On the real estate front, interest rates on 30-year mortgages have risen to around 8% from the historic low of 2.65% in January 2021. (Fun fact: The average 30-year fixed rate mortgage in October 1981 was 18.63%, the highest national average in U.S. history.) While still low on a historical scale, those rising rates affect affordability, and home values will likely see downward pressure if current trends continue.
Looking at fiscal policy, exponential national debt growth is causing increased GDP drag. Inflation continues to ramp up – especially in the service sector, where prices tend to be sticky and rarely drop once they’ve gone up. Defaults on car loans are at a historic high, and more Americans than ever are at risk for vehicle repossession as they face a budget crunch. Credit card balances, rates, and delinquencies are all rising as the cost-of-living soars and wages stagnate.
Market Outlook: Navigating the Upside Down
When the nostalgic TV series Stranger Things debuted in 2016, it introduced audiences to the Upside Down: an eerie parallel dimension lurking below our everyday world, home to a host of eldritch horrors.
While our current economic situation isn’t quite so supernatural, it’s no less vexing: Stocks are falling like a recession is coming, but oil prices are rising like there's no recession in sight. Interest rates are rising like we have 10% inflation, while gold is falling like inflation is gone. Housing prices are rising like interest rates are falling, but commercial real estate is falling like it’s 2008.
On top of all that, we’re entering another presidential election season. But at least on that front, the data is reassuring: Markets tend to perform comparatively when either party controls congress or the presidency. The same can be said of geopolitical events. While continuing conflicts in Ukraine and the Middle East are devastating on a human level, markets have historically been resilient during international unrest. In light of this continued uncertainty, even the most optimistic investors are feeling bearish.
Circumstances like these are when careful planning and disciplined contributions truly pay off. A key part of that planning, and finding the balance of risk vs. conservative positioning, is evaluating your own life stage and preferences for experiencing the market. With a diversity of investors and life stages in mind, we’ve built on our risk-adjusted model of investing to present an expanded menu of potential investment strategies for our clients.
CWM Investment Models: Choose Your Own Investment Adventure
The expanded CWM model menu ranges from the lowest risk, in the form of our original risk-adjusted model intended for the distribution stage of investing, to the higher risk and growth potential of a more traditional, fixed model intended to accumulate wealth.
While we’ve outlined the type of investors who may benefit most from each model, these are suggestions – not rules. It’s entirely up to you which models you choose. In fact, you may want to employ multiple models across your portfolio for different types of investments.
As we dive into the attributes of these investment models, let’s discuss some terminology. Macro and micro are two terms you’ll hear. Simply put, the macro represents the ratio of offensive assets vs. defensive assets (stocks vs. bonds) in a given model. The micro represents high-, medium- and low-volatility options within each of those macro categories.
Another term you may already be familiar with is bias - the ration of stocks vs. bonds, or the ratios of smaller micro-categories under those macros. Each model has a bias, and a tendency to stick to or deviate from that bias, as market factors fluctuate. That tendency is called the beta, and it ranges from the most variable beta of 1 to an entirely fixed bias, with a beta of 0.87.
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The CWM Investment Model Menu
Lowest risk/volatility: Risk-Adjusted models (RAM)
RAM is the original risk-adjusted model that CWM clients know and love. It is the most defensively positioned with the largest beta, up to 1. RAM is suited for, but not limited to:
• Retirees
• Investors close to retirement
• Those taking systematic withdrawals
• Short-term investments
Read more about Risk-Adjusted Models.
Highest risk/volatility: Wealth Accumulator Models (WAM)
WAM falls at the opposite end of the risk and volatility spectrum. WAM allocations are fixed at a beta of 0.87, and are closely monitored each day to determine if they need to be rebalanced in order to ensure that the asset weightings don't stray too far from that of the original strategy. In addition, the models are reviewed every 13 months to see if the weightings should be changed, if new positions should be added, or if old positions should be removed. These models are good for any investor with a higher appetite for risk or with time on their side, especially:
- • Younger investors
• Regular contributors
• Long-term investments
• Those putting away money for the next generation
Read more about Wealth Accumulator Models.
Medium risk/volatility: Tactical Allocation Models (TAM)
With a moderate amount of risk, tactical allocation models don't deviate from their macro biases. While the macro stays fixed, they rotate through micro sectors as opportunities arise. In an absence of better opportunities, TAM invests in a money market account up to certain levels. TAM models are well-suited for:
- • All age ranges
• Long-term investments
• Money intended for the next generation
Read more about Tactical Allocation Models.
Flexible risk/volatility: Global Allocation Model (GAM)
Also called the go-anywhere model, GAM has no bias or constraints on either the macro or micro level. Instead, it's designed to rotate through sectors and asset classes where it sees opportunities. Investments following this model can fall anywhere along the spectrum of aggressive to conservative. GAM is well-suited for:
- • Investors with a high tolerance for risk
• Younger investors
• Long-term investments
• Money intended for the next generation
Read more about the Global Allocation Model.
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If you are interested in a deeper dive into the current market data or a more tailored conversation regarding CWM's investment models, please Contact Us or call the office at (425) 778-6160 to schedule an appointment with your CWM advisor.
Know someone who could benefit from a clear financial plan with proactive investment management? Please keep in mind that we are always looking for more great clients, just like you!
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