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This is how to build a portfolio strong enough to handle any uncertainty about the economy and the election

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With the U.S. presidential election looming and the COVID-19 pandemic taking new turns, investors are struggling to navigate through one of the most nerve wracking, uncertain market environments in modern history.

Even the most experienced investors have found themselves in search of answers and clear-cut direction. Despite these headwinds investors should address these challenges straight on by proactively building a resilient portfolio intended to withstand periods of uncertainty, paying particular attention to these three strategies:

1. Establish, review and confirm your long-term financial objectives:   Designing a portfolio according to specific goals is especially important during turbulent times because market returns will be choppy, and allowing near-term performance results (absolute, benchmark-relative, or peer-relative) to inform allocation decisions can lead to suboptimal results with your money.

Take an investor whose primary investment objective is generating income. This investor’s strategic and tactical asset allocation will primarily be driven by a collection of yield-producing assets (both stocks and bonds). If equity markets were to (temporarily) generate outsized near-term returns, this income-oriented portfolio would likely underperform, which under traditional portfolio construction mandates, may cause the investor (an allocator) to reconsider the client’s underlying asset mix.

Yet if the portfolio is evaluated within the guidelines of the personal mandate defined at the onset of the allocation process (generate income), then results can and should be judged relative to the success or failure to achieve the agreed upon outcome. For example, did my portfolio underperform the S&P 500
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? Did my portfolio generate the income I need? Constructing and evaluating portfolios relative to specific goals and outcomes strengthens the portfolio’s resiliency and reduces the likelihood of an investor chasing recent returns.

2. Be aware of fees and after-tax returns: If we agree that markets experience choppiness during periods of uncertainty, then the probability of accompanying returns failing to live up to historic returns is quite high. This likelihood presents challenges for savers and spenders alike, and supports the notion that every penny of return counts — especially at times like now.

Being aware of the costs associated with portfolio management doesn’t mean investing in the cheapest products. Rather, it is encouraging asset allocators, financial professionals and individual investors to be aware of all of the associated fees tied to an investment plan, decide whether the fees are reasonable given the expected outcomes associated with that investment, and take action if there is a disconnect between costs and expectations.

Additionally, it is critical to understand the after-tax implications for certain investment products, for assets held outside of qualified accounts. Taxes are an often-overlooked barrier to realizing long-term financial objectives, so it is of uptmost importance (especially if future market returns fail to match or exceed historical market returns) to make sure the aggregate tax liability of an investor’s portfolio is minimized, within certain constraints.

Consider employing a fee budget — where higher fees are paid to active managers who have demonstrated skill and differentiation within their specific asset class or sector. Consider lower cost options when that skill is difficult to find. Additionally, strategic/smart beta ETFs offer excellent compliments to actively managed strategies, while attempting to control aggregate costs and potential tax impacts.

3. Ensure that all decisions (both strategic and tactical) are informed by clear logic and well-grounded philosophical beliefs: This is especially timely given the upcoming U.S. presidential election. Hartford Funds conducted a survey recently that asked investors several questions tied to politics and investing. The results were illuminating:

• 45% of respondents plan to make portfolio changes ahead of the election.

• 47% of respondents believe a Donald Trump victory would be better for their portfolios, while 37% believed their investments would benefit from a Joe Biden win.

• 78% of respondents believe that a unified government (president, House and Senate all of the same party) is best for their personal finances.

• 62% of respondents plan to make portfolio changes in the 12 months following the November election.

These results indicate that there is a good amount of misinformation out there, which if acted upon could lead to sub-optimal portfolio decisions. Consider what our research shows:

• From 1993 to 2019 the average real return (inflation-adjusted) for the S&P 500  during Democratic presidents was 10.2% and 6.9% under Republicans. Strip away outliers such as the dot-com bust and the Great Financial Crisis, and the return differential is essentially zero.

• Since 1937, the S&P 500 has averaged a 12-month return of 14.6% when an election results in a divided government vs. 13% when the election yields a unified government.

I use this as an example of many people planning to make portfolio changes based on misconceptions tied to the assumed correlation between governing party and stock market returns. The construction of a resilient portfolio should not rely on bias or unfounded notions of potential return influencers.

