No Place to Hide

In a broadly diversified portfolio, there’s usually something working in any given year. When stocks are down, bonds are typically up and when bonds are down, stocks are typically up. When stocks and bonds go down together, something else is often up (TIPS, Commodities, REITs or Gold).

Well, not this year.

In 2018, more than any year in recent history, the overwhelming majority of asset classes are down. In the table below of 15 asset classes ranging from stocks to bonds to REITs to Gold and Commodities, only one is higher: Cash.

ETF Total returns from 2008 to 2018 chart1

Data Source:

In 2008, when stocks had their worst year since the Great Depression, bonds were solidly higher. In 2013, when bonds had one of their worst years in history, stocks were solidly higher.

This year, there’s simply been no place to hide, with the exception of cash.

If you maintain a globally diversified portfolio, this has likely been the worst year for you since 2008, with a 60/40 portfolio (AOR ETF) down just over 6%.

Stocks, Bonds and Asset Allocation ETFs chart2

To be sure, this is but a scratch compared to the devastating losses investors faced in 2008. But for a whole generation of new investors who knew nothing but gains year in and year out, this is now their 2008.

The question, of course, is what to do next. As always, there are only 4 options:

  1. Take more risk.
  2. Take less risk.
  3. Do nothing.
  4. Go to cash.

Doing 1 or 2 should always be a systematic decision. What has changed in your risk tolerance or strategy that warrants a change in your portfolio?

  • If nothing, which should be the case for most investors, then you have your answer: do nothing. As John Bogle of Vanguard says, “don’t do something, just stand there.”

  • If something, then you adjust only according to your pre-determined plan, and not because of an emotional impulse stemming from the recent declines.

The most tempting but also most dangerous option is always #4. You will hear many opportunists today suggesting that 2018 proves that diversification “doesn’t work.” Ignore them at all costs. Making long-term portfolio decisions based on short-term market outcomes is not a recipe for success.

Still, the temptation to go to cash remains. It is the only asset class that will guarantee you a return over a short period of time and if ever investors wanted a guaranteed return, this would be the year. That makes it seem like a risk-free proposition, but do not be fooled by such a notion.

For anyone with a longer time horizon (20+ years), cash indeed becomes the riskiest investment, as it is the least likely to outpace inflation and help you meet your long-term goals. “But I’ll just go to cash until the dust settles.” Indeed, and how will you know when that has occurred? How many investors have said the same over the years never to return again?

The hardest job of an investor is remaining invested long enough to reap the glorious benefits of compounding. In 2017, when everything was going up and to the right, that job was a relatively easy one. It is in times like these that you show your mettle. Do you have what it takes to stay in the game?




Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Charlie is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Charlie holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and also holds the Certified Public Accountant (CPA) certificate.

In 2017, Charlie was named the StockTwits Person of the Year. He has been named by Business Insider and MarketWatch as one of the top people to follow on Twitter. His work has also been featured in Barron’s, Bloomberg, and the Wall Street Journal.

You can follow Charlie on twitter here.


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Past performance is not indicative nor a guarantee of future results.


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