Allan Roth: Amid Israel-Hamas War, U.S. Investors Should Stay the Course

When it comes to portfolio investments, the Israel-Hamas war is "business as usual. In terms of life, absolutely not. But I don't want my emotions to impact investing," Allan Roth, founder of Wealth Logic, tells ThinkAdvisor in an interview.

The fee-only advisor is making no changes to clients' asset allocations because the horrifying attacks by Hamas are already priced into the market.

"If you're going to change your asset allocation, you've got to know something the rest of the market doesn't know," Roth says.

Instead, he argues that advisors and their clients should "stay the course." A longtime John Bogle aficionado, Roth was gearing up to attend the Bogleheads Conference near Washington, D.C., the day after this interview.

His clients are ultra-high-net-worth individuals sophisticated in their investing. But if they don't stick to their investment policy statements, he lays a guilt trip on them for "breaking their contract with their own money."

Before opening his own RIA in 2003, the 25-year veteran of the financial arena held high-level positions at large corporations, including Kaiser Permanente and Exxon.

ThinkAdvisor interviewed Roth on Oct. 11. He was speaking from his office in Colorado Springs, Colorado.

Within the context of the war discussion, he talks about what he calls "true diversification."

"That's not picking anything to overweight or underweight," he stresses.

Here are highlights of our interview:

THINKADVISOR: What are your initial thoughts about the Israel-Hamas war in relation to your clients' investment portfolios?

ALLAN ROTH: It's so shocking. What a failure in intelligence. I'm just heartbroken and angry. But I don't want to let my emotions impact investing.

What should financial advisors be telling their clients?

Stay the course. The only reason to make a change to outsmart the market is that they know something the rest of the market doesn't already know.

Otherwise, you're following the herd, and that usually doesn't end well.

If I make a decision now, because of what's going on in Israel or the war in Ukraine, to get out of all international stocks, I've sold stocks that have underperformed. That's performance chasing.

Are you changing any investments at all because of the Israel-Hamas war?

I'm changing absolutely nothing in my portfolio and my clients' portfolios because I don't know anything that the market doesn't already know that's not likely priced into the market.

The Tel Aviv Stock Exchange [index] hasn't budged much.

Have your clients been asking you about their portfolios in view of what's happening in Israel?

Absolutely not. My average client knows more about investing than, I'd say, at least 90% of investment advisors.

[Further], we don't invest in any particular country other than the U.S. but in a [Total International Stock Index Fund], which obviously is going to have some Israeli shares; it used to have Russian shares but doesn't any longer.

Do you think many investors have been panicking and selling based on emotion?

I'm sure they have. But when the market didn't go down, they probably stopped panicking.

The Monday after the [Saturday Hamas attack on Israel], it started down and then ended positive.

The headlines that morning said: "Stocks down due to Israeli war." Later that day when stocks were up, the headline was: "Stocks rebound."

We can't explain why investments do what they did in the past — and certainly not in the future.

Do you think people have been rushing to buy defense and energy stocks and commodities?

For everyone that buys energy, someone has to sell.

I don't pick individual sectors.

If I knew that energy was going to outperform tech or something else, I'd be a billionaire. I'm always going to own the top-performing stocks because I own Total Stock Index funds — U.S. and International.

You put lots of emphasis on diversification. Right?

Yes, but what I call true diversification. That's not picking anything to overweight or underweight.

It's taking all the knowledge of the market and owning all of the publicly held companies in proportion to their market capitalization — a boring Total Stock Index fund, not smart beta.

So what you've essentially told me is that even with the Israel-Hamas war, it's just business as usual?

Yes, in terms of investing, business as usual. In terms of life, absolutely not.

Don't get me wrong. I'm not cavalierly saying what's going on in Israel is [nothing much]. It's just horrible. I'm angry. But I'm not changing anything in my or my clients' portfolios.

It's a scary world right now. We don't have a functioning [U.S.] government, and the government may shut down. You've got [the war in] Ukraine. You've got Israel, the Middle East. Inflation is an unknown.

It's a really scary world.

Investing in real estate in Jerusalem and Tel Aviv have been considered good investments. Right?

I think that's been a very strong market. Two of my clients have places there. Their real estate is probably going to go down, but I don't think that's one of their Top 10 concerns right now.

It's like, "Are we going to survive?"

What if this war went on for a relatively long time. Would that change your thinking about not changing your investments?

I can't imagine that it would go on for a long time. Hamas is evil: Beheading children and babies is pure evil.

Are your clients sticking to their investment policy statement when it comes to asset allocation?

Absolutely. Say somebody is 60% equities and 40% fixed income and cash and has a tolerance typically around six percentage points. They can rebalance as often as they want.

But if they're six percentage points away from that — if they're at about 66% — they're in breach of contract with their own money. And my clients know how I enforce [investment policies]: It's based on guilt. Which is more powerful than any New York law firm.

I say, "You didn't stick to your policy. You're in breach of contract. How dare you!"

To sum up, what should advisors be telling their clients now about investing and the Israel war?

It's a horrible thing, but it's priced into the market. Oil went down today; markets are hard to predict. They're hard to explain in the past and they're even harder to predict going forward.

I can't explain why oil hasn't surged.

Obviously, with your "stay the course" advice, you're a fan of John Bogle's approach to investing. Correct?

Yes. I got to know Jack Bogle pretty darn well. We met once or twice a year until he passed away.

And we know what he would say today given the war in Israel. Don't we?

"Stay the course! Stay the course! Do you know anything the market doesn't already know?"

And, "Don't pick a needle in the haystack. Buy the whole haystack!"