In case you haven’t noticed, the financial markets have been rather volatile. On any given day, the Dow can be down many hundreds of points and then reverse itself in the next session. Other indexes and markets have been performing similarly.
Volatility is a period of time when short-term investors become extremely sensitive and react to world news, potential inflation, Fed whisperings about possible changes to the interest rate, congressional spending, tax law changes, and so much more.
Our Thinking
At Unified, our investment team does not embrace a short-term mentality. Instead, we see the reality of a volatile market as yet another opportunity to help our clients grow their wealth over the long term. Volatility is not the same as risk and we use the ups and downs to implement specific long-term strategies such as:
- tax-loss harvesting
- tax-gain harvesting
- rebalancing
- repositioning
We enthusiastically embrace these methods, and more, to make lemonade out of the wild and volatile lemons.
A good example of making a proactive adjustment in your portfolio during these times is called tax-loss harvesting. Tax-loss harvesting allows you to sell investments that are down, replace them with reasonably similar investments, and then offset realized investment gains with those losses. The end result is that less of your money goes to taxes and more may stay invested and working for you.
Our Methods
Our method of analysis is a unique trade rationalization process and includes a constant search for more attractive price points.
Routinely, the investment team at Unified meets to take a fresh look at events outside our control. We are well aware of the impact they may have on the current markets, but our long-term mentality sifts through all the noise generated by short-term thinking or day-by-day trading. These kinds of risky practices create sudden and dramatic moves in the equity markets; platforms that are designed for long-term investments.*
*Note, the time period we use for stress testing and scenario analysis is 12-months. In other words, we construct the portfolio we think has the best chance of outperforming over a full-year period. There is too much noise in anything less than 12-months.
Our Rationale
Our goal with the Unified investment models is to provide consistent performance against our benchmarks—with a focus on relative downside protection. The following is just one example of a recent change we made to accomplish these goals.
- The benchmark for VXF is the S&P Completion Index, which tracks the performance of virtually all regularly traded U.S. stocks except those in the S&P 500 Index.
- However, because many of our mutual funds use the S&P 500 as a benchmark, we noticed we were underexposed to some of the top holdings in the S&P Completion index.
- The solution was to swap from IJH (S&P Mid Cap) to VXF (S&P Completion). It was a subtle trade, but we felt it might improve our consistency without sacrificing that all-important downside protection.
At Unified, we are agile, yet steadfast in our mission to invest for the long term. We believe this is the best way to help our clients grow their wealth. If you are intrigued by our thinking, methods, and investment rationale, and want to learn more, please give us a call for a free initial consultation.
