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Don’t Go Chasing Returns

Recent research by Aon Hewitt, which tracks 401(k) data, shows that stocks took 67% of employees’ new contributions into their retirement portfolios in March.  It’s the highest level since March of 2008, before the market dropped heavily, and is up from the 56% contribution rate in March of 2009 at the bottom of the market.  Investors are becoming more comfortable with the stock market and more willing to add to their positions after US stocks rose over 32% in 2013 and the financial crisis fades further from memory.

This is a clear example of investors chasing returns.  After an asset class has risen by such a large percentage over a short period of time it is not the time to jump in.  That time has already passed.  The old adage of buy low and sell high rarely applies to investors.  It is much more likely for investors to buy high and sell low.

Investors should view the surge in stock prices over the past year as an opportunity to take profits and reinvest the funds in areas which have not seen as explosive recent performance, including bonds and international stocks.

We advocate having an investment plan and target allocation and sticking to that.  It certainly can be hard, especially when an asset class plummets like stocks in 2008, however those who stuck to their guns and kept investing in line with their plan have undoubtedly come out in a much better position today than those who got out of stocks all together and decided to get back into the market “when it was going up.”

We are not recommending that investors stop contributing to US Stocks given their recent run.  US stocks are a bed rock of a long term portfolio.  However, an investor should not be looking to increase their allocation to US stocks now based on their recent performance.  It should be done with a long term view in mind.  The next 20% drop in stocks could happen tomorrow, or five years from now, but it will happen at some point.  Will you be as likely to add to your stock positions then?  One needs to maintain a steady hand with their stock portfolio in both the good times and bad.  Investors should not look to pour money into the current hot performer, they should look to maintain their strategy by taking advantage of buying what is down and selling what is up in their portfolios.



Index Performance                                       April       YTD       Trl 1 yr.        

US Stock (Russell 3000)                                     0.12%       2.10%       20.78%
Foreign Stock (FTSE AW ex US)                       1.33%        1.91%        10.07%
Total US Bond Mkt. (BarCap Aggregate)        0.84%       2.70%        -0.26%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)     0.24%       0.49%        -0.01%
Municipal Bonds (BarCap 1-10yr Muni)          0.84%       2.46%        0.93%
Cash (ML 3Month T-Bill)                                   0.00%       0.02%         0.06%



Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at