In the In My Opinion column last week, I stressed the importance of objectivity and rules-based investing. Today is a great example of why these things are important. It’s also a good illustration of why Flexible Plan Investments structures portfolios using strategic diversification—diversification among different asset classes using active strategies designed to perform in different market environments.
Global stock markets are getting press this morning because they are down 2%–4%. But few in the press are talking about bonds and gold being up 1.5%–2.0%.
The simple truth is that the stock market has advanced at a historically unsustainable rate since October (see line B in the following chart). A much more sustainable trajectory is represented by line A. Put another way, this is a correction that is weeks overdue. From a technical perspective, it is constructive and healthy to set up the new highs that are likely to be seen in the months ahead.
Also worth noting is the downward-pointing arrow at point C (at the top right corner of the chart). This represents the correction that has been underway for several weeks internally but not seen in the capitalization-weighted indexes.
While stocks get the attention, bonds move to new highs.
Let’s not forget alternatives, represented below by gold, which is also moving strongly higher.
Do you see why strategic diversification is so valuable? Times like these are just one of the reasons why we build durable portfolios using strategic diversification and a core-and-explore approach. Hopefully, for investors with properly constructed portfolios designed and implemented by Flexible Plan, this correction in the stock market will soon be forgotten.