What would you say drives your investment decisions: hard facts or gut feelings? The line between the two can feel blurry when your methodology isn’t well defined. Even when you swear you’d never let world affairs distract you from your strategy, natural human biases can sabotage your best efforts.When it comes to portfolio analysis and investment decisions, we know we should emphasize facts and critical thinking. However, we tend to gravitate toward the data that supports our beliefs — this is called “confirmation bias.” Unfortunately, simply being aware of your biases isn’t enough to steer clear of their effects. You need controls in place that will help you sidestep subjectivity when emotion threatens to obscure logic. Seeking evidence in an echo chamberWhen faced with complex matters such as investment evaluation or political views, the data and evidence we gather is often imperfect. We accept or discard facts based on personal opinion rather than objective relevance, and our views often determine which data we seek.Take the recent US presidential election, for example. Though there were no major economic events directly preceding or following the election, Gallup observed strong shifts in public perception of the US economy during that time. The direction in which those perceptions skewed depended on the political leaning of poll respondents.Objectively, the condition of the US economy should not change in such a short timeframe, which suggests the influence of prior opinion. How the respondents felt about the election seemingly affected their response to the question.Humans are biased to prefer information that conforms to our existing worldviews and avoid data that does not. Consider how rarely we read or watch news from sources that tend toward an opposing political viewpoint. A 2012 Pew Research poll indicates that just 10% of Fox News viewers classified themselves as liberal, while 32% of MSNBC viewers classify themselves as conservative. Seeing what we expect to seeNot only do we struggle to gather adequate information, but we also tend to shape our interpretations of that data to fit our worldviews. When confronted with facts that directly contradict their convictions, humans tend to double down on their beliefs and ignore the evidence. Consider how often anyone actually “wins” that heated Thanksgiving dinner debate.Rather than making a conscious effort to be open-minded as to where data and investigation take us, our rationale is often distorted by our desired result. In her excellent review of motivated reasoning research, social psychologist Ziva Kunda concludes, “People are more likely to arrive at conclusions…they want to arrive at.”This human tendency is important to remember when reviewing the markets’ performance. Though equities largely performed well in Q1, the psychological lesson here is crucial: In order to objectively evaluate all the relevant data, you must first establish a complete methodological approach. A healthy start to the yearFollowing last year’s presidential election, US stock markets responded positively, rising more than 10%. About half that gain came in the first quarter of 2017, with US stock markets up 5% since January.(Chart illustrates the price history of the S&P 500 from November 8, 2016 through March 31, 2017; source: Google Finance.)Though market performance and economic conditions are not always in sync, the US economy is healthy and the underlying economic data continues to improve. Unemployment nudged down to 4.7% in February and inflation has slowly risen to meet the Federal Reserve’s 2% target.In mid-March, the Fed affirmed the general assessment that economic recovery is in full swing by bumping up its benchmark interest rate to 0.75%-1.00%. The stock market responded positively to the increase — the third of its kind since the Great Recession. Meanwhile, US fixed income — which is sensitive to changes in interest rates, inflation, and economic outlook — has been a stable store of value for bond investors through the first quarter.In last year’s closing letter to our clients, we suggested that Republicans might move quickly to lower taxes on corporations and investors. Though they stumbled with their initial efforts to replace the Affordable Care Act, tax reform remains high on their agenda — which could be a positive development for some US investors. On the other hand, President Trump has suggested trade deal renegotiations, the longer-term impacts of which are uncertain.Nonetheless, with a strong economy and the continued prospect of tax cuts, US stock investors should continue to see promising short-term conditions. Opportunities and challenges abroadInternationally, stock markets are also generally healthy, though Europe continues to face challenges and uncertainty, with looming elections in several major countries, lagging economic growth in several nations and negotiations regarding the United Kingdom’s exit from the European Union. International developed stock markets, including Europe and Japan, outperformed US equities, rising 7.5% in the first quarter of 2017.(Chart illustrates the year-to-date price performance of VEA, an ETF tracking developed market equities, as of March 31, 2017; source: Google Finance.)Last quarter, we noted that anti-trade and nationalistic sentiments in a number of developed countries might impede the economic growth of emerging markets. We also cautioned that though the US stock market outperformed other countries to close out 2016, it was a trend that probably wouldn’t continue. Disciplined investors who diversified their portfolios to lower expected risk and gain greater exposure to different markets were rewarded in the first quarter, when emerging market stocks averaged an 11% jump in value.