I get asked all the time: Stocks, or bonds? Domestic US stocks, or International? Short duration bonds, or longer duration? Some people would simply suggest sticking their finger in the air to see which direction the wind is blowing. But if you know me, you know I’m really big on repeatable processes… and we have a process that enables us to address those questions. It’s called Growth Cycle Investing.

What is Growth Cycle Investing? First, let’s understand what the growth cycle is. There are eight phases that we look at, with four stages, as you can see in this graphic. Sometimes we’re above the long-term trend, sometimes below, and as we move through the early or late stages of each one, we can get an idea of where we are in the cycle.

So our process determines where we are in the growth cycle, and where we are in the growth cycle determines how we address those three key questions.

Let’s look at them.

Stocks or bonds? To address that question, let’s see where we are. We’re currently in phase two of the economic growth cycle, which means that short term levels of economic activity are above the long-term trend. This would tend to favor stocks over bonds.

The second question is, domestic stocks, or international? As it turns out, there’s no clear winner when we’re in phase 2. So when we’re building growth portfolios, we want to have a more balanced exposure to both domestic and international stocks.

The next question involves shorter term bonds versus longer term bonds. You might be thinking, “Hey, the Fed looks to be raising interest rates, so the better bet would be short-term.” But the data from the growth cycle tells us that while there’s a mild upward bias of interest rates in phase 2, it’s not so strong that we would want to be exclusively in short-duration bonds right now. So we have a carefully-allocated mix of both, and of course we’re always looking at the higher credit-quality issuers.

So what does all this mean? It means we don’t maintain a static allocation all the time. It also means we’re not following the herd, where everyone just does the same thing. We have our own process for making these decisions, and then we’re constantly monitoring the conditions to try to make the right moves. It means we’re actively managing your money, taking into account a bunch of different factors based on where we are in the Growth Cycle today, and using that information in a repeatable way for determining ultimately how to address those three key questions.