May 2013 was a lousy month that turned really ugly during the last week or so. US Stocks were up slightly for the month, but anything sensitive to interest rates and/or a strong dollar got clobbered, especially at the end of May. The fear that Bernanke was nearing the end of QE3 caused all manner of bonds, international stocks, precious metals, REITS and commodities to drop drastically. At the end of May, even US stocks began to stumble.
So what happens in June? My answer is that, for our clients, it doesn’t matter (unless you need all your money this month, and then it should not be in the markets at all). While client account values were significantly affected, depending on how aggressive your allocations, the risk management components of our methodology reduced or eliminated exposure to bonds and many stocks, and began increasing exposure to real assets, which seem to be at or near an 18 month bear market. So, even with a tremendous dislocation in several markets (Bill Gross of PIMCO “officially” called the end of the 30 year bull market in bonds), we emerged from May with losses that can easily be made back up in a month or two of more normal market activity. More importantly, if May’s dislocation turns into a market rout, we enter the second week of June with much less portfolio risk.
Again the key lesson here is that we never, ever allow losses to run away with us while telling everyone to just “hang on, things will bounce back”. By managing risk in this way, we will do much better over the long run.
If anyone has questions or knows a friend who is unhappy with recent behavior in their investments, please let me know