(Chart illustrates the year-to-date price performance of VWO, an ETF tracking emerging market equities, as of March 31, 2017; source: Google Finance.) Committing to consistencyRemember, typical investors are inherently biased toward preferred outcomes in reasoning. We naturally want to find and accept information that aligns with our preconceptions. For example, you may hear that stock markets are doing very well across the globe and incorrectly conclude that shifting to a stock-heavy allocation is the best path forward.The evidence remains, however, that a cautious approach is more effective, and investors shouldn’t try to time the markets. Asset class performance is seldom consistent or predictable, and economic challenges and pitfalls are inevitable. Though the US economy is strong and tax reform appears high on the Republican agenda, we don’t know the effect that trade negotiations, international elections, and interest rate hikes may have on investor portfolios.Through careful consideration of relevant data, we can objectively evaluate portfolio performance and make informed decisions about how to invest for the future. This is especially important in today’s market environment, which is fraught with political influences and confusing economic data.SigFig works to avoid these biases by using diverse and consistent sources to reveal the adequate depth and breadth of the underlying characteristics of the market. Whether markets are up or down, our investment team stresses objective analysis and a consistent methodological approach. In the coming quarter, our investment team continues to recommend a strategic, internationally diversified portfolio that invests in a wide array of asset classes to provide a balanced tradeoff of risk and return.
Executive SummaryAs 2016 closes, we reflect on the year’s performance and macroeconomic trends and provide a perspective for the future. The portfolios SigFig recommends are diversified across thousands of companies in nearly 50 countries, with exposure to equities, corporate and government bonds, and real estate. We build these globally-diversified investment allocations from our analysis of performance and volatility across many countries and sectors.Five key points summarize this analysis:
- The aggregate data indicate a strong U.S. economy, coupled with an incoming, tax-reductionist Republican government, which should bode well for the U.S. stock market’s near-term prospects.
- Technological advances and globalization provide American consumers with tremendous value, while simultaneously creating forces that push industrial jobs overseas, with mixed long-term prospects for U.S. economic and stock market growth.
- Globally, challenges remain in nearly all developed economies, while anti-trade and nationalistic sentiments strain emerging markets’ growth.
- Major central banks will be slow to reverse significant quantitative easing measures, potentially leaving interest rates at or near historical lows.
- Long-run returns may be lower than in prior eras, leaving investors to update their long-term investment strategies.
Since Donald Trump’s election, globally diversified portfolios have underperformed the U.S. stock market, but year-to-date performance may surprise many investors who have only recently checked on their portfolio performance. Since January 1, 2016, emerging markets have outperformed U.S. stocks. Even so, over the last few weeks and over the last few years, the U.S. has been among the best performing markets, making it psychologically difficult to hold a well-diversified portfolio, especially when that lags behind our national index.
|Trailing Annualized 5-Year Returns|
|Period Ending||United States||International||Emerging Markets|
|Source: Ben Carlson, A Wealth of Common Sense|
The disciplined investor remembers that there have also been significant periods where the U.S. lagged behind dramatically, as the table above illustrates. When the U.S. market inevitably falters, international equities may rise, cushioning the impact. Long-term investors should remain committed to a globally diversified portfolio, which smooths out volatility and increases long-run returns, because chasing the latest “hot” market usually underperforms the strategic approach over the long term.We remain cautiously optimistic about diversified portfolio returns over the next twelve months, while cognizant that some asset classes may do very well, and others may lag behind or even fall in value. For more detail, please read our full analysis below.As advisors for well-diversified investors, we evaluate a lot of conflicting information in building a thorough view of the macroeconomic forces that shape the global economy. Some data are clear; the U.S. economy is quite healthy. Other data are fuzzier; developed nations struggle to bounce out of their economic doldrums while emerging markets are threatened by nationalistic agendas in the U.S. and Europe. Meanwhile, the positive and negative effects of globalization and technology on economies and workers are becoming more salient issues in many industrialized nations.Our analysis compiles data from around the globe to develop expectations about economic performance. It is worth cautioning that investment performance and economic growth are often not linked, in much the same way that a good company does not always make a great investment.We are nonetheless cautiously optimistic about the near term for a globally diversified portfolio, while recognizing that some asset classes will outperform others. In the longer term, however, we urge our clients to remain cautious about inflating performance expectations, and recommend that they adjust their long-term investment strategy to guard against more challenging long-term returns.***The U.S. economy is quite healthy. The S&P 500, the broad market, large-cap index is on a seven-year bull run, with no obvious end in sight. With Republicans in charge of the federal government, likely to lower taxes and enact business-friendly legislation, there are strong signs the U.S. stock market continues its run into 2017.By nearly every aggregate measure, the U.S. economy is enjoying healthy growth.
