We continue to experience slow economic growth, modestly chugging along without experiencing any major stock market turbulence. It has been nearly 10 years since the stock market peaked in July 2007 on the cusp of the 2007–2008 global financial crisis. We haven’t had a major stock market downturn, defined as a drop of 20% or more, since the stock market recovery began in March 2009. While we don’t make forecasts, let’s not grow complacent. Historically, the stock market has gone up about 75% of calendar years and down about 25% of the years. Risk and return are related, and higher potential returns over time from the stock market come with volatility in the short term.
Over five years ago we added a “Low Volatility” category to our asset allocation and mutual fund selection. Given the environment of low interest rates and the fact that bond prices go down when interest rates go up (admittedly, we were early in planning for rising interest rates), the goal was, and remains, to have a category with higher potential returns than bonds but less volatility than stocks. Easy to say, hard to do!
We recently added the Vanguard Global Minimum Volatility Fund to this list. It invests in U.S. and foreign stocks but uses a stock selection methodology to emphasize less volatile stocks that don’t go up as much when the stock market goes up but shouldn’t go down as much when the stock market goes down. Morningstar publishes a statistical measure called the Upside and Downside Capture Ratio to analyze relative performance, and we will use this as one tool to measure the Vanguard fund’s performance. As stated above, we have had remarkably low volatility in the stock market, but we are acting to “be prepared.”
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My Wealth Update
Last month we announced the rollout of our “My Wealth” web-based service to provide you with easily accessible data about your investment portfolio. The feedback has been positive, and we plan to use the service more fully in our portfolio reporting in the near future.
If you have not already done so, please register for My Wealth and explore the rich, graphical reporting. If you have not saved the link on your desktop, laptop, and phone, we have added a link at the top right-hand page of our website for your convenience and easy access.
My Wealth charts provide multiple levels of portfolio analysis by clicking on each section of a report to drill down to a further level of detail. As with all new technology, the best way to learn about it is explore or hit the “Next” button at the top. We encourage you to “click around” My Wealth and explore it. Please contact us if you need assistance registering or have any questions.
Enjoy these early summer days! As always, please contact us with any questions, news, or comments.