When investors hear whispers of economic uncertainty, it’s natural to want to review our strategy. Knowing that we are invested with purpose reinforces the most important behavior of successful investors: staying disciplined and committed.
Still, when headlines turn gloomy, it’s easy to wonder:
- I hear the market is expensive—am I too exposed to overvalued companies that might pull back?
- I hear the dollar is weakening—am I vulnerable if the U.S. economy slows?
- I hear “defensive” or “dividend paying” companies are less volatile—do I own enough of them?
- I hear interest rates aren’t going back to zero—why own stocks when bonds offer less volatility?
These are fair questions. But they have reassuring answers when you understand how your portfolio is built.
Let's get in there!
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A Strategy Built on Time and Target Return
Whether you’re still working or already retired, your strategy is based on two things: time and your risk-adjusted target return. In other words: how long do you have, and what must your money do in that time?
- During working years: With a long horizon (and an emergency cash cushion), stocks are critical. Their wider short-term swings are the price we pay for higher, sometimes double-digit, long-term returns. As Nick Murray puts it:
“Luckily, it is a psychological price rather than a financial price in the long run.”
Every five years or so, equities may drop sharply. That’s not failure—it’s part of the journey toward growth.
- In retirement: The challenge shifts. Now we must guard against “sequence of return risk”—the danger of bad market years arriving just as withdrawals begin. This is where bonds, alternatives, and diversification add stability and income, while still keeping a portion invested in growth to avoid running out of money.
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A Portfolio Like a Layered Cake
Think of your portfolio as a cake with many layers. Each “layer” might be a mutual fund or exchange traded fund. Inside those layers are dozens of ingredients and flavors: carefully selected companies, chosen for qualities like defensiveness, dividends, and growth potential.
Other “layers” are different textures entirely—bond funds for income and stability, or alternatives like real estate or long/short strategies to offset volatility. International companies may add higher dividends and perform better when the dollar weakens.
Once the right recipe is set—based on history, risk, and return goals—there’s no need to tinker. Behind the scenes, professional managers adjust holdings constantly, so you don’t have to.
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The Real Battle: Instincts, Not Markets
Even retirees need growth exposure. Going ultra-conservative often increases stress by putting investors at risk of running out of money.
As Nick Murray reminds us, the stock market isn’t really a “writhing, hissing bag of snakes.” It’s a collection of hundreds of businesses, continually adapting to changing economic conditions. While every bout of volatility feels different, the lesson is always the same: stick with the plan.
If your portfolio is designed for your time horizon, needs, and goals, it will do the reacting for you.
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International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. Investing involves risk including the loss of principal.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Western Wealth Management LLC , a registered investment advisor. Western Wealth Management LLC and Kennebec Wealth Management LLC are separate entities from LPL Financial.