By John Lau, CPA, CFP®
Retirement Income Architecture™
Why Diversification and Coordination Matter More Than Ever
September 2026
It is hard to believe that we are already at the beginning of September. As we head into the final four months of the year, I thought this would be a good time not only to look at where the markets stand, but also to talk about something that has been on my mind lately: how much attention we give to investment performance compared with everything else that affects our financial lives.
The stock market has given investors quite a bit to feel good about this year. Corporate earnings have generally been strong, the economy has remained resilient, and markets have continued to advance despite plenty of reasons for investors to worry along the way. Those who stayed invested and resisted the temptation to react to every unsettling headline have generally been rewarded.
At the same time, I think we need to recognize that stocks, particularly large U.S. companies, are not inexpensive. That doesn’t mean I expect the market to suddenly fall, nor does it mean we should sell stocks simply because valuations are high. Markets can remain expensive for a long time, particularly when corporate earnings are growing. But valuation does tell us something about the return we should reasonably expect for the risk we are taking.
Are We Being Paid Enough to Take the Risk?
One measure I have been paying particular attention to is the equity risk premium. The term sounds more complicated than the idea behind it.
If an investor can earn a reasonably attractive return from U.S. Treasury securities, how much additional return should that investor expect for accepting the uncertainty and volatility of owning stocks? Historically, investors have expected a meaningful premium for taking that additional risk. Today, depending on how it is measured, that relationship is considerably less generous than it has been at many points in the past.
With the 10-year Treasury yield now around 4.7%—it reached approximately 4.76% at the end of August—investors have an alternative to equities that simply did not exist when interest rates were near zero.¹ That doesn’t make bonds better than stocks or stocks unattractive. It does mean that the decision about how much equity risk to take deserves more thought than it did when safe investments paid almost nothing.
I don’t view today’s valuation as a signal to get out of the stock market. I do view it as a reminder that we should be thoughtful about how much risk we are taking and whether we are being adequately compensated for it.
This Is Where Diversification Matters
For a long time, diversification has been a somewhat frustrating concept for investors. If a relatively small group of large U.S. technology and growth companies keeps outperforming everything else, it is natural to wonder why we should own investments that aren’t doing as well. Why own bonds? Why international stocks? Why value companies? Wouldn’t we have been better off simply owning whatever performed best?
Looking backward, the answer can seem obvious. Unfortunately, investing takes place looking forward.
The purpose of diversification has never been to make sure everything in your portfolio performs equally well. In fact, if everything is going up and down together, you probably aren’t very diversified. The purpose is to make sure your financial future doesn’t depend too heavily on one company, one sector, one asset class, or one particular economic outcome.
With stock valuations elevated and fixed-income investments once again providing meaningful yields, I believe that principle deserves renewed attention. We still want growth, and equities remain an important source of that growth. But this is probably not the time to abandon diversification simply because one part of the market has been extraordinarily successful.
The Federal Reserve Has a Difficult Job Ahead
Valuation, of course, is only one part of the picture. As we head into the fall, monetary policy is likely to remain an important influence on both stock and bond markets.
Inflation has come down considerably from the levels we experienced several years ago, but it has not gone away—and recently the progress has become less comfortable. The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures, or PCE, price index, rose 3.7% over the twelve months through July, while core PCE, which excludes food and energy, increased 3.3%.² Both remain above the Fed’s long-term 2% objective.
That puts policymakers in a difficult position. Keep monetary policy too tight for too long and the Fed risks unnecessarily weakening the economy. Ease too soon—or fail to respond if inflation becomes more persistent—and inflation could become entrenched again.
Recent comments from Federal Reserve Chairman Kevin Warsh suggest that the Fed remains very focused on the latter risk. In his August 28 remarks at the Jackson Hole Economic Policy Symposium, Chairman Warsh emphasized price stability, the need to keep inflation expectations anchored, and the importance of not allowing inflation to become embedded in the economy.³
For investors, I think the important takeaway is not to try to predict the Fed’s next move. Interest-rate expectations can change remarkably quickly as new inflation, employment and economic data arrive. We should instead recognize that the era of assuming interest rates will simply return to near zero is probably not a sound foundation upon which to build an investment strategy.