- The national unemployment rate is near its lowest point in a decade at 4.6%, less than half of its peak during the Great Recession.
- Job creation is on an 81-month streak, while stock markets are near all-time highs, and
- The latest GDP figures indicate healthy 3.2% annual growth while inflation remains low at 1.6%.
- The S&P 500 is up nearly 10% on the year.
In short, the overall data about the economy looks great as the Obama era comes to a close.(Chart illustrates the year-to-date price history of the S&P 500 as of December 7, 2016; source: Google Finance.)More positively for investors, Donald Trump and Republican legislators may move quickly to lower tax rates on dividends and capital gains. Moreover, Congress may again provide amnesty to corporations for repatriating offshore cash, repeating a Bush-era tax break. Since that 2004 “one-time” amnesty, $2.5 trillion has been stashed on offshore company balance sheets, allowing U.S. companies to escape income tax in the hope of future tax breaks. With the federal government now unified in Republican control, corporations again have an opportunity to bring home these profits with minimal taxes, and will likely distribute repatriated cash through dividends and buybacks. This combination of lower investment taxes and the repatriation of trillions in offshore cash keeps the near-term outlook for the U.S. stock market positive.***Over the long term, however, the picture is murkier. On both sides of the Atlantic, the UK’s Brexit vote and the U.S.’s presidential election demonstrated the power of nationalistic agendas, underscored by the unequal effects on workers from globalization and technology. Despite data that suggest a strong economy, unskilled American workers are pessimistic about their future, with good reason. The unemployment rate among workers without high school degrees is 7.9%, while the highly educated enjoy an exceptionally low 2.3% rate. Unfortunately, this inequality is not likely to correct itself anytime soon.Regardless of the political response to globalization, increasing automation will undoubtedly continue to impact lower-skilled labor. As a thought experiment, consider the future of the U.S.’s two million long-haul truck drivers, who may soon become obsolete. One day — and it may come sooner than we think — we will see driverless long-haul trucks. We will (probably) continue to employ last-mile drivers (the equivalent of tug-boat or pilot-ship captains) and gas station attendants (until a more significant overhaul of gas stations), but future trucking companies could rapidly swap out human drivers for lower cost, automated technology. The unemployment rate could soar to 10% as millions of truckers become jobless nearly overnight. This will have profound impacts on national economics, politics, and policy.Though the press cast the presidential election as a statement about the negative impact of technology and globalization on workers, its benefits are widespread, thoroughly enjoyed, and are often hiding in plain sight. You may be reading this on your Chinese-made iPhone while watching a Korean-manufactured LG television. Your coffee, tea, chocolate, and bananas likely hail from Latin America and Africa. You can almost feel an athlete’s sweat watching sporting events on huge high definition television sets in the living room. We seamlessly video chat with friends on the other side of the country; transatlantic trips take hours, not days. We have air conditioning and refrigeration. In many respects as consumers, we live richer lives today than did the richest man 100 years ago, in no small part due to the effects of technological innovation and globalization.In spite of looming technological impacts on the American workforce, the reality is that the U.S. economy is strong. As the Obama Administration wraps up, we note that most metrics of the U.S. economic situation are far improved from eight years ago. We anticipate a modest December increase in the Federal Reserve’s benchmark rate, just the second since the Great Recession, a signal of the central bank’s increasing confidence in the permanence of the recovery. Further efforts at normalizing the Fed’s quantitative easing and reversal of its balance sheet growth remain far off. Though mortgage rates started to climb this fall, we expect reasonably low rates for the near future.***Around the world, the situation is less overtly promising in the near and longer terms. Developed nations face political and economic challenges, especially in Europe. The EU faces protracted negotiations over Brexit, the Italian financial system struggles to stay afloat, and across the continent, far-right parties push nationalistic, isolationist agendas, threatening the established integrated and cooperative order. Japan’s Abenomics program successfully fought off deflationary concerns with massive fiscal spending, yet that economy suffers the same weak growth as many other developed countries. Overall, 2016 was fairly volatile for developed nations, just breaking ahead for the year.