The late Hawaiian surfer Duke Kahanamoku once said, "Be patient. Wave come. Wave always come."

The same can be said for investing.

Far too often, investors try to catch the wave that has already passed them and is crashing on the shore, only to miss the next one coming right behind them. Or, worse yet, they run out of the water at the first signs of a little churn.

In our view, the best way for investors to reach their long-term investment goals is to have a plan, to build a balanced portfolio designed specifically to reach their goals, and to stick to that plan throughout market cycles.

Consider what investors have experienced since last year:

  • In early 2016: The U.S. Federal Reserve (Fed) had just raised interest rates at a time when real yields in emerging markets were low, Chinese policymakers were confusing investors by sending mixed signals with their actions, and Europe faced a forthcoming series of "make-or-break" elections that threatened to unravel the European Union. The U.S. dollar rallied by 30%.

    Like lifeguards with bullhorns, the talking heads issued their warning: “Quick, everyone out of emerging market and European equities—and into U.S. dollar- denominated low volatility strategies and long-duration U.S. Government bonds!”

    But in short order, the Fed backed off of its tightening stance. What worked? Unhedged international equities. What didn't? Low volatility strategies.
  • In November of 2016: Donald J. Trump surprised the markets and captured the U.S. Presidency.

    “Quick, everyone out!”

    Dow futures fall 700 points. But by the next day, markets break higher.

    “If Mr. Trump manages to pass a mix of tax cuts, fiscal stimulus, and business de-regulation,” investors think, “then the days of meager 2% growth in gross domestic product (GDP) will be behind us. Dare we anticipate GDP growth of 3%? Maybe 4%? Quick, everyone: Buy stocks of small companies, which pay the highest effective tax rates and could see a windfall when those rates go down. In a world where there is no growth, buy growth; in a world where there is a lot of growth, buy value. Get rid of long-term U.S. Treasuries. And definitely get out of emerging market stocks, since protectionism could destroy them.”

    That strategy worked for six weeks.
  • In the spring of 2017: The realities of governing began setting in. The House Freedom Caucus and President Trump didn’t see eye to eye. Prospects of a fiscal stimulus started to fade. There were no signs of protectionism. The United States was underwhelming expectations. Emerging market economies, given their renewed comparative trade advantages from their depressed currencies, were exceeding very low expectations. By that time, a series of European elections passed without a major political incident. Europe was exceeding its very low expectations.

    “Quick, buy U.S. growth stocks! Buy unhedged European and emerging market equities!”
  • In the summer of 2017: The so-called FAANG stocks (i.e., Facebook, Amazon, Apple, Netflix and Google, now known as Alphabet) have rallied. Though their valuations are nowhere near what the dot-com stocks were in 1999, it’s beginning to feel like 1999 for some. Is it time to get out of the market?

All these speculations are so exhausting.

Notice the famous quilt chart (Exhibit 1). Last year’s winners typically go to the bottom. Last year’s losers typically go to the top. The balanced portfolio typically performs somewhere around the middle.

Exhibit 1: Asset Classes Move In and Out of Favor

Investors who stick to a plan typically fare better than those who aim to chase performance cycles—and better, even, than those who consistently bail out of the market.

To quote another famous surfer—Jeff Spicoli—from the movie “Fast Times at Ridgemont High,” "Surfing's not a sport. It's a way of life; it's no hobby. It's a way of looking at that wave and saying, ‘Hey bud, let’s party.’"

You've got to be in a position to “party.” Balanced portfolios and long-term investment plans can help put you in that position. Be patient. As experienced surfers would say, the wave will come. The wave will always come.

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