Buttonwood Investment Policy Committee Update – December 2020

As we  approach the  final  days of 2020  and look back, i t  has  been a  year of many  tumultuous  twists and turns.  Our  Investment Policy Committee has coordinated many proactive  moves  over the preceding months focused on our objective of  producing  a more consistent rate of return  over full economic cycles .  Now w ith the advantage of hindsight,  we can see the  many challenges  and  opportunities  of the year. Most importantly,  together we made it through!   

I n  November 2019 , w ith our focus on the  later stages of the  economic cycle, we  commented, “… the stock markets may be getting ahead of themselves. ” And as such we, “… reduced risk by trimming exposure to riskier, lower rated and longer maturity bonds ” .  We also  dramatically  shifted  stock focus  for the first time in several years  to ward , “… companies with cleaner balance sheets, stronger earnings and higher dividends .”  

As we  moved into  2020  , we  continued to hold cash. We  commented, “…with  more volatility and greater potential for market extremes, our focus for 2020 will be to “participate but defend.”  We focused on consumer spending as it is about 70% of our economy: “ Without a strong consumer, there are plenty of items to fret about. ”  

On February 12, the Dow Jones Industrial Average ( DJIA ) , not yet focused on Covid,  closed over 29,500.  By  mid-March ,  investment markets  were firmly in  a downtrend  and  we agreed with the logic for the decline ;  “… the consumer is losing the ability to control whether or not to spend (and keep the economy going.) Entire countries are now closed for businesses .”  However, looking forward,  “… the investment markets are fairly efficient at positioning for the future. The forecast for negative growth (recession) often means negative returns .”  The   DJIA  continued its decline to an intraday low of just over 18,000 on March 22 nd , a decline of more than 37%.  If  you’re  up for it,  the web now has  a   week-by-week   overview   of  the “Coronavirus Crash of 2020 . ”   

After  promptly  adjusting  lower  for a rece ssion, the   markets around the world received stimulus from the Federal Reserve, Central  Banks  and  Legislative bodies in the form of lower interest rates and massive Government spending.  “ During the week of March 23, we fully invested available cash for  retirement  accounts with a longer-term focus. ”  And,  “ i n April and May , for taxable accounts, we  were very  active with tax loss harvesting . ”  

As the focus turned to the elections we again stepped back and kept an eye on the economic cycle rather than the day-to-day drumbeat of the politicians and the media. In  Septembe r , courtesy of Hartford Funds,  we posted a graphic ,  of the S&P 500 and Presidential Terms we thought provide d  a  better perspective  and  longer-term  view.   

As the year  has continued to  progress, the markets have  remained  optimistically  focus ed  on a post Covid world. There are still many  uncertainties   we face, yet among them is the realization that we, as human beings, are a  resilient  species and full of ingenuity!  The world came together to focus on vaccine development at an incredible pace, and the adoption of technology as the means of communication and commerce have shifted the dynamic of our world going forward.  As this was happening, t he  DJIA  has  rebounded to over 30,000 ,  a new  all time  high ,  as lower interest rates and government spending helped to make up for the lack of consumer  ability  during lockdown.   

Many of us  are exhausted  from the roller coaster of 2020;  and rightly so ! From  the vantagepoint of a multigenerational Family CFO, we  have seen  firsthand the core values and beliefs of those we work with haven’t changed  much . However, from a financial  standpoint,  many  families  ‘ financial  goals and objectives ’  are changing .  As we meet in the new year, w e look forward to talking with you about  any  changes  you may be wanting to make .   

In  the short-term ,  it is again likely the markets are ahead of the economy  and as such  we believe  there will be additional  volatility. However ,  when extending the view to the mid-range,  we believe we are through the worst for the markets  and the next economic cycle is underway. In the months to come expect us to  slowly increase risk and index exposure for investment allocations to target future returns. We will also  continue to focus on the logic of the economic and business  cycle s;  ignor ing  the short-term noise.    

If you have specific questions about our  strategy , p lease let us know and we  will  make sure to  review  details  a t our next meeting.  And while we  don’t  recommend fixating on short term market fluctuations, if you would like to  check  specific performance  of your investments  across all your accounts , our  Buttonwood Portal  is available 24/7 . O r you can contact  us  and we can provide reports specific to your questions and  financial  life.     

Thank you for your  continued  trust and allowing us to serve as your Family CFO.