Drawing of Valkyries. Illustration: Johannes Gehrts. Source: Wikimedia
Birgit Nilsson was a great dramatic soprano. One day an interviewer asked what was the key to successfully performing in demanding roles like Brunhilde and Isolde. Her answer was immediate and a little surprising: comfortable shoes. Some of the operas required Nilsson to stand in place – on her feet, singing – for hours at a time. If her feet started to hurt, it would be hard to stay focused.
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 bitcoin meltdown and rising inflation and other dramatic news. Falling stock prices evoke memories of the financial crisis or the dot-com meltdown or the Euro crisis. It’s easy to panic: we don’t want to go through those times again.
That’s why it’s crucial to have a portfolio you’re comfortable with. If it’s something you don’t worry 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. These 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 stocks, small cap, global securities, corporate and government bonds, etc. Higher average returns also experience larger drawdowns.
The key to performing a challenging vocal role is to stay relaxed and to wear comfortable clothes. The key to persevering in challenging markets is to have a diversified portfolio. Because if you can get through the tough times, the long-term performance should make you want to applaud.
Douglas R. Tengdin, CFA