And Then There Is Geopolitics
The events at the end of August are another reminder that financial markets do not operate in isolation from the rest of the world. Renewed military hostilities between the United States and Iran pushed crude oil prices more than 2.5% higher on August 31 and contributed to higher U.S. Treasury yields, with the 10-year yield reaching approximately 4.76%.⁴
Beyond the human and political consequences of conflict, energy prices matter because they eventually work their way into transportation, manufacturing and household costs. If higher oil prices persist, they could make the Fed’s inflation challenge even more difficult.
There are, of course, other geopolitical risks around the world as well. We cannot predict how any of them will develop, nor would I recommend trying to reposition a long-term portfolio every time geopolitical tensions increase. Markets have lived through wars, political crises, recessions and countless unexpected events over the years.
To me, the lesson is much simpler. When valuations are elevated, interest-rate policy is uncertain and geopolitical risks are significant, diversification becomes more important, not less. We don’t know which risk will ultimately matter most, and that is precisely why we shouldn’t build portfolios that depend upon getting one particular forecast right.
A Change in the Inflation Numbers Worth Watching
There is another development coming in September that hasn’t received much attention outside economic circles but that I think is worth mentioning.
The Bureau of Economic Analysis, which produces the PCE inflation measure watched closely by the Federal Reserve, will begin its annual update of the national economic accounts on September 30. As part of that process, BEA will incorporate updated information and methodological improvements into some of the statistics we use to evaluate the economy.
Why should you care?
Probably not because the changes themselves will alter anyone’s financial plan. What interests me is how we interpret the numbers afterward.
Whenever an important government statistic is revised—or the methodology used to calculate it changes—there will inevitably be people who conclude that the government is “changing the numbers” to make the economy look better or worse. I don’t think we should jump to that conclusion, but neither should we simply ignore methodological changes.
The sensible approach is to understand what is changing, why it is changing, and whether the change materially affects our understanding of inflation and the economy. I plan to devote the September 25 edition of Your Money Matters to this subject, where we’ll take a closer look at how inflation is measured, what is changing, and why it matters.
There Is Another Kind of Concentration I Worry About
All of this brings me back to something that I believe is even more important than predicting the next move in interest rates or the stock market.
There is another form of concentration I see quite often, and it has nothing to do with how a portfolio is invested. It is the tendency to concentrate almost all of our financial attention on investment performance.
I understand why. Investment performance is visible. You can open a statement and immediately see whether your account went up or down. You can compare your portfolio with the S&P 500. Financial television reminds us throughout the day where the Dow, S&P and Nasdaq are trading.
But while everyone is looking at performance, no one may be looking beneath the surface to see how all the other pieces of a financial life are connected. That is where blind spots live, and that is where many financial problems begin.
What is much harder to see is the value—or cost—of all the financial decisions that don’t appear on an investment statement.
Someone can have an excellent investment year while simultaneously missing an opportunity to make a Roth conversion at an attractive tax rate. A retiree can earn an additional percentage point on a portfolio while taking distributions in a way that unnecessarily increases taxes and Medicare premiums. An estate plan can be beautifully drafted while the beneficiary designation on a large IRA says something entirely different. Families can spend enormous amounts of time debating which investment to buy while giving very little thought to how assets will eventually pass to a surviving spouse or the next generation.
These aren’t theoretical concerns. They are situations I encounter regularly in working with families, and they are why I keep returning to the subject of financial coordination.
Your Portfolio Is Important. It Just Isn’t the Whole Picture.
Investments matter enormously, but they are only one part of your financial life. Taxes, retirement distributions, Social Security, Medicare, estate planning, charitable giving and family considerations all interact with one another. A decision made in one area often creates consequences somewhere else.
That is the thinking behind Retirement Income Architecture. Rather than asking whether an investment, tax strategy or estate-planning technique is good by itself, I believe the better question is:
How does this decision fit with everything else we are trying to accomplish?
