The recent volatility in some publicly traded companies targeted by a social media platform certainly increased my awareness around "new forms of volatility"!
Clearly, this is a complex development with many variables coming together. My observation is that we need to understand that social media has morphed into a force that can "spook the heard"!
Currently the economic back drop is most positive. Corporate America has never had higher revenue, or earnings, as measured by the S&P 500. The upward trend in valuations of same support this. That said, we all know from our experience in 1987, 2001-2003, 2007-2009, etc., that just a few nasty headlines can make investors fearful resulting in large volatile swings in valuation, i.e., spook the heard.
Prior to this highly publicized, yet isolated "volatility" incident, we had already started the process of transitioning from some of the positions we have with large gains toward positions where the economic data is suggesting the next gains could be. We are still going to enjoy the nice returns we have from tech and healthcare, but also a few of our traditional inflation hedges.
With all the cash our government has pumped into the economy to fight a Covid induced economic meltdown we are already seeing early signs of 3-5% annual inflation. It is likely this could continue for the next few years, so it is reasonable to invest ahead of this possibility.
By adding these inflation protection positions into our asset allocation, we expect to reduce volatility. But, as long-term investors, we all know only time will smooth out volatile periods. Volatile periods are simply part of the wealth growing process. Any potential volatility is also why we are building some cash reserves that we intend to add to our favorite investments, if offered the opportunity.
In my chair I like to remind myself that volatility is not risk, unless you have not planned for it. We have. As you know, I also remain very focused on each account relationship, which I can do since we work with a small number of families.
I am interested in your thoughts, comments and discussion. Feel welcome to call me, email, or stop by the office and say "Hi!"
Jim Lunney, CFP®
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.