By Allen Giese, CLU®, ChFC®, ChSNC®
With U.S. large-cap growth stocks up 16.9% on average over the last 15 years and up over 36% year-to-date (as I write this), we find ourselves in a position we’re rarely in: tamping down our clients’ enthusiasm in a particular set of equities.
Most of my 34-year career has been an exercise in talking up equities and helping people understand the power equities have to overcome inflation. That the key to unlocking long-term success, stability, and financial security is in equities and understanding that when we have temporary declines, they’re just that: temporary. Within those temporary setbacks lies the reason equities provide long-term success. It’s because of the volatility equities bring that we earn more.
But this time is the opposite. With this surge in U.S. large-capitalization growth stocks, we find ourselves explaining to clients that we need to remain diversified especially in times like these. To resist the temptation to over-imbibe. It’s not an enviable position to be in, and I sometimes feel like the one guy at the party who’s telling everyone to ease off the punch bowl.
On top of that, there’s an element of FOMO (fear of missing out) that, being emotionally based, is very difficult to overcome. In fact, I find myself envious of the days when we’re in a falling market and the fatherly wisdom is the reminder that the sun will shine again, remain faithful, have patience, and be disciplined. It’s an easier story to tell and get across, and there’s no euphoria to overcome.
The success of our strategy is the long-term nature of it. A strategy of remaining highly and globally diversified all but eliminates the risk that there is any one thing out there that can kill us—or that there is any one thing out that you can make a killing in. But the idea that all of the asset classes we’re in are good, proven, long-term investments with positive expected returns is what gets us to our goals. It’s a long-term strategy that marries well with long-term goals—like a decades-long retirement, for example.
Balancing the asset classes back to their thoughtfully selected target weights becomes a critical step in the process. Pulling some of those profits off the table when an asset class outperforms just makes sense. Selling off some of an over-performing asset class while prices are high and repositioning those dollars into another asset class that currently has relatively low prices. Isn’t that a core tenet to investing, to sell high and buy low? Easy to understand but not always easy to do, especially when the asset class you’re selling a piece of is up 36% and continuing to climb (so you think).
Human nature begs us to keep it and keep riding it up. Reason and prudence tell us that today just could be the last day of that run-up.
Don’t get me wrong. We are very happy with the surge in large-cap growth and have seen some of that success spill over into other equity asset classes. But, like a trusted designated driver you take with you on a fun evening out, we at Northstar know our most important job is to get you to your destination safely.
Got questions? We’re here and waiting for your call. May 2025 bring you success, health, and happiness.