With today’s stock market decline, many stocks and market indexes have lost all the gains achieved over the past few years.  Some high growth areas like Biotech are down significantly (-30%) this year.   In addition, volatility in 2015 and in the early part of 2016 has definitely come to the forefront as the Federal Reserve had previously suppressed volatility for multiple years with their QE policies.  Even though we do not like to see this kind of volatility and continued downward pressure on the market, we have been prepared for this for two years as we have viewed the stock market being overvalued.  That is why we continue to be underweight equities and overweight alternative investments relative to our model portfolios.

Three years ago we concentrated most of our research energy on alternatives that would not only do well by themselves, but provide a buffer if the stock market corrected (as it is now doing).  We continue to hold our maximum percentage in alternatives (25%).  Thus far this year, all our alternatives have produced positive returns while the stock market is down and have provided a much better return than cash.

What this means for your portfolio going forward

Having 25% in alternatives, we have the capacity to increase our equity exposure when the time is right.  Our strategy is always forward looking; seeking out investments that we believe will do well over the next 3-5 years.  Three years ago we spent our time analyzing alternatives.  Today, our time is being spent on analyzing investments that will excel after this market stops correcting.  When we believe equities are undervalued, we will begin to rotate money out of alternatives and into the stock market.  We don’t believe we are quite there yet.