We email the status of our WealthProtect System* monthly and give the probability (Low, Mid, High) of a change in status within the next two months. We also include a commentary on actions taken this month.
Asset Class Status Probability of Status Change
US Equities In Low Developed Foreign Equities In Low Emerging Foreign Equities In Mid Real Estate Investment Trusts Out High Natural Resource Equities In High Commodities Out High Energy MLPs In Low
In our WealthProtect System this month REITs triggered back out, natural resource equities came very close to triggering out, and commodities came close to triggering in. 2013 ended with US Stocks being the only game in town. The S&P 500 was up 32.3% while small caps (as measured by the Russell 2000) was up 38.8%. International equities by contrast were up only 23.2% (as measured by MSCI EAFE). The NAREIT index which measures REITs was up barely 2%, Commodities (as measured by S&P GSCI) were down 1% and emerging markets (as measured by MSCI Emerging Markets Free) were down by 2.3%. Most troubling for conservative investors were bonds (as measured by Barclays Capital Aggregate Bond Index) losing 2% as the 10 year Treasury yield rose from 1.76% in January to over 3% at year-end.
So after over a year where diversification and risk reduction strategies like our WealthProtect System have trailed a plain vanilla approach of just buying US Stocks, where does this leave us? The answer, in my opinion, is to stick to our discipline. Despite what some might say, it isn't different this time. At some point other asset classes will take the lead, and market correction and even bear markets will come to pass. The time to stick to your strategy is when it seems most out of favor.
Thanks for your trust.