(Chart illustrates the year-to-date price performance of VEA, an ETF tracking developed market equities, as of December 7, 2016; source: Google Finance.)In general, developed economies’ continued sluggishness suggests that central banks are reluctant to begin any monetary tightening policies. Keeping interest rates very low, the thinking goes, will eventually boost capital investment and spark a sustained growth spurt.Among less developed nations, China’s rapid expansion continues, albeit at a modestly less torrid pace than in the prior decade. Barring a tumultuous regime change or conflict with the U.S., it is clear that China will continue to grow rapidly. Emerging market investors will be rewarded in a future that encourages their economic progress and deeper connectedness with developed nations. These relationships reduce conflict risk and encourage partnerships in solutions to global problems, like climate change and pollution.For other developing nations, the outlook also remains optimistic, tempered by recognition that emerging markets, reliant on commodities or trade for export, face significant headwinds in a global political environment with a dim view of international trade. Though investors who have only paid attention in the last few weeks might be surprised, emerging markets actually outperformed the U.S. stock market, up more that 12% on the year, even after a 2.5% drop since Trump’s election. More broadly, even as the President-elect has spoken critically of the cheap imports preferred by American consumers, global integration and increasing international trade are not trends easily reversed by a President alone. Emerging economies should continue to expand, even if that growth is not immediately reflected in their stock markets.(Chart illustrates the year-to-date price performance of VWO, an ETF tracking emerging market equities, as of December 7, 2016; source: Google Finance.)Since Donald Trump’s election, U.S. equities outperformed most asset classes, especially international developed and emerging markets. The last few weeks’ outperformance has been especially stark and makes many investors question the wisdom of investing outside the U.S. Even over the last few years, U.S. markets have outperformed other countries’ markets, so why do we remain committed to a diversified strategy? Because it’s the only one that makes sense for the long run.In a fascinating recent blog post, “Diversification Is No Fun,” Ben Carlson highlighted how diversification makes sense after realizing the unpredictability of asset class returns over an appropriately long investment horizon. Consider the June 2001 – May 2006 investment period, graphed below, when U.S. stocks languished with a 8.7% total return over five years. Developed markets were up 45%, while emerging markets rocketed skyward 130%!(Chart illustrates price returns for VTSMX, VGTSX, and VEIEX, mutual funds tracking indices of the U.S., developed markets, and emerging markets, respectively, from June 2001 through May 2006; source: Google Finance.)This is a pattern that has happened before, as Carlson notes in the chart replicated below. There are times, as now, when U.S. stocks beat the rest of the world, just as there are long periods when the international stocks are better investments. For the long-term investor, however, it makes sense to diversify across the board to capture the upside, while diversification also smooths out the swings of individual markets and asset classes.
|Trailing Annualized 5-Year Returns|
|Period Ending||United States||International||Emerging Markets|
|Source: Ben Carlson, A Wealth of Common Sense|
It is psychologically difficult to remain committed to an internationally diversified strategy when it underperforms the local major index. Nonetheless, it is important to stay on track and ignore the movements of a few weeks, months, even years. We encourage our investors to remain committed to a long-run allocation, smoothing out volatility and increasing long-run returns, because chasing the latest “hot” market often underperforms the strategic approach over the long run.***What composite picture does this paint? Continued economic growth in the U.S., coupled with favorable tax changes for investors and corporations. Over the long-term, however, the picture is fuzzier: there are dangers ahead which could upset the basic characteristics of our economy. Elsewhere, developed economies struggle to sustain growth with little reason for near-term optimism. Emerging market economies, whose stock markets fell after Trump’s election, should nonetheless continue to grow, in spite of nationalist preferences of some developed nations. Further, U.S. bonds and emerging market debt have underperformed in expectation of a Fed rate hike. Across both stocks and bonds, with questionable paths to long-term growth, long-run equity returns may be lower than seen over the last few years, while interest rates are likely to remain quite low for the foreseeable future. It may become a challenging environment to achieve once “normal” returns.SigFig’s Investment Team regularly reviews all these factors when considering future expectations about asset class returns and building our clients’ asset allocations. Adjustments to allocations may be small or negligible, even if we have reduced expectations about long-run returns. Our investment philosophy, based on the mathematics of Modern Portfolio Theory, outlines how to develop a diversified portfolio which balances the tradeoffs of risk and return for our clients. Lowered expectations about long-run returns have implications for our clients’ financial planning. Lower long-run returns mean weaker benefits from compounding; savings rates must increase significantly. Unfortunately, we cannot solve for lower long-run returns simply by identifying the high-return asset classes: that approach implies significantly more risk in search of higher returns. Moreover, the intuition of Modern Portfolio Theory is that the search for “hidden” excess returns is costly and nearly impossible. Instead, we must rely on more disciplined investing and savings.Our year-end financial planning advice:
- Save more today by trimming excess spending. Make a plan to pay yourself first: deposit savings immediately after payday as a mechanism to enforce low spending rather than saving only whatever is left after monthly spending.
