Transition to Recession Portfolio To Begin
Happy Friday!
Over the past few months, we’ve discussed in detail an eventual transition to the “Recession Portfolio.” I designed this portfolio to weather my anticipated significant market decline over the next 6-12 months and beyond. I continue to feel uneasy with the current risk in the US and Int’l stock markets. This week had several economic data points that were met with “ho-hum” market reaction, and the only remaining significant event I see this month will be the Trump-Xi summit in mid-March to HOPEFULLY resolve our trade dispute with China.
Therefore, we will begin transitioning out of the riskier positions in your portfolio – primarily Int’l, small cap growth, and energy over the next 1-2 weeks, and building out the bond/preferred stock component of the Recession Portfolio.
As the market cycle continues to evolve, the less risky equity components – utilities, consumer staples, and small cap value – should see continued strength. These too will be liquidated before they eventually decline with the rest of the market. However, I do not anticipate these liquidations for another 2-4 months. I envision full Recession portfolio implementation by mid-year.
As I’ve shared, my only concern is that we will be moving “too soon” to the new strategy, potentially “leaving gains on the table.” This is an outcome I’m willing to accept. The Conservative/Income – Moderate – Moderate Aggressive portfolios are projected to show total returns between 7-9%/yr with a standard deviation (measure of risk) that is less than half the overall stock market. I will be quite satisfied with these returns, especially given the peace of mind you will have knowing your wealth is focused on preservation in what’s certain to be a volatile 1-2 years ahead.
I have analyzed your individual portfolios to confirm cost basis/capital gain info on EACH position. Based upon your individual performance, I will be sending you my immediate recommendations next week to begin this process.
As always, I sincerely appreciate the trust and confidence you’ve put in me and my firm to be your wise and prudent financial steward. I look forward to a very rewarding year ahead!
Paul