This becomes particularly important as we approach year-end. We still have four months remaining in 2026, which gives us time to review Roth conversions, Required Minimum Distributions, charitable distributions, capital gains and losses, tax withholding and estimated payments, beneficiary designations, and any family or estate changes that may have occurred during the year.
Not every client needs to do something in each of these areas. Sometimes the correct decision is to do nothing. What matters is that we have considered them rather than discovering next April—or several years from now—that an opportunity was missed.
Looking Toward the Rest of 2026
I remain constructive about the long-term outlook for investors, although I would not be surprised to see more volatility between now and year-end. Markets have already enjoyed meaningful gains, valuations leave less room for disappointment, Treasury yields provide real competition for investment dollars, and investors will continue to weigh inflation, Federal Reserve policy, corporate earnings and geopolitical developments.
None of us knows where the S&P 500 will be on December 31. Fortunately, successful financial planning doesn’t require us to know.
We can make sure portfolios are properly diversified. We can manage the amount of risk we take. We can look for tax opportunities. We can coordinate distributions. We can review estate and beneficiary decisions. And we can make sure that the different pieces of a family’s financial life are working together rather than independently.
Those are decisions we can control.
After many years of working with families, I have become increasingly convinced that some of the most important financial decisions people make will never show up on an investment performance report. A well-timed Roth conversion, a thoughtful distribution strategy, an updated beneficiary designation, or a family conversation about an estate plan may ultimately matter far more than whether a portfolio beat its benchmark in any particular year.
So as we begin September, by all means, let’s continue to pay attention to the markets. We certainly will. But let’s not allow the market to become the only scorecard we use to measure financial progress.
A portfolio should be managed. A financial life needs to be coordinated.
As always, if something has changed in your life or you would like us to revisit any part of your financial strategy before year-end, please give us a call. These are exactly the conversations we are here to have.
Our clients rely on us for timely information, and our job is to deliver.
Sources
- Reuters, August 31, 2026, Yields rise, stocks ease, with oil gaining as U.S. and Iran resume military attacks.
- U.S. Bureau of Economic Analysis, Personal Income and Outlays, July 2026, released August 26, 2026.
- Federal Reserve Board, Chairman Kevin Warsh, Keynote Remarks at the 2026 Jackson Hole Economic Policy Symposium, August 28, 2026.
- Reuters, August 31, 2026, market and energy reports on renewed U.S.-Iran hostilities, oil prices and Treasury yields.
Beyond the Market
By John Lau, CPA, CFP®
Retirement Income Architecture™
Why Diversification and Coordination Matter More Than Ever
September 2026
It is hard to believe that we are already at the beginning of September. As we head into the final four months of the year, I thought this would be a good time not only to look at where the markets stand, but also to talk about something that has been on my mind lately: how much attention we give to investment performance compared with everything else that affects our financial lives.
The stock market has given investors quite a bit to feel good about this year. Corporate earnings have generally been strong, the economy has remained resilient, and markets have continued to advance despite plenty of reasons for investors to worry along the way. Those who stayed invested and resisted the temptation to react to every unsettling headline have generally been rewarded.
At the same time, I think we need to recognize that stocks, particularly large U.S. companies, are not inexpensive. That doesn’t mean I expect the market to suddenly fall, nor does it mean we should sell stocks simply because valuations are high. Markets can remain expensive for a long time, particularly when corporate earnings are growing. But valuation does tell us something about the return we should reasonably expect for the risk we are taking.
Are We Being Paid Enough to Take the Risk?
One measure I have been paying particular attention to is the equity risk premium. The term sounds more complicated than the idea behind it.
If an investor can earn a reasonably attractive return from U.S. Treasury securities, how much additional return should that investor expect for accepting the uncertainty and volatility of owning stocks? Historically, investors have expected a meaningful premium for taking that additional risk. Today, depending on how it is measured, that relationship is considerably less generous than it has been at many points in the past.
With the 10-year Treasury yield now around 4.7%—it reached approximately 4.76% at the end of August—investors have an alternative to equities that simply did not exist when interest rates were near zero.¹ That doesn’t make bonds better than stocks or stocks unattractive. It does mean that the decision about how much equity risk to take deserves more thought than it did when safe investments paid almost nothing.
