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Five Predictions From Someone Who Hates Predictions



This week marks the start of the holiday season; with it comes family gatherings, wonderful food, good cheer, and the inevitable articles talking about what to expect from the markets next year. As all of you who have read my missives before know, I have absolutely no idea what will happen in the markets next week, next month, or next year. I also happen to think that no one else knows either but that doesn't stop the financial media narrative machine from churning.

So, with that in mind, here are five predictions for 2020 from someone who hates predictions:
 

1.  2020 will be the year you keep your fees low and your taxes even lower. 

It’s pretty hard to manage your own finances effectively so you should probably be paying someone to give you advice but that advice should come at a reasonable cost. Advisory fees are stubbornly high across our industry and I believe they will come sharply lower in the coming years. The easiest way to improve your returns by 0.50% is to cut 0.50% in advisory fee expenses…it’s likely easier than you think and we’re here to help with that.

As for taxes, make sure your least tax efficient assets are in tax-advantaged accounts. Assets like high yield bonds and TIPS throw off taxable and phantom income, respectively. Holding these assets in a tax-advantaged account can save you a few dollars come tax time.

 
2.  This will be the year that you will make sure you have enough cash on hand to weather a protracted market downturn. 

Unfortunately, everything becomes correlated in a bad environment. You can read all the portfolio protection articles you want about buying good companies with strong balance sheets in advance of a downturn…none of those strategies work when the tide washes out. The only things that work in really ugly markets are cash instruments (short duration government bonds, money market funds, etc.). Coming off of a ten year bull market, now is the time to make sure that you have enough cash to avoid having to sell assets at fire sale prices in order to fund your expenses.

 
3.  2020 will be the year that you make sure your assets are allocated according to their time horizon.
 
If I could only know one thing about an investor, it would be her time horizon. Time is power in the markets and the more of it you have, the greater your optionality in portfolio allocations.

All else equal, make sure you’re invested more aggressively with your longer dated assets and more conservatively with your shorter dated assets. The longer dated ones have more time to compound at higher rates of return as well as more time to recover if the markets move against you. The shorter dated ones have less of both.

 
4.  The next 12 months will be used to make sure your assets are diversified not only amongst various asset classes but also various geographies. 

This one is the hardest one to do right now but there’s never been a better time to do it. Investors around the globe suffer from home country bias (they own a disproportionate amount of assets from their home country). The problem is that this bias has paid off handsomely for U.S. investors over the past decade, with the S&P 500 outpacing its international index counterpart (MSCI EAFE) by over 8% annually. Nothing works forever but it sure feels like this trade has.

If you haven’t done so already, start dipping your toe into international waters. There’s no premium for holding U.S. assets over long periods of time but there is a diversification benefit to holding a global portfolio. 2020 is the year to start.

 
5.  This will be the year that you finally systematize your decisions around wealth.

The more you can systematize your decisions around money, the less likely you are to make bad ones.  For example, if your plan is to dollar cost average into new investments each month, don’t hold back when markets go higher because it doesn’t feel good to “buy high”.  The whole point of dollar cost averaging is that you buy more of something when it’s down and less when it’s up.  That systemization is designed to work in your favor and it does…you just have to give it time to work.


If all five of the above come to pass then it must mean that you are a client of ours!  The new year clearly has wonderful things in store for us and I can’t wait to experience them alongside you.

Cheers to you and yours for a wonderful Thanksgiving and a festive holiday season ahead!