Comfortable Shoes

What do you need to survive these markets?

Photo: Louis Melancon. Source: Metropolitan Opera

When Birgit Nilsson, a famous Wagnerian opera singer, was asked what was the secret to singing “Isolde”—a notoriously difficult soprano role—her answer was unequivocal: “comfortable shoes.” She had a point. The first act lasts well over an hour, and the lead has to be on her feet—singing—for most of that time. Wagner was tremendously demanding of his soloists.

When investors face demanding times like the ones we are in, they need to be sure they are comfortable. Media will fill the airwaves with stories of the Chinese slowdown and commodity price slide and bad bank loans and the potential for a breakup of the Euro zone. Falling stock prices evoke memories of 2008 or 2001. It’s easy to panic: we don’t want to go through that again.

That’s why it’s important to have a portfolio you’re comfortable with. If it’s something you don’t think about—if you contribute to a 401(k) and don’t even bother to open your statements—then you can afford to own volatile assets that jump around: like small cap or emerging market stocks. Those tend to have the best growth. If you’re worried the next downturn will give you heart failure, then maybe you mostly need short term government bonds. If you want both—growth and stability—then a mixture is best: large cap, small cap, global securities, corporates, etc.

Asset Mixture Returns. Source: Myjourneytomillions.com

The key to performing a challenging vocal role is to stay relaxed and to wear good quality clothes. The key to persevering in challenging markets is to have a quality portfolio. Because—if you can get through them—the returns, if not the applause, will make you smile.

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