I don’t view today’s valuation as a signal to get out of the stock market. I do view it as a reminder that we should be thoughtful about how much risk we are taking and whether we are being adequately compensated for it.
This Is Where Diversification Matters
For a long time, diversification has been a somewhat frustrating concept for investors. If a relatively small group of large U.S. technology and growth companies keeps outperforming everything else, it is natural to wonder why we should own investments that aren’t doing as well. Why own bonds? Why international stocks? Why value companies? Wouldn’t we have been better off simply owning whatever performed best?
Looking backward, the answer can seem obvious. Unfortunately, investing takes place looking forward.
The purpose of diversification has never been to make sure everything in your portfolio performs equally well. In fact, if everything is going up and down together, you probably aren’t very diversified. The purpose is to make sure your financial future doesn’t depend too heavily on one company, one sector, one asset class, or one particular economic outcome.
With stock valuations elevated and fixed-income investments once again providing meaningful yields, I believe that principle deserves renewed attention. We still want growth, and equities remain an important source of that growth. But this is probably not the time to abandon diversification simply because one part of the market has been extraordinarily successful.
The Federal Reserve Has a Difficult Job Ahead
Valuation, of course, is only one part of the picture. As we head into the fall, monetary policy is likely to remain an important influence on both stock and bond markets.
Inflation has come down considerably from the levels we experienced several years ago, but it has not gone away—and recently the progress has become less comfortable. The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures, or PCE, price index, rose 3.7% over the twelve months through July, while core PCE, which excludes food and energy, increased 3.3%.² Both remain above the Fed’s long-term 2% objective.
That puts policymakers in a difficult position. Keep monetary policy too tight for too long and the Fed risks unnecessarily weakening the economy. Ease too soon—or fail to respond if inflation becomes more persistent—and inflation could become entrenched again.
Recent comments from Federal Reserve Chairman Kevin Warsh suggest that the Fed remains very focused on the latter risk. In his August 28 remarks at the Jackson Hole Economic Policy Symposium, Chairman Warsh emphasized price stability, the need to keep inflation expectations anchored, and the importance of not allowing inflation to become embedded in the economy.³
For investors, I think the important takeaway is not to try to predict the Fed’s next move. Interest-rate expectations can change remarkably quickly as new inflation, employment and economic data arrive. We should instead recognize that the era of assuming interest rates will simply return to near zero is probably not a sound foundation upon which to build an investment strategy.
And Then There Is Geopolitics
The events at the end of August are another reminder that financial markets do not operate in isolation from the rest of the world. Renewed military hostilities between the United States and Iran pushed crude oil prices more than 2.5% higher on August 31 and contributed to higher U.S. Treasury yields, with the 10-year yield reaching approximately 4.76%.⁴
Beyond the human and political consequences of conflict, energy prices matter because they eventually work their way into transportation, manufacturing and household costs. If higher oil prices persist, they could make the Fed’s inflation challenge even more difficult.
There are, of course, other geopolitical risks around the world as well. We cannot predict how any of them will develop, nor would I recommend trying to reposition a long-term portfolio every time geopolitical tensions increase. Markets have lived through wars, political crises, recessions and countless unexpected events over the years.
To me, the lesson is much simpler. When valuations are elevated, interest-rate policy is uncertain and geopolitical risks are significant, diversification becomes more important, not less. We don’t know which risk will ultimately matter most, and that is precisely why we shouldn’t build portfolios that depend upon getting one particular forecast right.
A Change in the Inflation Numbers Worth Watching
There is another development coming in September that hasn’t received much attention outside economic circles but that I think is worth mentioning.
The Bureau of Economic Analysis, which produces the PCE inflation measure watched closely by the Federal Reserve, will begin its annual update of the national economic accounts on September 30. As part of that process, BEA will incorporate updated information and methodological improvements into some of the statistics we use to evaluate the economy.
Why should you care?
Probably not because the changes themselves will alter anyone’s financial plan. What interests me is how we interpret the numbers afterward.
Whenever an important government statistic is revised—or the methodology used to calculate it changes—there will inevitably be people who conclude that the government is “changing the numbers” to make the economy look better or worse. I don’t think we should jump to that conclusion, but neither should we simply ignore methodological changes.
