October 7, 2019

At Clifford Swan, we take pride in building customized portfolios to meet client objectives. Our portfolio construction process stems from a carefully crafted research and investment discipline, and our work is most effectively implemented when we have a solid understanding of our clients’ wants, needs, and worries. These worries can be personal or based upon a volatile market like the one we find ourselves in now. We act as translators, using the inputs of our clients’ circumstances to create investment plans.

As we write, we find ourselves 10 years into a domestic economic expansion, and the current news cycle seems to be projecting messages of pessimism regarding continued growth, prosperity, and market activity. Media chatter predicting economic or market downturns might make investors nervous. While we have discussed themes such as politics, trade, and monetary policy/interest rates in past communications, we will take a broader view of stock ownership in this quarterly commentary to reinforce why we think it is a crucial part of a long-term portfolio investment allocation throughout different stages of the market cycle.

First, we find the current investment environment to be favorable for stock ownership. The economy of the United States is growing, albeit at a slower pace. To understand the relative power of this statement, it’s worthwhile to adopt a global perspective. Europe continues to slow. Growth in China has been softening. Nations such as Germany and Japan are experiencing negative interest rates. Our economy remains a bright spot in a muted global environment, which warrants, and should attract, broad investment.

Second, domestic interest rates are low, though positive, which can provide a very good backdrop for stock ownership. Capital is easy to come by for businesses looking to grow by investing in themselves. While bonds pay less attractive yields to investors, stocks also may experience increased demand from those looking for income as well. Dividend-yielding stocks, of which Clifford Swan clients own many, should have ample support in this investment environment.

On a longer-term horizon, we know from experience that investors are rewarded with superior returns over time for owning stocks. Stocks remain a unique vehicle for preservation of capital (as they have proven to exceed inflation over the long run) and an engine for growth, depending on your individual circumstances. While stocks do not always appreciate in the short run (in fact, we anticipate that potential political events may increase volatility), we have seen powerful results for investors who are able to tune out some of the short-term noise, and even occasional pessimism, along the way and maintain their investment discipline.

To be clear, we are not suggesting that there will not be another recession, or that stocks only go up. Recessions are periodic, infrequent, and hard to predict. Our firm and our clients have weathered many. Importantly, this is a good time to discuss your asset allocation with your investment counselor to ensure your portfolio is appropriately positioned according to your objectives and appetite for risk, allowing you to take a long-term approach to your investment plan.

The above information is for educational purposes and should not be considered a recommendation or investment advice. Investing in securities can result in loss of capital. Past performance is no guarantee of future performance.

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