Buckle Up - But Don't Swerve
While we certainly take the long view, we realize that it can be hard to ignore the disequilibrium in today's markets. For years now, investing has been like riding in a really nice Cadillac - smooth, strong, and quiet. Of course, the Federal Reserve lent us this shiny new Caddy, hoping to get the economy rolling again. Believe it or not, it worked. However, now that the economy is accelerating - the free ride is over. Of course, as investors we have to keep moving too, but in a more realistic vehicle, like a '95 Camry. Indeed, the Camry is known as a reliable car. It's no Caddy, but a ride we can trust to get us from point A to B. We may just feel those bumps a little bit more.
It seems like yesterday when we were cruising along in our Caddy. Soaring prices and expanding global momentum was a daily happening. However, it all fell apart when (it always does) when a very strong jobs report sparked concerns such as inflation, and ballooning interest rates. Now, fears over a trade war have widened concerns almost to the point of panic. Here's what this toxic mixture has done to some of the worlds most solid brands:
Year to Date Returns
So what does this all mean? First, we think that although there may be more volatility ahead, even these down trodden stocks will eventually recover. With their prices this far down, dividend yields are getting more attractive and may be a good buying opportunity. General Mills, for example, we think is starting to look attractive:
General Mills - Paying Dividends Since 1898
However, and like we have preached before, we're staying cautious with some specific big brands, as competition from online retailers and generics may impede growth. Funny thing is, we're totally okay with slower growth, just not at these prices. Yikes.
As for good ole trusty bonds, the Barclay's US Aggregate is down -1.5% so far this year; and we would be shocked to see it stop there. For us, we're happy with falling bond prices, as over time it allows for rising income payments. For example, the Schwab US Aggregate Bond ETF had a monthly distribution of about 9.5 cents / share last summer. Today, it's pumping out around 11 cents per share, (2.66%), and will continue to climb as the assets mature and renew at higher rates.
So our advice is pretty simple. Buckle up, re-balance to your appropriate risk, and remember that trying to swerve around few potholes could cause you to crash. We're not in the Fed's Caddy anymore, but we still have a dependable method to get us there.
If you'd like to know more about your portfolios' risk, click here and please don't hesitate to contact us. Thank you. - Jason