Latest Economic Review: Sunpointe Illuminations

Opening Day and The Asset Class where you should put ALL your Money

Opening Day of the Major League Baseball (MLB) season brings excitement around the country, especially here in St. Louis.

For me, it’s both the limitless opportunity that the year presents, and the memories of years and games gone by with family and friends.

So, what does this have to do with investing?  It also reminds me of the answer I often give when asked where someone should put all their money to get rich.

The market feels uncertain right now. Will the Fed hike rates again, or begin to cut rates in late 2023 or early 2024?  How will the US debt ceiling be resolved?  What about Ukraine?

So, what is the best place to put all your money right now?  That answer is easy: Nowhere!  The question may have been based on naivete or overconfidence bias, but the answer is diversification.  We need to make sure we are diversified because the range of outcomes based on the issues mentioned above is wide.  Worse, it is likely that some other unexpected issue presents itself over the next 5 years.

To tie it back to baseball, when answering, I often explain: Our baseball team wouldn’t be any good with a team full of left fielders, or shortstops, or pitchers.  Each player has a particular role which is critical to team success. Likewise, our investment portfolio should have US equities, but also some international equities.  Some large-cap and small-cap, both value and growth stocks. Further, we have seen quite a few portfolios from prospective clients this year who realized that their risk mitigation assets were not diversified enough.  2022 was the worst year on record for bonds, so it didn’t work out very well if that is where your “safe” money was invested.  Fortunately, other diversifying and floating rate credit investments offered some diversification and performed better last year.

Notwithstanding some of the MLB rule changes this year, we can shift our portfolio on the margin toward areas of greater opportunity, but with constraints.   We definitely should not line all 7 fielders up between second and third base and even splitting them between there and left field exposes our team to substantial risk that the other team can hit the ball to right field. Likewise, we still like floating rate debt and small-cap US stocks, but would look for those to be marginal overweight positions while maintaining exposure across a broad range of asset classes.

So, good luck to all 30 MLB teams this year and remember how important each of those different positions is to the overall success of your team (and portfolio).