Tag: systematic-investing

As a parent, I try to encourage my daughters to be inquisitive and develop cognitive skills by answering their questions with explanations that encourage conversation. Note that I said, “try,” because I’m certainly guilty of looking at them in the rearview mirror and letting out a, “Because I said so!” from time to time.

Pretty much everyone has experienced the agony having their TV watching interrupted by the ubiquitous pharmaceutical advertisement. In fact, they have become so commonplace that an assortment of entertaining spoofs have been created, like this one.

As the video above highlights, one of the memorable aspects for many of these medications is the absurdly long list of expected and potential side effects. Now, I respect the fact that these disclosures are important in providing consumers the necessary information to make an informed decision, but that doesn’t eliminate the irony of risking death for seasonal allergy relief.

After enduring yet another round of drug ads during a recent weekend of baseball, I was struck by the similarities between prescription medication and the stock market. Both are designed to address a specific problem, from eczema to paying for long-term healthcare and education expenses. Both also have side effects.

Imagine your client losing 20% of the value of their investment, yet receiving a capital gain distribution that’s also a double-digit percentage. Impossible you say? Well, for some mutual fund investors that is exactly the scenario they face as we approach the U.S. tax filing deadline.

What lessons can we glean from 2022 and the sticker shock many investors are undoubtedly facing?

Something that unites almost every asset manager that believes it uses a disciplined, repeatable investment process is our annoyance with performance chasing. The root of this frustration is how performance becomes a shiny object that can distract some investors, and even some financial advisors. It can be particularly difficult to look away from the shine during prolonged bull markets, when human nature makes investors feel more invincible.

Here’s an ironic twist: The other day I realized that Blueprint Investment Partners, as a trend follower, actually has plenty in common with performance chasers. Except for one (gigantic) difference.

Not 2008, not the early 1980s, but 2022 was the worst year for bonds on record, according to an analysis by investment historian Edward McQuarrie.

That’s more than a headline for financial advisors who have relied on fixed income as the less-volatile portion of their 70/30 or 60/40 portfolios – especially for their retirement-age clients. It’s a breakdown that can have lasting effects on those who can afford it the least, unless the advisor has a strategy for mitigating the risk of those impacts.