Quarterly Update

We hope our note finds you and your families doing well. We can’t believe it is already October and time to put up Halloween decorations. For our Portland-area clients, the Portland Nursery’s annual Apple Tasting continues over the weekend of the 18th-20th, with samples of over 50 apple and pear varieties, cider tasting for adults, and face painting for kids. The Oregon Zoo’s “Squishing of the Squash” is coming up as well, on October 18th, and Tualatin’s Pumpkin Regatta will occur on Saturday the 19th as brave and foolhardy contestants try to row themselves across the Lake of the Commons in giant pumpkins.

We wanted to provide a brief market update as we just wrapped up the third quarter. Even with all of the market volatility this year, the markets have overall done well. However, as we have discussed in past newsletters, we are expecting continued volatility. We wanted to delve into what causes volatility, some of the psychology behind our reactions, and what changes we have made and are continuing to make to our portfolios in response.

As we said in our last newsletter, no one truly knows when the next recession will happen, but we don’t believe it is about to happen very soon. Central banks around the world are easing and cutting interest rates, something that tends to push off a recessionary economy. That has given the world economy a bit of a boost and allowed us time to add more resilience to our portfolios.

The guiding factor and fundamental principle of stock markets is that buying and selling is done by people, whether Wall Street bankers or regular investors saving for retirement. What the markets do is determined by what people think about what lies ahead, and people are imperfect and behave imperfectly, despite what we would like to think. A series of studies that later won a Nobel prize in economics proved that people will act against their own best interest in order to avoid losses. Essentially, we are much more sensitive to losses than we are happy about gains, much more than we “should” be.

In practice, in our current environment of political upheaval and regular news stories about the possibility of a recession, this means that most investors feel worried and anxious about the markets right now, even though they have performed well – and we want you to know that’s okay! Our role as your advisor is to help you make decisions that cut through short-term worries and remind you that for your long-term goals, we are committed to riding the markets through because we are built to handle them. Everything comes back to your retirement plan. It’s the basis for all the decisions we have made together, including what risk level you can handle, and part of what we have talked about is being able to withstand short-term turmoil.

Now, we also understand that the stress of worrying about your retirement savings can be hard to deal with. This is why we’re making shifts now so that the level of risk your portfolio takes is comfortable for you. We have already discussed our shifts to better quality bonds and value stocks that hold up better in a recession, but we wanted to particularly touch on the role U.S. government bonds play. Our friends at Blackrock put together a great chart showing how government bonds in particular have weathered downturns better than any other asset class, and in fact have posted positive returns in each of the last six recessions, when investors crave stability. One main goal through our Investment Committee has been to increase our holdings of government bonds and lessen those corporate bonds, and though they don’t tend to post consistently high returns outside of recessions, they’re an important part of our investment plan.

Lastly, as we’ve done previously, we wanted to introduce another of our team members. Natalia McClure came to us from Simi Valley, California in early 2018 with nine years of industry experience and has taken the reins of our trading and money movement. If you have called to request money moved in or out of your account, you have probably spoken with Natalia. A mother to two rambunctious boys, Natalia is responsible for getting our entire staff hooked on podcasts, and her love of the outdoors makes her more of a true Oregonian than most of us.

As always, we invite you to reach out to us with any questions or needs, and we wish you a wonderful fall season.