- Think critically about the size of the nest egg you need in retirement.
- Remain a disciplined investor, with a broadly diversified investment strategy.
- Retake our risk tolerance questionnaire to confirm your risk tolerance.
Ultimately, because asset class returns are unpredictable and vary significantly from year to year, a diversified approach remains our recommended strategy. For the coming year, our guidance remains consistent: a strategic, globally diversified portfolio provides the best tradeoff of balancing risk and returns.
Over the last few years, our quarterly reports held a reassuringly simple theme: if you properly set your risk tolerance and remain invested in the markets through its ups and downs, you will be rewarded.This advice was undoubtedly challenging to follow over the last twelve months, especially while the U.S. stock market experienced an intraday drop of 7% last August and a 14% decline in February. Throughout the period, though, we have stressed that investors are wise to remain invested as the fundamentals of our present economic growth have not changed. Most recently, in the wake of the British decision to leave the European Union or “Brexit” vote, we wrote that “markets will adjust and recalibrate.” Though the vote to leave was unexpected, we did not see fundamental economic changes, though we anticipated increased volatiltiy and a short-term decline. In the months since, international and domestic markets have bounced back and then some; in fact, US markets are at all-time highs. As the accompanying chart of the S&P 500 shows, the U.S. markets have experienced significant ups and downs since 2014, but the patient investor who ignored most of the news and remained focused on the long-term is up a total of 18.6%, or approximately 6.7% per year.The U.S. economy has plenty of positive indicators: restaurants and shopping malls are filling up; unemployment is down to 4.9%, and inflation of 0.8% remains well below the Fed’s 2.0% target. Meanwhile, wages are increasing faster than inflation, meaning that workers have more real dollars to spend, save, and invest. Oil prices rebounded to $50 per barrel after sinking below $30 in the winter, with varying impacts on consumers and different industries; for example, energy companies are typically more profitable with higher oil prices, while airlines fare worse given their reliance on fuel. We expect the Federal Reserve will continue its patient approach to interest rate hikes, though that could nonetheless include an additional quarter point hike before the end of the year. Internationally, developed economies continue to search for solid economic footing. Though interest rates in several major developed countries are negative, Japanese and European stock markets have bounced back from the spike immediately following the British EU exit vote. There are also bright spots; emerging markets have bounced back on renewed strength of commodities and currencies, as this chart of the FTSE Emerging Market Index ETF, VWO, illustrates.(Chart illustrates the price history of the Vanguard FTSE Emerging Markets Index ETF, VWO; source: Google Finance) Our guidance remains constant: continue to stay steady over the near term. Confirm your portfolio’s risk is well matched to your investment horizon. (Retake our risk questionnaire to make sure your risk tolerance is set correctly!) Uncertainty will always be a part of investing; we watch some predictable events with interest, though we also remain alert for the unexpected. As election season progresses here in the United States and we move into the fall, we anticipate investors will price in expectations about the election’s outcome while the economy continues its steady growth. At SigFig, we remain committed to delivering a globally diversified, strategic portfolio that provides exposure to many asset classes.
Last night, the British voted “Leave” on their referendum to exit the European Union (EU). This result is poised to increase uncertainty and weakness within the union of 28 countries.SigFig’s Investment Team expects increased volatility in global markets, as investors assess the impact of the vote. Though there are likely to be few immediate economic consequences, many European economies, and especially the British, are likely to suffer from weaker connections to the Continent, with global impact.What should you do?Focus on the long-term and ignore the short-term market fluctuations. Markets will adjust to the Brexit result and recalibrate. Meanwhile, it’s important to recognize that a globally diversified, asset-class diversified, time-horizon appropriate portfolio will weather this storm. Your SigFig portfolio is designed to invest your capital wisely to endure the ups and downs of market volatility.With the uncertainty about global economic growth caused by the Brexit result, international markets are likely to decline. Meanwhile, U.S. Treasuries are likely to be a source of safety and could rise as investors seek to relocate their capital to more stable assets.SigFig portfolios deploy assets in all major markets, including the U.S., Europe, Asia, and points in between. Moreover, the portfolios contain U.S. Treasuries, investment-grade bonds, and other sovereign debts for asset-class diversification, while accommodating different risk levels and different investment horizons.If in doubt about whether your portfolio is matched to your time horizon, retake our risk tolerance questionnaire.
