Baseball and Balanced Portfolios

Baseball and Balanced Portfolios

Do home runs typically win the game or is it consistently hitting singles and doubles?  Home runs are certainly more exciting, and seem to be what we remember most about a great game.  I would argue though that most baseball games are won by the fundamentals…the small stuff done right.  The teams that can consistently hit singles and doubles and continue chalking up runs probably have the best chance of success.

The same holds true for investors.  Aiming for singles and doubles in your portfolio versus homeruns can help minimize volatility and help you stay in the game.  In a time of economic “uncertainty” where even seasoned market and economic professionals are at opposite ends of the spectrum, a globally diversified and globally balanced portfolio can smooth out the ride.

The most recent GDP report for the 3rd quarter showed that the economy is growing, yet much of that is driven by government stimulus.  It is difficult to determine if that growth will continue without the stimulus.  In addition, initial jobless claims, which are reported every Thursday, continue to drift downward.  Job creation drives growth, and typically the Fed doesn’t start raising rates until unemployment has declined for a period of twelve months.  We will most likely be in a low interest rate environment for some time and continue to experience slower growth in the U.S.

There is much talk about the importance of a strong dollar from a political perspective, but the reality is that our dollar has been weak and falling for nearly 30 years.  There was meaningful appreciation only twice during that time period, but overall we have lived with a weaker dollar for many years.  Finally, gold and other commodities have been driven higher while Treasury yields have remained low.  Typically these would move together and if they moved higher, that would indicate an expectation of inflation.  Clearly, one of these camps is right and one of them is wrong.

Ultimately, a globally diversified and balanced portfolio is the best way to combat uncertainty.  Adding components such as yield to your globally balanced mix can further cushion the downside.  Investors who can manage volatility successfully and aim for singles and doubles versus home runs will have a better chance for success going forward.  (Go Yankees AND Phillies!)