We are nearing the end of the first quarter of 2021, and you are likely hearing quite a bit of economic and political information in the media. For that reason, we feel it is important to share our perspective and current position on your investment portfolio.
Most often, we send these updates when we have decided to adjust portfolios or rebalance entire client portfolios. This time, we want to share why we are choosing to “sit tight” with intention on our equity allocation while making adjustments to our fixed-income allocation.
Currently, a widening yield curve, ongoing vaccine distributions, and additional economic stimulus are all contributing factors leading to the positive revisions we’re witnessing in expected earnings over the next 6-12 months. As the projected earnings data we consistently track continues to strengthen, we believe that as stock prices have pushed higher, they remain fairly valued. For this reason, we are allowing our equity allocations to float above our target. Should the data begin to shift to indicate otherwise, we may decide to rebalance at that time.
One key economic trend we are seeing that could impact client portfolios is the possibility of near-term inflation caused by rising commodity prices and significant stimulus funding from the Fed leading to the potential for an overheated economy. Thus, we plan to begin incorporating TIPS (Treasury Inflation-Protected Securities) into our client portfolios on the fixed-income side of our target allocations.
Our decisions to hold equities at their current levels and integrate TIPS into our fixed-income allocation are driven by our core guiding philosophies. We believe that risk and return are related, markets are efficient over time, profitability matters, and diversification is key. We remain disciplined and focused on the long-term so that you can feel confident in the probability of achieving your goals.