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Valentine’s Day can be full of emotions. For some, it can be a wonderful way to celebrate your love, but for others, it may be quite difficult. Not too dissimilar from managing your investment portfolio.
You may have an excellent relationship, and Valentine’s Day is a day where you and your spouse celebrate love and make each other feel even more special. Maybe you’re great at surprises and a natural romantic, so creating a lifelong memory is in your wheelhouse. Perhaps you’re so bogged down with work and kids that you don’t dedicate enough attention to your person, and so Valentine’s Day can provide you with much needed one on one time to rekindle that spark.
On the contrary, it’s a day that may also come with anticipation or high expectations and if your relationship isn’t in a good place, it could be a huge letdown. Perhaps you’ve recently broken up with someone, lost someone or don’t have a partner. Valentine’s Day may trigger negative emotions. The plethora of social media posts by your peers portraying the most magical day doesn’t help. It can cause envy and lead you to compare your relationship with others.
Investing isn’t all that different. It can be fruitful, painful, have you feeling left out, but it’s emotional, nevertheless.
Look, I’m not trying to sound like Delilah; my writing is about the economy and markets, and I’m certainly no Nicholas Sparks. I AM a sucker for a good Romcom and I once proposed to my now wife on her grandparents terrace, in the middle of nowhere Brazil, in the house she grew up in, on Christmas eve, with her entire extended family present. And yes, I cried on and off while doing so. But I digress.
We use some of the keys to a successful relationship in how we invest for clients.
Dedication and commitment are at the forefront as you can’t just go through the motions. We really try to understand each investment’s strengths, weaknesses, tendencies, and the little idiosyncrasies that make them unique. Just like you would with your partner. We set boundaries in portfolios as it provides appropriate safeguards and risk management.
Now the 2024 trading year has started a little hot and heavy, but could there be trouble in paradise?
There looks to be some events that will test the relationship in 2024. There is geopolitical uncertainty, the FED is managing inflation with interest rate policy, and the upcoming US presidential election is sure to put a strain on matters.
So how do we make sure we aren’t headed for couples therapy or a breakup?
In honor of the seven fishes that I will miss, we’ve put a list together of seven things to have on your radar in 2024.
Do something subtle. In the last couple of years, there has been a flight to treasury bonds because the market choppiness but also because 6-month treasury bills jumped to over 5%. As the FED is forecasting rate cuts in the future, the short-term treasury yield may go from 5.25% to 3.25%, and suddenly, this is a less attractive strategy. We suggest allocating to High Grade Corporate Bonds or Muni’s depending on the tax situation. By shifting to High Grade Corporate Bonds, you are locking in 5.5%-6% in annual yield over the next 0-5 years with the ability to see your bonds increase in price as rates fall. It’s nothing groundbreaking, but it’s the right move to make. If you’re worried about the risk, the high-grade corporate bond index had a 0% default rate in 14 of the last 22 years. The default rate in the worst year was 0.75% in 2008. Certainly, much lower than the divorce rate, amirite!
Don’t try too hard. Focusing all your attention on trying to beat the market rarely works. Over 20 years active managers in US Large Cap have underperformed 95% of the time. Look no further than Cathie Wood’s ARKK ETF. ARKK isn’t volatile like Ross and Rachael, ARKK is volatile like Ambar Herd and Johnny Depp.
In 2020, ARKK was top 1% in their category, followed by the worst percentile in 2021 and 2022, back to the best in 2023, and now the worst year to date. This is a BAD relationship; this is bipolar, multiple personalities, abusive, etc. This is a relationship you should get out of. Who can tolerate the emotional swings? We want stability. Sure, the good times feel incredible, but the bad times are so bad you find yourself lying in bed thinking, what on earth am I doing with this person! Cathie Woods sold NVidia in January 2023 at $280 (now over $730 a share), talk about watching your ex live their best life after the breakup. She bought Tesla at $240 to start 2024 (now around $190 a share). Since the start of 2022, ARKK is down over 47%, while the S&P 500 is up over 9%.
The honeymoon phase probably won’t last forever. A.I. is responsible for driving equity performance to start the year. The magnificent seven is the nickname given to Tesla, Apple, Google, Microsoft, Nvidia, Amazon and Meta and these companies make up roughly 35% of the S&P 500. These seven stocks account for over 50% of the gains in the S&P year to date, and much of it has to do with A.I. They are the talk of the markets just like Travis Kelce and Taylor Swift are the talk of pop culture. You can’t go anywhere without hearing about them. However, the honeymoon phase always ends but it certainly doesn’t have to end in flames. Rebalancing and using diversification is powerful and cost averaging into less loved areas like Small Cap, Emerging Markets and Value should do well if the rally broadens. It can also help mitigate some of the volatility. 
Letting go of control can be the best move you can make. Look at Monica from Friends! She was obsessive-compulsive and put her controlling tendencies away when she met Chandler. In a relationship, you may be scared of surrendering because maybe you lose control. However, did you really have control or just angst? With investing, you can’t control everything. You are beholden to economic cycles and unforeseen events. It’s usually best to forfeit total control and even ask for help from a financial advisor (point & wink).
Happy Valentine’s Day and happy investing.
Disclosures:
The information contained in this presentation is provided for informational purposes only and should not be construed as investment advice or a recommendation to purchase or sell a security. Investing involves the risk of loss that clients must be prepared to bear. This document contains forward-looking statements of opinion, belief, and expectation about the future. Actual results could differ materially from such statements and our opinions are subject to change without notice. Connectus Wealth, LLC d/b/a Connectus Private is an SEC-registered investment adviser. Investment does not imply government endorsement or that the adviser has attained a level of skill or training.