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What To Do Before The Crash

What To Do Before The Crash

| July 27, 2015

Last year I competed in and finished the Vapor Trail 125 which is the most mentally and physically challenging single-stage mountain bike races I know of.  The event starts at 10PM on the second Saturday of September on a bridge over the Arkansas River in Salida, Colorado at 7,000 feet elevation.  The 80 competitors race through the night, and most of them through the entire next day never dropping back below 9,000 feet until the last 8 miles.  The course draws a huge 125-mile circle through some of the highest mountains in North America.  Temperatures drop into the 20s at night with multiple high points near or above 12,000 feet and six long sustained climbs that each can take 2 hours or more to complete.  All told there is more than 20,000 feet of climbing – all of it at high altitude. 

In order to be ready for this epic challenge I put in many long rides over the course of the summer to condition my body to be able to sit on my saddle and turn the cranks hour after hour.  It is actually something I really look forward to as I enjoy the peace and beautiful scenery of the long rides right here in our area and I also sometimes enjoy listening to narrated books and podcasts.  Last summer I “read” about 15 books grinding up hills around Evergreen and by September I was ready for the Vapor. 

Despite the physical and mental challenge I spend most of the race with a huge smile on my face because I am having fun knowing that I put in the preparation necessary to be a finisher.  I believe that creating a successful financial future is very similar and also depends on discipline, focus and commitment.  The biggest challenge we see with our clients is confusion and lack of confidence around the right strategies that will lead to long-term financial security.

This past week marked the 27th year of the 3-day Morningstar Investment Conference, held in Chicago.  The opening keynote speech was given by Jeremy Grantham who is the Co-Founder and Chief Investment Strategist for GMO which is one of the premier asset management firms in the world with over $115 Billion under management serving mostly institutional clients.  Every month GMO produces a 7-year asset class return forecast and as of last month most traditional asset classes are predicted to lose -0.2% to -3.2% per year for the next 7 years.

Jeremy Grantham is particularly noted for his accurate predictions of various past financial bubbles and in his keynote address he made a compelling argument that we are within 5-10% of the stock market moving into classic bubble territory.  He explained that in the past this did not always immediately lead to market corrections but that eventually all asset bubbles deflate and in this case Grantham predicts an eventual decline of 50% or more happening sometime between now and perhaps a few months after the US Presidential Election next year.

Like preparing for a big race, the time to get your financial strategies dialed in is BEFORE the next market correction, not during or after it.  Is your portfolio positioned today to be able to navigate the inevitable end of this 6-year bull market?  Are you wondering what kind of changes you might consider to better position your portfolio to weather whatever the future may have in store?  Two major things to consider are matching your portfolio to your risk tolerance and optimizing your asset allocation.  Historically financial advisors have talked about risk tolerance in terms of volatility but we all realize the only part of volatility that is a concern is portfolio losses.  Particularly if you are within 5-10 years of retirement your future financial success may be very sensitive to limiting major losses. 

One of the asset allocation pioneers I have mentioned in previous articles is David Swensen from the Yale University Endowment Fund and taking a look at his current fund allocation is an interesting exercise: 

From his 2014 annual report Swensen states that his team employs a “mean-variance analysis to estimate expected risk and return profiles of various asset allocation alternatives” which is the same process we also use to help our clients optimize their portfolios.  While it is true that individual investors do not have all the same investment opportunities as a $24B institutional fund, as an Investment Advisory Representative of Stewardship Advisory Group, I specialize in bringing institutional investment strategies to our clients.

Until the end of August I will be offering an introductory “second opinion” consultation to provide you a complimentary review of your existing strategies including a portfolio “stress test”.  This will include a detailed read-out of how your current portfolio is predicted to fare in a market downturn similar to the last correction in 2008/2009.  We will also be happy to share with you an asset allocation model that matches your measured risk tolerance that you can compare to your current plans.

To schedule a confidential introductory consultation please call Jenny Feller at 303.900.4018 or visit us at to learn more.