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In the popular imagination, a bull market brings a mixture of optimism, excitement, and exuberance. Yet a sense of unease can often override the glee. Those sitting on paper gains wonder whether it’s time to realize profit, and those holding excess cash alternate between feelings of FOMO (fear of missing out) and FOLO (fear of losing out).

These emotions are very much at play today. The S&P 500 is up by around 40% since its October 2022 lows, while the tech-related “Magnificent 7” stocks are up by close to 140% on average over the same period.

Dealing with this requires keeping a strong focus on strategy as well as tactics. In that context, in this letter I discuss why, despite these big gains, we think investors still need to have a core allocation to US large-cap stocks. Yet, with the future for many portfolios being increasingly dependent on developments at only a handful of highly valued companies, I also discuss why US large-caps should represent just one of four building blocks investors should hold in their portfolios.

Technological change, overconcentration, shifting rate expectations, and geopolitical uncertainty are some of the factors that make now a critical time for investors to review their allocations to these four building blocks—and address shortfalls or excesses where they exist. We believe that the right balance of US large-caps, international and small-cap stocks, quality bonds, and alternative assets can allow investors to position for long-term returns while navigating near-term risks.

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