We continue to advocate a diversified portfolio of quality, reasonably valued assets based on your investment objectives and risk tolerance. We believe that this has and will prove to be a successful investment strategy over the long-term. That being said, we will continue to make changes as prudent. We have taken profits on outsized positions that have grown during this bull market run to fund more attractive, cheaper looking opportunities. The equity allocation has been reduced – taking some chips off the table – and we have moved to a more neutral, conventional stance in our portfolios. We will continue to take advantage of stock volatility to harvest losses in companies experiencing near-term challenges but that we believe have the potential for attractive long term returns. The tax losses we take now will help offset your 2017 capital gains and/or shelter future gains. Our aggressive use of tax loss harvesting is part of our tax management process that adds significant financial benefit to our clients.
Our longer term commitment to international equities and bonds has paid off in 2017 as they have produced strong returns and significantly outpaced domestic returns. We think international securities will continue to benefit from a combination of a strong economic recovery and cheap valuations. On the home front, the debate on U.S. tax reform is still in the early stages and it’s unclear who the winners or losers will be. However, we expect if tax reform is enacted, it will apply starting in 2018. Any reduction in corporate tax rates should benefit small cap and other stocks that get a significant amount of their revenues domestically.
Although the S&P 500 Index is trading above its 20 year price/earnings average, with low interest rates and inflation, we don’t think it is significantly overvalued. However, domestic equity markets are long overdue for at least a 5-10% correction – we would see this as a buying opportunity.
We continue to diversify our bond exposure outside of U.S. Treasuries to mitigate interest rate risk in this rising rate environment. Overall, Shorepoint expects to stay the course, seeking to take advantage of opportunities as they arise and generating attractive long-term returns to help our clients reach their financial goals.