John De Goey: Investing ahead of unknown risks

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John De Goey, Portfolio Manager and Investment Advisor at Designed Wealth Management joins us to discuss and explore the current investment landscape and the choices available to investors. He highlights the importance of managing risk and staying on the short end of the yield curve, for time being where fixed income is concerned. We also delve into the topics of optimism and pessimism, with a focus on the potential challenges and uncertainties in the market. We talk about the shifts in real estate markets, particularly the shift happening that's favouring the US Sun Belt, and the potential impact of climate change on investments. De Goey urges investors to be prepared and take proactive measures to balance risk in their portfolios. He also cautions against unrealistic expectations for future returns. Is your portfolio equipped to handle unknown variables and tail risks?

Our chat wraps up with a nudge to uphold a diverse and balanced portfolio, mindful of the effects of surging interest rates. Remember, Balanced Asset Allocation and Balanced Funds are not the same - risk management is key. Unlike a traditional 60/40 'balanced fund', a balanced asset allocation approach ensures apt risk distribution.

We explore the perils of unchecked optimism in the finance sector and how to construct a resilient, well-equipped portfolio. We ponder the withdrawal effects of quantitative easing and the necessity to confront market realities. We also investigate the financial industry's positivity bias and the knock-on effects of negativity.

De Goey's "dumbest thing he's heard" takes a jab at data manipulation to bolster a narrative. We delve into the need to anticipate potential pitfalls and the importance of diversification as a safety net. Our dialogue concludes with a conversation about managing expectations, loss aversion, and the task of keeping clients invested for the long haul. Certainly, plenty to contemplate.

Takeaways

  • Stay on the short end of the yield curve for now, and manage risk in the current market.
  • Be cautious of excessive optimism and be prepared for potential challenges and uncertainties.
  • Consider investments in real estate, traditional inflation hedges, and diversified portfolios.
  • Recognize the changing investment landscape and adjust expectations for future returns. Blind optimism in the financial industry can be dangerous, as it can lead to a lack of preparedness for potential risks.
  • Quantitative easing has created withdrawal symptoms in the market, and it is important to face the reality of the current situation.
  • The financial services industry has a commercial imperative to be optimistic, but it is crucial to consider both the positive and negative aspects of investing.
  • Cherry-picking data to support a narrative is not a reliable approach, and it is important to consider the full picture.
  • Proper diversification is like insurance for a portfolio, and it is essential to mitigate potential harm.
  • Expectations management, loss aversion, and maintaining perspective are key in keeping clients invested for the long term.

Timestamped Highlights:

00:00 Introduction
01:01 Investment Choices in the Current Market
03:31 Optimism and Pessimism
06:07 Shifts in Real Estate Markets
06:56 The Sun Belt and Financial Centers
08:20 Concerns and Pessimism
10:32 Preparing for Uncertain Times
16:06 Lowering Expectations for the Future
21:12 Balancing Climate Obligations and Economic Growth
26:04 Preparing for a Lower Standard of Living
31:05 The Danger of Optimism Bias
35:47 The Importance of Being Prepared
41:49 Diversification and Balance in Portfolios
46:16 The Impact of Rising Rates
48:40 The Danger of Blind Optimism
49:14 The Withdrawal Symptoms of Quantitative Easing
50:20 The Commercial Imperative of Optimism in the Financial Services Industry
51:18 The Cascading Effect of Pessimism in the Market
52:16 The Dumbest Thing Heard: Cherry-Picking Data to Support a Narrative
55:43 Listening for Quips and Side Comments in Financial Media
58:32 The Afterglow of Reaction to Bad Economic News
01:00:36 The Importance of Considering What Could Go Wrong
01:02:31 Optimism with Insurance: Proper Diversification
01:05:55 Expectations Management and Loss Aversion
01:07:29 The Challenge of Minimizing Losses and Maintaining Perspective
01:09:29 The Difficulty of Keeping Clients Invested for the Long Term
01:11:36 The Struggle of Getting Clients to Embrace Diversification
01:14:33 Differentiating Between Great Companies and Great Stocks
01:15:16 The Historical Perspective of Overvalued Markets
01:17:41 The Redistribution of Wealth During Flat Markets
01:20:55 The Need for Realism and Mitigating Potential Harm

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