Good morning, wayfarers!

The path to abundance unfolds in stages: from budgeting and debt elimination to income growth and investing for both long-term security and near-term freedom.

When our membership platform launches, we’ll dive deeper into each stage together. We’ll learn how to apply them in real life, celebrate wins, and support one another along the way. Because when you know you’re part of a larger journey, it’s easier to stay focused, motivated, and on course.

Anyone can have theory. Our neighbor can have all the right talk. But when it comes to results, that’s where most fall short.

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In the meantime, let’s take a look at today’s markets, and how wise investors might navigate the road ahead.

Onward together,

Daniel

FINANCIAL TOOL

4 Investment Strategies for Late-Stage Bull Markets

Here’s my opinion: the stock market is priced for perfection.

That is, valuations are so high that investors are betting on several more years of strong earnings growth simply to justify current prices.

Prices are increasingly less connected with what’s happening right now, and more dependent on future realities going very well.

Since a stock’s hypothetical intrinsic value is based on the present value of future earnings, even modest shifts in expectations can ripple sharply through current prices.

Here’s my view.

Strong upside (20%+) over the next year would be akin to a euphoric bubble.

Moderate upside (1% - 15%) would be healthy growth.

But a bear market (-20% or more to the downside) has grown in likelihood due to a number of factors:

• The after-effects of aggressive rate hiking by the Fed

• The high speculation in private markets

• The upcoming second year of a US President’s term (historically the lowest average performing year)

• The off-balanced risk/reward ratio over the next several years at current high valuations

Think about it this way. Let’s assign arbitrary likelihoods to risk and reward to illustrate the point.

If someone has a 50% chance of a 15% gain, a 25% chance of no return, and a 25% chance of a 20% loss, the expected gain is only about 2.5%.

But 2.5% expected return is far too low to justify the risk of the whole stock market. We could probably expect more just sitting in a CD!

Still, markets can defy gravity for long stretches. Late-cycle rallies often deliver impressive final gains.

Going all conservative, and being wrong about it, presents a huge risk to your ability to reach your future goals if those goals depend on market-like returns over time.

So if no one can predict when the next big downturn arrives, the question becomes: how do you structure a portfolio that can endure either outcome?”

Here’s something to consider.

Pim van Vliet, PhD, Chief Quant Strategist at Robeco, explored this idea in his recent article. His research covering 1900 to 2025 shows that every asset—cash, bonds, gold, and stocks—has suffered painful real (inflation-adjusted) losses at times.

Cash erodes quietly.

Bonds face “bond winters” when inflation rises.

Gold swings wildly.

And stocks, though rewarding long-term, endure deep drawdowns.

So how do we solve this equation of risk and reward?

Here are four low- to moderate-volatility portfolio types to compare.

• The Permanent Portfolio is an equal blend of 25% four ways: stocks, bonds, savings and gold.

• The Classic 60/40 Portfolio is a blend of 60% stocks and 40% bonds.

• Steady Stocks are Vliet’s term for stocks with low standard deviation (low volatility), high dividends and positive momentum.

• Steady 60/40 Portfolio takes the Classic 60/40 Portfolio and substitutes the 60% stocks with specifically low volatility stocks (per his definition).

In van Vliet’s century-plus back-test, the Permanent Portfolio had the smallest short-term losses, but over ten-year periods the Steady 60/40 approach delivered nearly as much downside protection with far higher long-term growth.

The lesson: blending low-volatility, income-producing equities with bonds can smooth the ride without giving up much return over 10 years or less.

While past performance is no guarantee of future returns, this extensive back-test can offer a picture of how different asset classes, and stock types, can work together as part of a whole strategy for attaining financial goals.

Ultimately, the right strategy comes down to the individual investor, their time horizon, goals, risk tolerance, and other unique factors.

Daniel Lancaster, CFA

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