Portfolio Management Ideas For Consideration For The Remainder Of 2017

2017 is shaping up to be both a continuation of the secular bull market as well as a year of changing market leadership. This has taken place absent any significant market volatility, leading some to question when volatility may rear its ugly head again. The June 2017 S&P DJI Commentary noted that at the midway point of the year, U.S. equity volatility year-to-date (YTD) is at the lowest level it has been for half a century. We do not believe that this trend will continue through the summer months and would not be surprised to see a short-term, shallow pullback at some point. We would view this type of pullback as constructive, however, as improving global economic fundamentals seem to support more stock market upside potential over the short-intermediate term. As a result, investors would be wise to build or maintain, balanced and diversified portfolios consistent with their own financial objectives, tolerance for risk and investment timeframes while resisting the temptation to make investment decisions based upon short-term market movements or potential fiscal policy changes.

With all of these themes in mind, we suggest the following portfolio management ideas for careful and thoughtful consideration.

• Consider current valuations but don’t assume prices can’t move higher

Certain areas of the market may seem overvalued, or undervalued, based upon traditional valuation measures. While these measures should not be ignored completely, they also should not be the sole determinant of an investment decision. In this regard, it may be helpful to appreciate that a high current relative valuation does not necessarily mean that area of the market can’t move higher just as a low current relative valuation does not necessarily mean that area of the market can’t move lower.

• Help brace your portfolio for short-term bouts of volatility

While we believe that there is still more room for this current secular bull market cycle to run, particularly overseas, we don’t dismiss the potential for short-term bouts of market volatility. According to the July 2017 S&P Dow Jones Indices Risk & Volatility Dashboard, the VIX®* recorded a 23 year low of 9.51 on July 14th. Further, the S&P 500® has not experienced a 5% decline for over a year and closed at another all-time high on July 19th. We would not be surprised to see a short and shallow pullback at some point during the third quarter. As a result, investors would be wise to review their portfolios to see if they have the diversification in place to help withstand a short-term bout of volatility. While diversification does not ensure a profit or guarantee against a loss, diversification can help an investor manage risk and reduce the volatility of price movements within their overall portfolio strategy.

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