The sensible approach is to understand what is changing, why it is changing, and whether the change materially affects our understanding of inflation and the economy. I plan to devote the September 25 edition of Your Money Matters to this subject, where we’ll take a closer look at how inflation is measured, what is changing, and why it matters.
There Is Another Kind of Concentration I Worry About
All of this brings me back to something that I believe is even more important than predicting the next move in interest rates or the stock market.
There is another form of concentration I see quite often, and it has nothing to do with how a portfolio is invested. It is the tendency to concentrate almost all of our financial attention on investment performance.
I understand why. Investment performance is visible. You can open a statement and immediately see whether your account went up or down. You can compare your portfolio with the S&P 500. Financial television reminds us throughout the day where the Dow, S&P and Nasdaq are trading.
But while everyone is looking at performance, no one may be looking beneath the surface to see how all the other pieces of a financial life are connected. That is where blind spots live, and that is where many financial problems begin.
What is much harder to see is the value—or cost—of all the financial decisions that don’t appear on an investment statement.
Someone can have an excellent investment year while simultaneously missing an opportunity to make a Roth conversion at an attractive tax rate. A retiree can earn an additional percentage point on a portfolio while taking distributions in a way that unnecessarily increases taxes and Medicare premiums. An estate plan can be beautifully drafted while the beneficiary designation on a large IRA says something entirely different. Families can spend enormous amounts of time debating which investment to buy while giving very little thought to how assets will eventually pass to a surviving spouse or the next generation.
These aren’t theoretical concerns. They are situations I encounter regularly in working with families, and they are why I keep returning to the subject of financial coordination.
Your Portfolio Is Important. It Just Isn’t the Whole Picture.
Investments matter enormously, but they are only one part of your financial life. Taxes, retirement distributions, Social Security, Medicare, estate planning, charitable giving and family considerations all interact with one another. A decision made in one area often creates consequences somewhere else.
That is the thinking behind Retirement Income Architecture. Rather than asking whether an investment, tax strategy or estate-planning technique is good by itself, I believe the better question is:
How does this decision fit with everything else we are trying to accomplish?
This becomes particularly important as we approach year-end. We still have four months remaining in 2026, which gives us time to review Roth conversions, Required Minimum Distributions, charitable distributions, capital gains and losses, tax withholding and estimated payments, beneficiary designations, and any family or estate changes that may have occurred during the year.
Not every client needs to do something in each of these areas. Sometimes the correct decision is to do nothing. What matters is that we have considered them rather than discovering next April—or several years from now—that an opportunity was missed.
Looking Toward the Rest of 2026
I remain constructive about the long-term outlook for investors, although I would not be surprised to see more volatility between now and year-end. Markets have already enjoyed meaningful gains, valuations leave less room for disappointment, Treasury yields provide real competition for investment dollars, and investors will continue to weigh inflation, Federal Reserve policy, corporate earnings and geopolitical developments.
None of us knows where the S&P 500 will be on December 31. Fortunately, successful financial planning doesn’t require us to know.
We can make sure portfolios are properly diversified. We can manage the amount of risk we take. We can look for tax opportunities. We can coordinate distributions. We can review estate and beneficiary decisions. And we can make sure that the different pieces of a family’s financial life are working together rather than independently.
Those are decisions we can control.
After many years of working with families, I have become increasingly convinced that some of the most important financial decisions people make will never show up on an investment performance report. A well-timed Roth conversion, a thoughtful distribution strategy, an updated beneficiary designation, or a family conversation about an estate plan may ultimately matter far more than whether a portfolio beat its benchmark in any particular year.
So as we begin September, by all means, let’s continue to pay attention to the markets. We certainly will. But let’s not allow the market to become the only scorecard we use to measure financial progress.
A portfolio should be managed. A financial life needs to be coordinated.
As always, if something has changed in your life or you would like us to revisit any part of your financial strategy before year-end, please give us a call. These are exactly the conversations we are here to have.
Our clients rely on us for timely information, and our job is to deliver.
Sources
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