Investing With a Plan, Not Gambling on the Future

Think about how difficult it is to predict even the next year.

Will inflation rise or fall? Will interest rates move higher or lower? Will economic growth accelerate or slip into recession? What will the stock market do?

Now imagine trying to answer those questions for the next 20 or 30 years.

A retirement could span three decades or more. During that time, an investor is likely to experience recessions, inflation, market bubbles, wars, political upheaval, technological breakthroughs and probably a few events none of us have thought of yet.

We don't know what will happen or in what order. Fortunately, we don't need to.

That's the idea behind our All-Season approach.

Rather than building a portfolio around a forecast, we start by recognizing that the economy continually moves through different combinations of economic growth and inflation. Investments that thrive in one environment may struggle in another. Your portfolio shouldn't depend upon one particular environment continuing indefinitely.

When growth is strong and inflation is relatively low, stocks have historically had a favorable backdrop. When the economy contracts and interest rates fall, high-quality bonds can become much more valuable. When inflation and interest rates are higher, floating-rate investments can play an important role.

That's why we don't want to make one big bet on what comes next.

We would rather prepare than predict.

Our goal is to combine investments that can respond differently to different economic conditions, while keeping the overall portfolio aligned with the financial plan.

A portfolio built for only one future is a bet. We prefer to prepare for several.

Bonds are sometimes treated as an afterthought.

An investor determines how much to put in stocks, and whatever is left goes into a broad bond fund. The portfolio may be diversified by the number of bonds it owns, but many of those bonds can still respond similarly to changing economic conditions.

We think about fixed income differently.

Imagine opening a toolbox and discovering that every tool inside is a hammer. You technically own a lot of tools—but they aren't going to help much when the job requires a screwdriver or a wrench.

We don't want a bond portfolio full of hammers. Every part of the bond portfolio should have a job.

That philosophy leads us to build the bond portfolio somewhat like a barbell, with different investments at each end doing very different jobs.

On one side are high-quality, liquid bonds—primarily U.S. Treasuries and, where appropriate, high-quality municipal bonds.

Their first job isn't to be exciting. It's to provide quality, liquidity and defense. When stocks are falling because the economy is weakening and interest rates are declining, high-quality bonds can help offset some of that stock-market risk. They also provide a source of liquidity when we may least want to sell stocks.

At the other end of the barbell is private credit.

Here, we're willing to give up some liquidity in exchange for the potential for significantly higher income. Much of the private credit we use is floating rate, so its income can increase when interest rates rise—making it particularly useful during periods of higher inflation and interest rates.

Between those two ends, we can also use floating-rate U.S. Treasuries to provide another combination of high quality, liquidity and sensitivity to prevailing interest rates.

That brings us back to All-Season investing. We don't know whether the next surprise will be recession, inflation or something entirely different. So rather than asking one type of bond to solve every problem, we give different investments different jobs.

Some of the clearest examples of what we don't want to do occurred during the dot-com bubble of the late 1990s.

Investors poured money into technology and internet-related companies, often paying prices that assumed years of exceptional future growth.

Cisco was one of the companies building the infrastructure that made the internet possible. It remained a highly profitable and successful business long after the bubble ended. But by 2000, investors had pushed its stock price to roughly $82 per share. The stock subsequently fell more than 70%, and despite decades of continued business growth, it did not surpass that 2000 share-price peak again until 2025.

Other companies had an even more fundamental problem: they didn’t’ make any money. Pets.com went public at $11 per share in February 2000 and traded as high as $14. By November, its shares were worth just 22 cents and the company was shutting down. Webvan, an online grocery delivery company, reached roughly $34 per share before falling to pennies and entering bankruptcy in 2001.

When the bubble burst, investors received a painful reminder:

A great story doesn't necessarily make a great investment.

Our equity philosophy is the opposite.

We're not looking for the most exciting companies or simply buying more of whatever has recently gone up the most. We want to own businesses with characteristics we believe give investors better odds of long-term success.

That starts with two deceptively simple ideas:

Is it a good business? And are we paying a sensible price for it?

That sounds a little like Warren Buffett—and intentionally so. Thinking like a business owner rather than a stock trader makes intuitive sense to us.

A highly profitable company can generate capital to reinvest in its business, withstand difficult periods and potentially reward shareholders. But quality alone isn't enough.

Price matters, too.

A wonderful company can still be a poor investment if investors pay far too much for it. The Cisco example illustrates this. Conversely, something being inexpensive doesn't automatically make it a good investment. Sometimes a company is cheap for a very good reason.

We want both sides of the equation: strong businesses and attractive prices.

Decades of financial research have provided additional support for those basic principles. Our process therefore places particular emphasis on profitability and valuation rather than simply owning every company in proportion to its size.

The way we implement those ideas can vary.

For some clients, ETFs provide broad diversification while allowing us to emphasize the characteristics we favor. For others, private equity can expand the opportunity set beyond public markets. And for clients using WYZE Direct, we apply our research more selectively in a concentrated portfolio of individual companies.

The implementation changes. The philosophy doesn't.

It's easy for investment management to become the center of the conversation. What's the market doing? What will the Federal Reserve do next? Is a recession coming?

Those may be interesting questions. But the most important questions are personal: What are you trying to accomplish? When do you want to retire? What do you want retirement to look like? How much risk does your plan actually require you to take?

That's why our investment process starts with the financial plan and continually returns to it. The plan helps determine the appropriate asset allocation, and the portfolio is monitored and rebalanced as markets—and your life—change.

The plan provides the direction. The investments help power the plan. And our job is to keep the two working together—whatever comes next.