds.
Notably, while many downturns occurred over the past century, there have been no 20-year period since World War Two with average annual declines for stocks, bonds, or diversified portfolios. While the past is no guarantee of the future, the overall pattern here reflects the most important principle of portfolio construction.
It’s important to build a truly diversified portfolio and to maintain a longer time horizon, regardless of the strategy being followed. Be it buy and hold or tactical or alternative investments, all should be held with a long-term focus in mind.
Market Volatility and the VIX Index
So what does this mean for your portfolio?
While pullbacks can be painful in the short term, the goal is not to seek the highest possible returns with excessive volatility, but to achieve your financial goals with the highest probability should be the main objective.
Next, this chart shows the VIX, which is a measure of stock market volatility, alongside one-year forward returns. It shows that volatile periods are often when the market is at its most attractive. This is because the VIX often spikes during sharp market drops, hence increasing investor anxiety, which frequently proceed potential opportunities in the market.
That said, just because the VIX is high currently does not mean it cannot get even higher. Warren Buffett noted this pattern in his famous philosophy to be fearful when others are greedy and greedy when others are fearful.
While this does not guarantee quick rebounds or mean investors should focus on trying to time the market, it shows that even times when the market is doing poorly can be opportunities in the long run. Rather than retreating during downturns, investors should carefully consider how periods like this can present attractive valuations that could warrant shifting toward, not away from, the market depending on individual circumstances.
Alternative Investments and Tactical Flexibility
Of course, this is also a key reason our multi-dimensional approach towards asset management incorporates managers that can have a flexible approach so they can take advantage of such opportunities based on a disciplined, logical approach they would follow, and not taking emotional knee-jerk reactions.
And it’s also why alternative investments are key in a diversified portfolio. There are many different quote markets out there, and not just the stock or bond market. And when stocks are going down, other markets, such as the gold, silver, corn, or other commodities markets, could be performing differently.
I’ve said it before. If you rely on just stocks as your sole driver of return and bonds as your sole diversifier, by definition, you are not diversified via strategy or approach.
Valuations and Market Opportunities
Finally, pullbacks can make valuations more attractive. This chart, which tracks the S&P 500 price-to-earnings ratio using forward earnings estimates over the next 12 months, shows that valuations have been driven up in recent years due to the strong market rally, but have begun to fall back in recent weeks. As the market has fallen, this has made market valuations more attractive, with the S&P 500 P/E ratio declining to 20.7, with some sectors like technology, communication services, consumer discretionary falling even more.
That said, as you can see, the current P/E ratio is still well above the historical average shown here at 15.8. This is yet another reminder of the importance of true diversification. I’ve given my bus analogy a number of times. Which is that it’s the bus you don’t see coming that hits you, because if you see the bus coming, you get out of the way. Well, folks, this is one of those cases. Yes, we all knew the tariff bus was out there, but the market either didn’t think it would happen or didn’t think it would be this big.
This is why the market is unpredictable and why we focus on preparation over prediction. No one knows the outcome of all this, hence why true diversification is key.
We Are Here To Help
I hope you found these, these high-level insights helpful. If you are a financial advisor and would like more information on the solutions we provide, including multi-dimensional asset allocation, please download our white paper titled Busting Seven Risk and Return Myths, or click on the link below, or visit our website at dynamicwg.com, or simply email us at info@dynamicwg.com.
If you are a financial advisor and would like more information on our multi-dimensional approach towards asset management, you can download our white paper titled Busting Seven Risk and Return Myths by visiting our website at DynamicWG.com, or email us at info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor, if so desired.
Until next time, take care, everyone, and make smart, logical, and fact-based financial decisions.
Disclaimer:
Clearnomics and Dynamic Wealth Group, LLC are not affiliated entities. No part of this should be taken as investment advice. Consult your financial advisor for specific investment recommendations tailored to your specific situation.
Dynamic Wealth Group (“Dynamic”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Dynamic by the SEC, nor does it indicate that Dynamic has attained a particular level of skill or ability. This material prepared by Dynamic is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Opinions expressed by Dynamic are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Dynamic, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.
Dynamic does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.
Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Past performance is no guarantee of future results. Actual returns may be lower.
< Commentary
Multi-Dimensional Investing in Challenging Markets
Multi-Dimensional Investing is more critical than ever in today’s uncertain market environment. With recent market pullbacks driven by fears of tariffs and trade wars, investors are searching for ways to protect and grow their portfolios. This update from Brad Barrie explores how Portfolio Diversification and Asset Allocation, when approached through a disciplined multi-dimensional lens, can help manage Market Volatility. By combining buy-and-hold, tactical management, and alternative investments, investors can maintain a long-term investment strategy even in times of uncertainty.
Multi-Dimensional Investing in Challenging Markets
Hi. This is Brad Barrie, Chief Investment Officer and portfolio manager with Dynamic Wealth Group. Welcome to this market and economic update
In this video, we’ll provide an update on recent market activity and discuss how investors can not only keep perspective but take advantage of opportunities.
