A recent Wall Street Journal article declared “Your Investment Strategy is Broken”. This declaration was made as stock and bond prices have moved in tandem negatively in 2022 and during parts of this year. Traditionally prices of stocks and bonds tend to move in opposite directions, balancing out volatility through various economic conditions. That has not been the case over the last two years as the Fed aggressively hikes rates to fight inflation. Apparently the author of this article believes those are the only two asset classes and that centuries-long human nature has permanently changed in the last three years. I feel this is a sensationalist and dangerous message to be dispersing and would like to restate why our investment approach is not one that is, or can ever be, “broken”.
Our investment strategy approach starts out by incorporating an emergency cash fund. What allows our strategy to work is patience, diversification, and discipline. Having an emergency cash fund so as not to be forced to liquidate long-term holdings at the wrong time is foundational to this. Once we have an adequate cash position built up we begin tailoring a customized plan and building a budget so we can begin appropriately investing long-term funds. Today we are getting back to an environment where we can earn a reasonable yield on cash. That is a welcomed development especially when compared to the recent past where we were lucky to get a couple basis points of yield on idle cash. This provides us a good short-term solution and allows patience while thoughtfully deploying capital into each of your long-term investment programs. Having adequate cash reserves is paramount, but as we will outline later in this note, excess comfort comes at a high price in the investment world...