Make no mistake about it, June was an ugly month for investors. Unfortunately, my recent predictions that come September we will be gazing back on our 2.5% YTD gains in May with wistful eyes is well on the way to happening. I’ve been telling clients for months to expect things to get worse before they get better. At the end of May it wasn’t uncommon for a portfolio to be up about 2.5%. As of the end of June, that same portfolio was down 2.5%, losing 5% in just one month.
Leading the plunge downward in June were REITs, which along with commodities were buoying up our portfolios during the first five months. Not far behind were world equities. The Dow lost 6.3% (its worst June performance since 1930!) and is down 19.9% from its October high. At the moment, the only positive asset class is commodities, which are up a staggering 35% on the year. That asset class is the only one keeping a diversified portfolio treading water.
So, what should you be doing? Nothing, except rebalancing your asset allocation periodically, selling the winners (commodities) and buying the losers (everything else)! In any one year, a return of between -15% and 25% is NORMAL to produce a long-term 7.5% return for a portfolio invested in 70% owning and 30% loaning.
The past five years have been exceptional, with returns at twice our expected long-term levels. A down year, or two or three, was predictable and actually needed. It’s here. But savvy investors don’t need to be worried, just patient.