The current market pullback is a result of concerns around the potential recessionary impacts of tariffs and possible trade wars. These concerns have spread around the globe, with markets in Asia and Europe declining alongside us.
Portfolio Diversification and Investment Strategy
Stocks, if we take a step back, it’s clear that successful investing requires a combination of both offense and defense, something we have been preaching for years through our multi-dimensional approach, which really involves three complimentary sleeves. One, a buy and hold portfolio of stocks and bonds. Two, tactical managers specialized in being active within stocks and/or bonds. And three, alternative investments, which offer differentiated drivers of return.
Over the next few minutes, we’ll discuss how to think about overall portfolio management during both good and bad times.
First, in this chart, we can see the historical minimum, maximum, and average annual return ranges for various portfolio allocations and time periods. This highlights that as time horizons increase, return ranges become more stable. It also shows that the more diversified portfolios experienced narrower ranges of return.
As you can see, the dark blue line represents 100% stocks. The orange line represents a mix of 60% stocks and 40% bonds. The red shows 40% stocks and 60% bonds, and finally, the green shows 100% bonds.
Notably, while many downturns occurred over the past century, there have been no 20-year period since World War Two with average annual declines for stocks, bonds, or diversified portfolios. While the past is no guarantee of the future, the overall pattern here reflects the most important principle of portfolio construction.
It’s important to build a truly diversified portfolio and to maintain a longer time horizon, regardless of the strategy being followed. Be it buy and hold or tactical or alternative investments, all should be held with a long-term focus in mind.
Market Volatility and the VIX Index
So what does this mean for your portfolio?
While pullbacks can be painful in the short term, the goal is not to seek the highest possible returns with excessive volatility, but to achieve your financial goals with the highest probability should be the main objective.
Next, this chart shows the VIX, which is a measure of stock market volatility, alongside one-year forward returns. It shows that volatile periods are often when the market is at its most attractive. This is because the VIX often spikes during sharp market drops, hence increasing investor anxiety, which frequently proceed potential opportunities in the market.
That said, just because the VIX is high currently does not mean it cannot get even higher. Warren Buffett noted this pattern in his famous philosophy to be fearful when others are greedy and greedy when others are fearful.
While this does not guarantee quick rebounds or mean investors should focus on trying to time the market, it shows that even times when the market is doing poorly can be opportunities in the long run. Rather than retreating during downturns, investors should carefully consider how periods like this can present attractive valuations that could warrant shifting toward, not away from, the market depending on individual circumstances.
Alternative Investments and Tactical Flexibility
Of course, this is also a key reason our multi-dimensional approach towards asset management incorporates managers that can have a flexible approach so they can take advantage of such opportunities based on a disciplined, logical approach they would follow, and not taking emotional knee-jerk reactions.
And it’s also why alternative investments are key in a diversified portfolio. There are many different quote markets out there, and not just the stock or bond market. And when stocks are going down, other markets, such as the gold, silver, corn, or other commodities markets, could be performing differently.
I’ve said it before. If you rely on just stocks as your sole driver of return and bonds as your sole diversifier, by definition, you are not diversified via strategy or approach.
Valuations and Market Opportunities
Finally, pullbacks can make valuations more attractive. This chart, which tracks the S&P 500 price-to-earnings ratio using forward earnings estimates over the next 12 months, shows that valuations have been driven up in recent years due to the strong market rally, but have begun to fall back in recent weeks. As the market has fallen, this has made market valuations more attractive, with the S&P 500 P/E ratio declining to 20.7, with some sectors like technology, communication services, consumer discretionary falling even more.
That said, as you can see, the current P/E ratio is still well above the historical average shown here at 15.8. This is yet another reminder of the importance of true diversification.
I’ve given my bus analogy a number of times. Which is that it’s the bus you don’t see coming that hits you, because if you see the bus coming, you get out of the way. Well, folks, this is one of those cases. Yes, we all knew the tariff bus was out there, but the market either didn’t think it would happen or didn’t think it would be this big.
This is why the market is unpredictable and why we focus on preparation over prediction. No one knows the outcome of all this, hence why true diversification is key.
We Are Here To Help
I hope you found these, these high-level insights helpful. If you are a financial advisor and would like more information on the solutions we provide, including multi-dimensional asset allocation, please download our white paper titled Busting Seven Risk and Return Myths, or click on the link below, or visit our website at dynamicwg.com, or simply email us at info@dynamicwg.com.
If you are a financial advisor and would like more information on our multi-dimensional approach towards asset management, you can download our white paper titled Busting Seven Risk and Return Myths by visiting our website at DynamicWG.com, or email us at info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor, if so desired.
Until next time, take care, everyone, and make smart, logical, and fact-based financial decisions.
Disclaimer: