How to invest in spring

The tulips in New York City are in vibrant, raging bloom.  The locals who, less than two weeks ago donned dark overcoats, scarves, and gloves, and were slumped miserably over their iPhones as they trudged down into the dank subway, are now walking brightly, as the sun warms their souls. Birds sing in the newly leafed elms, and the park is alive with sun worshipers, bikers and runners, and parents screaming at their future Yankee starters.  Spring has arrived.

Just as spring follows winter, the economy also reveals its own seasons.  Savvy investors understand that the way to achieve their financial goals is 1) invest in a broadly and globally diversified portfolio; and 2) increase or decrease the percentages of certain investments within that portfolio based on the “season.”

(My firm believes that low-cost and tax-efficient index funds are the best way to diversify across different asset classes, but most advisors still think they can add value by selecting individual stocks and bonds.)

The key to successful investment management is understanding where you are in the economic cycle – the “season” – and to have the right mix of investments.  For example, if you believe that we are currently in the midst of an economic expansion – and I do — you want to have an over-weighted position in stocks because they tend to rise as the economy grows.  Conversely, since interest rates are so low, and bond prices will decline when rates ultimately rise, you want to have a smaller-than-normal amount of bonds in your portfolio.  (What is “normal” for you depends on your risk tolerance.  You and your advisor need to determine this together before you invest.)

There are no guarantees that any investing philosophy will give you positive returns each and every year.  What we do know from history is that the typical “win big, lose big” style practiced by the big Wall Street firms is a recipe for losing money.  Play it safe.  Be patient, and manage your portfolio for sustained performance by paying attention to the seasons.