If you follow the financial media, you will regularly hear comments such as, “I’m cautiously optimistic on stocks here”. What this particular prognosticator is doing is trying to hedge his bet so that he will be able to claim success on the prediction later on, no matter what the outcome. If stocks do well, he’ll proclaim, “I told you to be bullish!” On the other hand, if stocks do poorly, he’ll say, “My caution has been warranted”. It’s all just public relations spin and everyone plays along, but it doesn’t help investors make good decisions if no one accepts accountability for their recommendations.

Modus Advisors doesn’t play these games. Our goal is to serve our clients as well as we can, not to generate hype in the media. But we do believe in caution. And we believe in optimism. The difference between Modus Advisors and most financial commentators is that we accept both of these things as permanent conditions for any investment strategy.

Why be cautious? During the past few months, we’ve seen social unrest close to home with the hot button topic of union rights in Wisconsin and other states. We’ve seen violent uprisings in various Middle East countries that toppled governments and sent oil prices sharply higher. We’ve seen a massive earthquake and devastating tsunami hit Japan. We exercise caution because there is always risk, much of it unforeseen and even in cases where something is predictable, the timing is usually highly uncertain.

Why be optimistic? Quite frankly, for all of the problems we face today, the U.S. and the rest of the world has been through worse, but the global economy continued to grow over time and investors have generally fared well as long as they were committed to a long-term strategy. Substantial dislocations such as two World Wars, a huge number of smaller wars and conflicts, the Great Depression, dozens of recessions, inflationary bouts, financial crises, etc…none of these have stopped the trend towards increasing prosperity in the world.

So how does an investor remain optimistic and maintain caution at the same time? As we’ve outlined in special reports such as The Tremble Factor and Like It or Not?, intelligent diversification is the key. Investors should balance their exposure to risky growth oriented assets with those that have more defensive characteristics and others which may perform well in periods of economic weakness. This relieves an investor from having to guess which way the market winds will blow next or how the latest news will impact his portfolio. This mix of offense (optimism) and defense (caution) keeps you from constantly second-guessing your most recent decision and keeps you focused on long-term outcomes.

If you haven’t found a way to strike this balance, call Modus Advisors at 952-946-1000 today to discuss your long-term investment objectives.


*There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.  Diversification does not ensure against market risk.