Dear Spartan Client,

 

The more we value things outside our control, the less control we have.

—Epictetus

 

The typical investor’s timeframe is inversely related to volatility. As markets decline and volatility rises, even a long-term investor’s focus has a strong tendency to shorten, and sometimes dramatically. In September, the S&P 500 experienced a peak-to-trough decline of 6.1%, its largest since 2020.

After a run of near-record-low volatility in the equity market, September’s decline caused some investors to worry if they had “bit off too much risk” and if their assumptions were safe to continue assuming.  If an investor is relying on a ‘buy and hold’ strategy, it is understandable how these kinds of events can rattle their resolve.  Our hope with an adaptable strategy like ours, is to take the evidence of what is happening and turn it into action. In this Monthly Note, we discuss the value of selecting appropriate timeframes for making allocation decisions and illustrate this point by highlighting how our investment process reacted to the September drawdown and October’s rebound in stocks. 

Below are the asset classes utilized in our portfolios and their model-driven exposure heading into November. 

Square indicates no change month-over-month. Arrows indicate increase/decrease month-over-month. Adjustments can vary across Spartan Strategies depending on each Strategy’s objectives. What’s illustrated above most closely reflects allocation adjustments for the Spartan Growth Strategy. 

Disclaimer: this note is for general update purposes related to the general strategy and approach of Spartan Planning portfolios. Every client’s situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your exposure to any given asset class will depend on your goals, risk profile, and how tactical or passive your risk profile calls for. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth, please contact your advisor.

At a Glance: Allocation Adjustments Heading Into November, 2021

U.S. Equities: Unchanged due to continued positive trends.

International Equities: Exposure remains steady. Intermediate-term downtrends are dancing around the point of flipping to uptrends, but both foreign developed and emerging market asset classes continue to be significantly weaker than their U.S. counterparts.

Real Estate: No change.

U.S. and International Treasuries: Exposure will decrease to its minimum allocation, as long-duration bonds in the U.S. enter downtrends over the intermediate time frame. All other duration segments have continued downtrends across all timeframes.

Inflation-Protected Bonds: Exposure will increase to overweight, as the intermediate-term uptrend re-forms and the long-term trend remains up.

Short-Term Fixed Income: Exposure will decrease by returning some of the previous allocation to inflation-protected bonds.

Alternatives: Unchanged due to continued downtrends in gold.

Three potential macro catalysts for the recent trend changes:

 

  • Pain at the Pump: The price of crude continues to hold near multi-year highs as investors closely watch inventory and supply data. Saudi Aramco warned that companies need to invest more in production as spare capacity across the world rapidly shrinks. CEO Amin Nasser said a pick-up in aviation next year could accelerate the issue. Blackstone Co-Founder Stephen Schwarzman has a more pessimistic take, saying the shortage of energy could become so severe that it leads to social unrest, particularly in emerging markets.
  • Not Transitory: “Uncomfortably high inflation will grip the U.S. economy well into 2022, as constrained supply chains keep upward pressure on prices and curb output”, according to economists surveyed this month by The Wall Street Journal. Economists’ inflation projections are up dramatically from July, while short-term growth outlooks are lower. Many economists see inflation at 5.25% in December, on average, just slightly less than the rate that has prevailed since June. Assuming a similar level in October and November, that would mark the longest inflation has been above 5% since early 1991.
  • When the Check Comes Part Deux: Treasury Secretary Janet Yellen told Congress that the Treasury would be unable to pay all the government’s bills if lawmakers don’t raise or suspend the federal borrowing limit by Oct. 18. The letter from Yellen makes clear that lawmakers have a narrow window in which to approve a debt limit increase or suspension before the Treasury could begin to miss payments on its obligations, triggering a default that could shake markets. Treasury Secretary Janet Yellen said the debt-limit deal enacted by Congress will allow the government to keep paying its bills through Dec. 3. In a letter to Capitol Hill leaders, Yellen said the deal, “provides only a temporary reprieve,” and urged lawmakers to take further action to ensure the government can continue to borrow money. It could be likely we see another extension rather than a resolution of the issue.

Seeking the Optimal

A typical investor often gauges performance and strategy on before-tax (dollars in the investments) returns over 1-, 3-, 5-, and 10-year windows. This view neglects the fact that most investors need to care about after-tax performance over horizons lasting 30, 40, 50, or more years. It is so important to reconcile how you measure success with what you are trying to achieve.  We have never shied away from looking different from indexes in a short timeframe since our goal is to offer you security and confidence – ultimately helping maximize your opportunities over the long haul.

We continue to be honored to help steward your finances.

 

David Childs, Ira Ross, and Eric Warren

Spartan Planning

Disclaimer: this note is for general update purposes related to the strategy and approach of Spartan Planning portfolios. Every client’s situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your particular exposure to any given asset class will depend on your goals, risk profile, and how tactical or passive your risk profile calls for. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth please contact your advisor. This email and the data herein is not a solicitation to invest in any investment product nor is it intended to provide investment advice. It is intended for information purposes only and should be used by investment professionals and investors who are knowledgeable of the risks involved. No representation is made that any investment will or is likely to achieve results comparable to those shown or will make any profit at all or will be able to avoid incurring substantial losses. While every effort has been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Historical data are presented for informational purposes only. Investment programs described herein contain significant risks. A secondary market may not exist or develop for some investments portrayed. Past performance is not indicative of future performance. Investment decisions should be made based on the investors specific financial needs and objectives, goals, time horizon, tax liability, risk tolerance and other relevant factors. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Investors should consider the underlying funds’ investment objectives, risks, charges and expenses carefully before investing. The Advisor’s ADV, which contains this and other important information, should be read carefully before investing. ETFs trade like stocks and may trade for less than their net asset value. Spartan Planning Group, LLC (“Spartan” or the “Advisor”) is registered as an investment adviser with the United States Securities and Exchange Commission (SEC). Registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the Adviser has attained a particular level of skill or ability. Indexes are unmanaged and do not incur management fees, costs, and expenses. Spartan’s risk-management process includes an effort to monitor and manage risk, but should not be confused with and does not imply low risk or the ability to control risk. There are risks associated with any investment approach, and Spartan strategies have their own set of risks to be aware of. First, there are the risks associated with the long-term strategic holdings for each of the strategies. The more aggressive the Spartan strategy selected, the more likely the strategy will contain larger weights in riskier asset classes, such as equities. Second, there are distinct risks associated with Spartan Strategies’ shorter-term tactical allocations, which can result in more concentration towards a certain asset class or classes. This introduces the risk that Spartan could be on the wrong side of a tactical overweight, thus resulting in a drag on overall performance or loss of principal. International investments may involve additional risks, which could include differences in financial accounting standards, currency fluctuations, political instability, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks. Diversification strategies do not ensure a profit and do not protect against losses in declining markets