Preparing your portfolio for 2018 – Lowell Sun

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It is that time of the year when the so called stock market experts in the financial media come out with ridiculous predictions for the year ahead. The following are few such examples.

“Stocks are about to “endure a gut-wrenching drop that would rival the greatest crashes in stock market history.” — Marc Faber, publisher of the Gloom, Boom & Doom Report

“Wall Street’s stock market forecasters agree – 2018 will be great” — Yahoo Finance

“The worst financial crash in our lifetime” will happen this year (2017) or next.” — Jim Rogers, co-founder, Quantum Fund

Of what value are these predictions to investors? If all these experts supposedly know what the market is going to do, shouldn’t they all be predicting the same thing? The truth is that stock market predictions are nothing more than a marketing scheme designed to attract new viewers, readers, and clients. Making investment decisions based on predictions is a recipe for financial disaster.

Managing money should be based on proven investment techniques such as asset allocation. Asset allocation is an investment term referring to the percent of savings invested in stocks and bonds. And the percent of your savings invested between stocks and bonds is one of the most important decisions you can make.

Over 50 years of research and academic studies have demonstrated that a portfolio’s asset allocation over the long term will determine over 90 percent of its performance. At Capital Wealth Management we back-test every potential new client’s portfolio asset allocation.


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Doing this can help them to better understand the range of returns their portfolio could potentially subject them to during periods of significant stock market gains and losses.

The accompanying chart shows how a portfolio comprised of various percentages of stocks and bonds performed during the bull market years of 2017 and 2013, and the bear market years of 2008 and 2002. The bottom row shows the average return each portfolio earned from 1926-2016.

For example, a portfolio with an asset allocation of 75 percent stocks and 25 percent bonds gained 23.3 percent in 2013 and lost 24.4 percent in 2008. From 1926 to 2016, it earned an average return of 9.3 percent. A portfolio with the opposite allocation of 25 percent stocks and 75 percent bonds gained only 5.7 percent in 2013 however, it gained one percent in 2008. From 1926 to 2016, it earned an average return of 6.9 percent.

When it comes to investing, every portfolio has risk and return trade-offs. The question every investor needs to ask themselves is “how much of a trade-off in returns during the stock markets good years and losses during the stock markets bad years am I willing to take? No investment strategy works in all markets all the time, and asset allocation is no different. However, asset allocation can significantly increase an investor’s chances of having a portfolio they can be comfortable with during bear markets, bull markets and everything in between.

Martin Krikorian is president of Capital Wealth Management, a registered investment adviser providing “fee-only” investment management services located at 9 Billerica Road, Chelmsford. He is the author of the investment books, “10 Chapters to Having a Successful Investment Portfolio” and the “7 Steps to Becoming a Better Investor.”

He can be reached at 978-244-9254, Capital Wealth Management’s website, www.capitalwealthmngt.com, or by email at info@capitalwealthmngt.com.

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