That’s an expensive looking CAPE you have on. 🤑
“No strategy is so good that it can’t have a bad year or more. You’ve got to guess at worst cases. No model will tell you that. My rule of thumb is to double the worst you have ever seen.”
Valuations matter. From 2000 to 2014 US stocks returned 4.9% a year and when you factor in inflation returns were only 1.90%. Fourteen years of returns that failed to beat a bond only portfolio. Inflation matters too. Two bear markets, home biases and high valuations (based on the Schiller CAPE ratio) were the culprits. Today’s CAPE stands 83% above its historical mean. Sounds expensive. The period from 1900 to 2017 provided investors with real equity returns in excess of 6.5%.
As you can see, much higher than our recent past. The price an investor pays for an investable asset will determine the rate of return that will be earned. A high starting valuation will set the stage for very poor returns.  Probably the single most important thing that an investor can do is diversify. This probably means more than the traditional 60-40 portfolio with a home bias. The granularity of additional asset classes should give portfolios more diversification through non-correlation as well as increased real returns. Construction of client portfolios is challenging and requires insight into markets and economic conditions.
Don’t ignore the fact that most of the time client’s portfolios
are spent in drawdowns and very little time making new highs.Â
Managing the draw down phase with discipline, consistency and insight into different asset classes will help their experience align with their expectation.
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The information and descriptions provided about the Program are for educational and information purposes only and should not be used or construed as investment advice, an offer to sell, a solicitation of an offer to buy, a recommendation for any security, or suggest any course of action. LaSalle St. Investment Advisers (“LSIA”) does not guarantee that the information or descriptions supplied about the Program are complete or timely. LSIA makes no warranty with regard to any results obtained from the Program or its deployment. LSIA is not responsible for any direct or incidental loss incurred by relying on information provided about the Program. The allocations presented herein are illustrations and completely hypothetical. None reflect actual investments or investment results and do not reflect allocation of any individual portfolio. Asset allocation and its results vary over time. Other allocations or asset investment categories not offered in the Program may have characteristics similar or superior to those illustrated. Past performance of any model or allocation is no prediction of future results. Neither the Program nor any system/model can predict the future of any market or price movement in a market. Diversification and asset allocation do not guarantee against the risk of investment loss, including risk of loss of principal. Information provided regarding the Program is as of the date of publication and may change at any time without notice. Information has been included which was obtained from third parties and is believed to be reliable and complete. LSIA does not warrant the accuracy or completeness of such information. LSIA is a registered investment advisor and does not provide tax, accounting or legal advice ‒ the information and/or descriptions provided do not constitute such advice. More information regarding LSIA and its investment strategies can be found in the LSIA brochure, ADV Part II, which is available online or through LSIA. Asset allocation may not be suitable for all investors. Before deciding to invest, potential participants should consult with an investment adviser to determine an appropriate investment strategy and methodology which meets the investor’s specific financial needs, objectives, goals, time horizons and risk tolerance. The information and description provided herein has been made without consideration of any investor’s particular suitability for investing in the Program. Asset allocation also involves investment in various asset classes which are not insured by the government. Investing in fixed income and/or high yield securities involves additional concerns including interest rate risk, credit risk and reinvestment rate risk. Investing in securities outside the United States may entail greater risk than investing in domestic U. S. markets. These risks typically include political and economic uncertainty of foreign countries as well as currency exchange fluctuations, including foreign currency exchange rates, political risks, different methods of accounting, financial reporting and foreign taxes. The prospectus accompanying a security should carefully be reviewed before investing. The services described herein are available to persons residing in any state where they would otherwise be contrary to local law or regulation.
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