Fourth Asset Class Enters Downtrend

As of Monday, November 5, 2018,  US Small Company Stocks entered a downtrend, joining Gold, International Stocks and US TIPs. Based on the methodology, this causes us to reduce risk by investing only 50% of our portfolios as shown below. Over to the right, you can see our new allocations along with the 2018 year to date performance of each asset class. The S&P-500, US Large Stocks, is the only asset class still in an uptrend.

Number of Asset Class Downtrends% Invested

You might wonder what happens when all five asset classes are trending down. Well, this rarely happens, and rarely lasts for long when it does occur, so we just ride this situation out. There is a big difference between managing risk and trying to time when to jump in and out of the market. We don’t advise jumping in and out and we don’t try it ourselves.

If you look at the asset allocation closely, you will see that we actually have more than 50% in cash. Hmmm, you may wonder, why is that? Well, if an asset class is trending up AND is fluctuating MORE now than it has in the last year, well, you guessed it, we reduce that position by 25% of the calculated value to manage risk even further until volatility decreases. The S&P-500 is doing that now.

The big picture looks very risky right now, so our model has us at almost maximum cash. If you are watching your own nest egg take a hit right now, you might want to check with your broker/representative about reducing risk.