Broker Check

July Newsletter




 July 9, 2021

“We Should Celebrate Our Independence Day, Every Day”

I hope that you and your family enjoyed our Independence Day as much as we did. We spent the holiday just over the mountain in Telluride and had a good old fashioned Fourth of July celebration (albeit without any fireworks due to the current fire ban in our area). Our celebration included American flags and an ice cream social; midway events with cornhole toss and a shooting gallery for the kids.  There was patriotic music filling the air; circus acts entertaining kids of all ages; hot dog vendors and outdoor late night family movies.  There was also a DJ and disco party, the remnants of Air Force jets buzzing the parade in Silverton and of course, the required evening bar-b-que back at the condo.

I had the opportunity to tell my twelve-year-old granddaughter why Independence Day is celebrated and what our Freedoms mean to all of us. All-in-all, it was an opportunity to step back and reflect on how far we have come from the difficult challenges of 2020 and the Pandemic lows. We certainly can be thankful for the resourcefulness of all Americans which shines a bright light on our hopes for the future!

As your investment advisors, we can also celebrate how far we have come in our task of helping you achieve your Financial Independence. The rebound from the market lows of March 2020 has been nothing short of miraculous. Medical science and required government intervention have staved off the throes of what could have been another Great Depression. It now appears that we are well on our way to a historic economic recovery. That being said, there certainly are some headwinds and speedbumps that still need careful navigation on our part.

Snapshot of how our aggregate managed portfolio has performed during the recent turbulent past:

You can see that the above aggregate portfolio results have produced meaningful progress toward achieving Your Financial Independence. Each individual client has their own allocation based on their individual risk tolerance and Investment Policy Statement (IPS) as well as long-term investment goals; thus, results will vary accordingly from the above chart. Your actual results for your individual portfolio are included in your enclosed portfolio reports.

So, what does the foreseeable future look like for your portfolio? Most economists are continuing to see expansion of the economy as unemployment rates continue to decline and central banks keep interest rates at historic lows. However, growth may be peaking as there may not be enough applicants to fill the available employment positions; new taxes will be a strain on the economy; inflation may not be transitory; and the new Delta variant of the Virus is spreading at concerning rates across the globe. With these things in mind, the outlook for continued market growth now looks somewhat murky.

At this point in time, we need to recognize that current equity market valuations are elevated and have only been exceeded by fundamental market valuations looking back to the 2000 highs, just before the bubble burst. Put another way (as Warren Buffett likes to point out), the value of the US stock market is at an all-time high, at 236 percent of the US Gross Domestic Product (or GDP). It is hard to get a handle on the idea that the Markets are worth more than two times the value of the economic output of America! I point this out, as historically after such market highs, corrections occur and expecting recent high returns to continue is really not a reasonable expectation.

Our job now, is to navigate the volatility and to “protect”, as best we can, current portfolio valuations. To that end, we are continuing to “sell high” in all portfolios that need (or will need) cash for planned distributions. The re-balancing process also includes reducing equity exposure to IPS limits and moving the gains to the income categories in line with those agreed-upon limits. We have used this same process diligently over the last twenty-five years quite successfully (including the dot-gone period, the  9/11 years, the Great Recession and the recent Pandemic period). In fact, many clients that have been with us for ten, or more, years now see most of the original principal “in-the-bank” on the income side of their portfolio (reduced only by cash distributions to them).  The result being that only market gains are now “at risk” in the equity allocations. When we look back at our twenty-five-year history, we do see “high return” years, often followed by “low return” years (and even a few negative return years); with the long-term results often exceeding the broad stock market returns over all ten-year rolling periods.

Looking at the above high-lighted equity and income portfolio returns; it would be folly to think that the short-term returns can continue in the near term. Even the five-year returns (converted to average annual returns) of eighteen percent for equities and seven percent for income should not be expected going forward. Never-the-less, an individual portfolio invested fifty percent in equities and fifty percent in income can be expected to produce long-term average annual total portfolio returns in the ten percent range. That return prediction is based on a combination of long-term equity premiums in the six percent range; more “normal” interest rates, as the Fed is now forecasting; and a return of more normal historic inflation rates. In the meantime, we will continue to favor our Alternative Equity and Alternative Income categories for their inflation hedge characteristics and above average dividend rates. At the same time, we have been moving back into the International and Global equity categories as foreign economies begin to return to pre-pandemic economic levels.

Please contact us to review your specific allocations to ensure that your individual goals and risk tolerances are “on track”. Also, as noted above, if you have any short-term cash needs that you have not communicated to us, now would be a good time to “sell high” and put away the cash proceeds for those needs.

Please celebrate your Independence each and every day!  Please do not hesitate to recommend Intelligent Investment Management to your circle of influence.


Intelligent Investment Management, LLP