Discretionary Model Update w/ Jared Kohl

March Discretionary Model Update Transcript

Fear is a reaction and courage is a choice!

After much reading, listening, and critical thinking during these past few weeks we have decided to make some adjustments to our discretionary model portfolios this week. Our objective during this time is, and has been, to stay invested with the managers we trust, while also taking into consideration where we expect the market and economy to be going forward. We believe the current volatility warranted these adjustments, and our intention is to be a bit more cautious and position the portfolios to have some cash to redeploy when the dust settles.

There has been a massive dislocation in the prices of stocks and bonds due to the virus and many unknowns as fear continues to guide the decisions that are being made. There was a “dash to cash” for the people and companies that held large amounts of debt which, in turn, has caused the massive moves and sell-offs that we’ve seen. The Fed has stepped in quickly to support pricing and backing to many companies and this seems to have eased investor sentiment over the past few days. There continues to be a lot that is unknown, and we cannot predict how long or to what extent the volatility will continue, it truly may get worse before getting better.

We feel that we are in better shape domestically to handle this pandemic as the USA had a stronger economy headed into this crisis and should remain stronger coming out of it. The larger domestic companies can handle this disruption much better than the smaller, cash strapped companies that are highly leveraged. With that in mind, we pulled back on more volatile international equity as well as small and mid-size domestic companies – this gave us the ability to buy into more large cap domestic companies, which we have more confidence in given the current environment. As for the bonds we own, we trimmed some positions and moved those dollars to a core bond (AGG) in order to provide more stability. The result is that we have increased cash holdings by 3% and dropped total risk scores by about 2-3 points. The available cash will cover income needs as well as give us the opportunity to see what we might want to buy in the coming months as things develop.

Please remember that these moves are constructed to look beyond what is happening now and reflect where we see the economy going in the next 12-24 months. As we have said many times, we can only control the risk we take, and not the return we get. The amount of money the Fed has thrown into the system is massive – more than any other time in history. We do believe that once the virus reaches its peak and begins to flatten out, we will have a better sense of direction on the economy moving forward, and the hope is that life will begin to go back to normal. In the meantime, “normal” may not be for months to come as has been the case with China. During this time, we will continue to watch and monitor what every model owns and how it is moving, as our greatest responsibilities are protecting your money and making sure we have chosen the right managers to do so.

We trust and hope this provides some insights for you into our recent changes and thoughts, as we want to be sure you know what we are doing in your portfolios. We know that you trust and have confidence in what we do and how it affects your master plan for your future, and we do not take that for granted.

Most of all, we want for you and your families to stay safe. If you have any questions or concerns otherwise, please feel free to email or call so that we can talk further.