Investors instead should use this opportunity to review their investment goals and market trends and to conduct their own research. If applicable, work with a trusted financial professional to help make educated, strategic investment decisions. Periods of uncertainty are optimal times to better understand your investments and strengthen your portfolio. Now is not the time to recoil; it’s a time to recalibrate and move forward.         

Brian Kraus is head of investment consulting at Hartford Funds.

More: Be prepared: A return to normal is still a long way away, warns banking billionaire Jamie Dimon

Also read: Politics has no place in your 401(k) but that’s just what the U.S. government is trying to do



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Video: SEC's Hester Peirce on why the U.S. is behind the curve on crypto

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S.E.C. Commissioner Hester Peirce on the outlook for crypto regulation, and whether this will finally be the year we see a Bitcoin ETF.





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My husband doesn’t get along with my son. I brought most of the wealth into our marriage. How do I split my estate?

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Dear Quentin,

How do couples typically handle their estates in a second marriage? My husband and I have been married for seven years, and it is the second marriage for both of us. I have one adult child from my previous marriage; he has no children.

I brought the majority of our wealth to our marriage, including almost $1 million in my 401(k) and a nice home that is almost paid off; otherwise, we have no debt. My husband and I bought a second home together. We work hard to fund our new 401(k)s, and own a successful business together.

I am turning 65 this year, so estate planning is long overdue. My husband is five years younger than me, and we are both in very good health. We have two issues facing us: I see our retirement as living very comfortably on the monthly income generated by our 401(k)s, pension, Social Security, etc., and leaving whatever may be left to my son.


‘The other issue is that my husband no longer gets along with my dear son at all, and feels no obligation to get along with him.’

I am not interested in scrimping, but I want to be able to have enough money to last us until age 90 (or beyond) by not touching the principal. My husband is more interested in dipping deep into our savings, and living it up in retirement while we are young enough to enjoy it.

The other issue is that my husband no longer gets along with my dear son at all, and feels no obligation to get along with him, to the point that neither one wants anything to do with the other. As far as he is concerned, my son doesn’t meet his expectations, and so deserves nothing from me and certainly nothing from him.

I want my estate planning to be fair to both my new husband and my son. How do people typically handle this type of quandary? I think that I need to create some type of trust to pass on my share of our estate to my son. My pre-marriage assets involved my son as I pursued my graduate degree through night school and worked long hours throughout his childhood.

Second Wife

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Second Wife,

Don’t allow your husband’s feelings toward your son to influence your estate planning.

Your relationships with your husband and your son and your own plans for retirement are all fair game when making decisions about your estate, but your husband and son’s fractured relationship is their business, not yours. You worked hard for this money, and your son is your legal heir. Any effort by your husband to spend all of your savings and fritter away any inheritance that you intended to leave to your son should be resisted at all costs.

You have worked too hard your entire life to compromise your plans for a comfortable retirement where you have money set aside for long-term medical care insurance, unforeseen emergencies and/or your son. If you jointly own your home, you can leave your half to your son in your will, and specify it can only be sold after your husband passes away.

If you own the home, you can give your husband a life estate. Your son would pay capital-gains tax on the value of your home when he sells it, and not when you bought it. You could also make your son the beneficiary on your life-insurance policy, and/or gift him a certain amount of money per year to see how he manages and spends that money.

Figure out what is fair to yourself first before moving on to what is fair to your husband and your son. It’s OK to put your needs first. I caution against your dipping into savings at a rate that is beyond your own risk tolerance.

Ultimately, you are entitled to leave all other separate property to your son when you die — and, along with a financial adviser, set up a trust with that in mind for you, your husband and your son. Not necessarily in that order.

The Moneyist: ‘I cut his hair because he won’t pay for a haircut’: My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

Hello there, MarketWatchers. Check out the Moneyist private Facebook
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 group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.



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These money and investing tips can help you make a place for crypto in your portfolio

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Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, can give you a better understanding of bitcoin and other cyrptocurrency, and help you figure out if digital currency has a place in your portfolio alongside stocks, bonds and other traditional assets.

Sign up here  to get MarketWatch’s best mutual funds and ETF stories emailed to you weekly!



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