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Making Adjustments - From the desk of Ron Getto

Making Adjustments


At WT Wealth Management (WTWM), we construct portfolios that reflect the risk tolerance of our clients. Putting the right mix of assets together, though, is complicated. Ideally, your portfolio will reflect two important considerations:

  1. How much time you have to achieve your investment goals, and

  2. What kind of tolerance you have for taking on risk.

A suitable portfolio therefore balances your personal financial goals with your risk comfort level. Just because you can afford to lose principal does not mean you can personally stomach the losses. An ideally diversified portfolio is, therefore, also a personalized one. Studies have shown that how you decide to allocate your assets is more important than which individual securities you choose to own within any specific asset class1.

Investopedia defines diversification as "a risk management technique that mixes a wide variety of investments within a portfolio." By assembling a broad group of assets, an investor can reduce the chance of significant portfolio losses while simultaneously achieving higher expected returns. This is what some call the "only free lunch" in investing, resulting in less bad news and more good news, simply because you hold different investments that respond independently to various market conditions. It is also what makes diversification so special. If one asset is performing poorly, it is likely that another, less-correlated asset may be doing well.

Since stock markets hit their highs in late February, we have witnessed tremendous volatility across almost all asset classes, resulting in some portfolios being less diversified and, in many cases, even too conservative for an investor's original objectives.

One of the hardest psychological investment challenges is selling your investment winners and buying more of your losers. However, by rebalancing in this way, we bring your portfolio weightings back to their original asset allocation. During the last eight weeks, you probably noticed that WTWM more actively made changes to your portfolio holdings. These included a rare intra-month trade, triggered by equally extreme intra-month volatility. Every trade we executed was to ensure your portfolio was properly balanced.

To recap:

Bought Stocks:
On March 13th, we did a special rebalance and sold "safe assets" like bonds and gold. This was a hard decision to make, with so much market uncertainty at that very moment. But both bonds and gold had been very strong performers, and stocks were down significantly. This rebalance did not work out immediately (you only know the market bottom in retrospect). But as of today, with stocks up strongly, rebalancing back to the target weight in stocks has worked out quite favorably.

Bought Corporate Bonds:
On April 13th, we sold a portion of our U.S. Treasuries (loans to the US Government that did very well as safe haven assets during the market downturn) and, as a substitute, bought investment grade corporate bonds (loans to US companies). We believe that the extra return earned in lending to US companies (versus lending to the US government) is attractive enough to assume the extra risk. That decision has also been a significant net positive since the trade.

Swapped High Yield Holdings:
On April 13th, we also swapped our high yield fund to a shorter-term high yield fund. Given the significant fear in the market, the rates on short-term high yield bonds exceeded those of longer-term bonds. To date, this has been a minor positive contributor as well.

Increased High Yield Holdings:
About a month later, we further increased our high yield risk exposure from an underweight position to neutral, where it sits today. Our analysis showed that the risk/return trade-off had significantly improved as a result of investor moves into safe-haven assets. To date, this trade is showing a slight negative impact to client portfolios compared to a portfolio that retained the underweight high yield position.

WT Wealth Management - Recent Trade Activity

Please do not confuse these actions as trying to "time the market" for outsized gains. Quite the opposite; we believe it is "time in the market" that earns investors the highest returns long-term.

With portfolios rebalanced, our clients are appropriately positioned to achieve returns consistent with their personal objectives. And of course, WTWM's Investment Committee will continue to monitor and make adjustments as needed.

Wishing you health and prosperity,

Ron Getto
Senior Investment Advisor


References:
1 A classic and frequently cited empirical study is Brinson, Hood, and Beebower (1986). These authors interpreted the importance of asset allocation as the fraction of the variation in returns over time attributable to asset allocation, based on regression analysis.



WARRANTIES & DISCLAIMERS

There are no warranties implied.
Any opinions expressed on this website are the opinions of WT Wealth Management and its associates only. Material listed on this website is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETF’s carry certain specific risks and part or all of your account value can be lost.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

View Disclosure
WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. adviserinfo.sec.gov) or from WT Wealth Management directly. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

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