One of the elements that professional advice can bring to your investments is the importance of explaining how your portfolio should evolve over the market cycle and your lifetime. Looking at the bond portion of your typical balanced portfolio, what ten years ago was an excellent opportunity to invest in credit and distressed debt has now become the risk lurking in your typical balanced portfolio.

 

Consider the quality of fixed income in your portfolio and the trade-off of adding those last few basis points of yield to your bottom line - and what that can cost you as liquidity premiums increase. Managers that bury their fixed income in wraps, or portend to have 'proprietary' rating systems that give them an edge are blowing smoke. When volatility spikes, sources of liquidity become fountains of future opportunity as the market adjusts to lower global growth prospects. 

 

When market liquidity dries up and credit spreads widen, it is precisely those securities whose rating is often on the border of high grade and junk that suffer the most. Why? Because the companies that have had to issue less than investment grade debt have done so because of the leverage on their balance sheet, the margins they generate, and the ability to be bone fide borrowers. They may have suffered a downgrade because they have not succeeded in making their acquisitions accredititive to earnings, or were incapable of recapitalizing their balanced sheets during a period of time when economic growth reaching its near-term zenith.

 

All of which begs the question, "what near term changes can be made to investment strategies?"

 

In working with me, expect an explanation of how much market exposure you can tolerate, and the amount of risk you can take. In practical terms, that means how your portfolio 'pie' is divided given your current and future financial situation. Rebalancing after an 11-year bull run means taking profit, using high quality fixed income, and putting you in good stead for the anticipated turbulence ahead.

 

It's the value of good advice, the value of working with a professional.