P.S. With the British pound falling in value relative to the U.S. dollar, now is a great time to visit England!
It’s hard to love a good bull market—if you’re out of the market, invested in cash or other assets, it’s frustrating to wait on the sidelines for better buying opportunities. You see the neighbors enjoying the gains, but you’re stuck in place. Meanwhile, if you’re fully invested, you’re always on edge that the bull market will give up the ghost. Should we stay in, should we get out?Prior to the current run, dating back to 1932, there were eleven bull markets, lasting an average of five years. But we’re nowhere close to the longest yet; the run from December 1987 to March 2000 lasted more than 12 years. Our view is that you should ignore all of this. If you think appropriately about your investment time horizon, you should invest your assets in a mix of stocks & bonds and ignore the intra- or inter-year fluctuations in the market.If you’re out of the market because you’re afraid or you have a shorter horizon, you should invest in a healthy mix of investment-grade bonds (fixed income), with a smaller but still meaningful allocation to globally diversified stocks. If you have a short horizon, make sure you’re taking sufficient and appropriate risks. Where do U.S. markets stand today?The US stock market remains on a tremendous seven-year run from the depths of early 2009. Equities wobbled for the first six weeks of 2016, down nearly 10%, but rebounded completely by the end of March.S&P 500 performance from January 4, 2016 to April 6, 2016Even with this volatility, it has continued to prove very hard to be a good stock picker. Fewer than 20% of large-cap active managers beat the S&P 500 in the first three months of the year. The experts do not reliably beat their benchmarks, and even acknowledging that they win sometimes, they on average do not do so by sufficiently large margins over the long-run to justify paying their high management fees.As a result, we recommend a more strategic approach: buy low-cost index funds, diversify your investments across many asset classes, and patiently take the long-view. This is the SigFig approach: we invest our clients’ assets in diversified portfolios that make sense for their financial goals and time horizon. International markets: slow growth, choppy marketsOn the international front, developed economies are still growing, albeit very slowly. Weakness in these economies has been met with European and Japanese versions of quantitative easing as central banks attempt to stave off recession. Though they have not yet completely rebounded from the early 2016 swoon, developed international markets cut their losses over the last several weeks.Meanwhile, emerging markets hit hard by declines in commodity prices have stabilized. The skid in oil prices has stopped, but low commodities prices have kept a lid on economic growth. Nonetheless, emerging markets stock performance bounced back after falling off more than 10% to start the year.(Chart illustrates the price return of VWO and VEA. VWO is the Vanguard Emerging Markets Equities Index ETF; VEA is the Vanguard Developed Markets Equities Index ETF; measured from January 4 to April 6, 2016.)The future is unpredictable, so it’s wise to have exposure to many different markets. The SigFig strategy is to diversify its clients’ assets across the globe, with exposure to both developed and emerging markets. Fixed Income: interest rates are going to rise, but possibly slower than you think.At the end of 2015, the Federal Reserve announced its first rate hike in seven years. Since then, the question remains how quickly the Fed will continue to raise rates to bring them in line with historical norms. (This chart illustrates the price return of AGG, the iShares Investment Grade Fixed Income Index ETF from January 4 to April 6, 2016.)Fed Chairwoman Janet Yellen indicated in her February congressional testimony that the Fed will increase rates slowly, but it appears reluctant to push too hard on interest rate hikes at the risk of stalling out the US economy. Related to these muted expectations about rate increases, investment grade fixed income prices continue to creep up, as market observers temper their expectations about future rate changes. Stay appropriately diversified; focus on the right time-horizonAs we have consistently stated, the SigFig approach is to stay committed to a diversified portfolio whose risk is appropriate to your investment horizon. Identify the right mix of asset classes to deliver the right amount of return to meet your investment goals while not too risky for your personal comfort. (Retake our risk questionnaire to make sure your risk tolerance is set correctly!) Then invest in low-cost index funds that give the exposure to a broad set of securities within an asset class. This is the research-backed way to build your investment portfolio.