Gilroy Today 2013 03 Spring - Page 13

FINANCIALLY

Speaking

The View Beyond the Cliff

by
Jeffrey M . Orth , ChFC , CASL Investment Advisor Representative of HTK
Jeffrey M . Orth is a Chartered Financial Consultant , a Certified Advisor in Senior Living , and an Investment Advisor Representative , with over 10 years experience as a business and personal planning , insurance , and wealth management specialist . Jeff is available for group lectures and private consultations . Visit his website at www . ifitfinancial . com or call 408.842.2716 .
A3JC-0131-03E2

Why 2013 could be a good year if you have a healthy attitude and a good plan

The U . S . elections are over and we know who will occupy the White House for the next four years . Unfortunately , we have less clarity on many of the other major questions worrying investors . Since Washington recently “ kicked the can down the road ” regarding the “ fiscal cliff ,” incompletely addressing tax issues and doing nothing to provide leadership in the areas of spending cuts and the deficit ceiling , this leaves investors with little certainty as to what will happen in the future .
Companies love good news and can handle bad news , but what companies don ’ t like is uncertainty . As a result , corporations are sitting on trillions in cash and are , for the most part , unwilling to use their “ war chests ” to make equipment purchases and hire new employees . And past government policies of providing incentives to coax them to spend these funds aren ’ t working this time . However , once some of the uncertainties are eliminated , this also means they have the resources quickly available for expansion and growth when the fog is lifted .
Uncertainty of this nature can paralyze investors , but I don ’ t think this is a good reason to convert ones holdings to cash or to make abrupt and radical changes to one ’ s portfolio . Having previously and successfully guided my clients through recessions there are often tactical adjustments that can be made to help investors get through market downturns , and profit from the upturns that follow . Making adjustments to a soundly and strategically diversified portfolio to take advantage of some timely opportunities is a better approach .
Over the past 10 years , we ’ ve been through two large economic bubbles — one in the stock market in technology , media and telecommunications , and the other in the global credit system melt down . The bond market has been overheating for years , and a lot of people who got hurt by the burst of the technology and mortgage bubbles have put a lot of their investable assets in bonds . This will turn out to be a big mistake if they are still holding them when the bond bubble bursts . No one can predict with any great certainty which event will trigger the next major market downturn , but many are watching the European Union and China . For the time being , it seems the European Union has done a much better job than expected in handling the financial problems brought on by Portugal , Italy , Ireland , Greece and Spain ’ s austerity policies . And while it is anticipated that China will most likely drop into a recession , the government looks to have the adequate resources to get through it . And so we wait …. Where do we go from here ?
Know yourself — It ’ s dangerous to make long-term decisions on short-term emotions . It ’ s important to remember that when emotions are running high , you need to stop and recall your long term goals . As I see it , my job as a wealth manger and financial advisor is as much about preventing impulsive decisions as it is of picking an optimal portfolio for my clients . Put some of your wealth in a portfolio with built-in safety mechanisms and then try- ideally- to forget about it .
Build a portfolio designed to weather the storms — Diversification across asset classes is critical to surviving periods of uncertainty . Different asset classes respond differently to uncertainty , depending on the nature of the crisis . Some classes are wholly unaffected by volatility , and can still produce a positive return . Although correlations between investments tend to rise in severe market downturns , diversification can still reduce the impact of a down market and provide liquidity when it is needed the most .
Take advantage of timely opportunities but don ’ t try to time the market — Adversity becomes opportunity when you are able to forecast future market challenges . This time is no different . As we anticipate a significant market correction when the bond bubble pops , there are some investment strategies and tools we can put in place in advance to help reduce , or perhaps even eliminate , the negative impact to your portfolio while still providing opportunities for portfolio growth .
Jumping in and out of the market based on the news of the day is an alluring strategy . Unfortunately , few people can execute it successfully over time . Rather than trying to determine the severity of a possible recession in China and the impact it will have on the markets , I recommend building a high quality and well diversified portfolio based on your risk tolerance . You should plan on staying the course in good times and bad , while looking for tactical opportunities as they present themselves . This strategy is not nearly as exciting but , at the end of the day , the results tend to look a lot better .
For educational purposes only and should not be considered as specific investment or planning advice . Depending on individual circumstances , the strategies discussed in this presentation may not be appropriate for your situation . Investing involves risk , including loss of value — not a guarantee of future performance or success . There is no assurance that a diversified portfolio will produce better returns than an undiversified portfolio , nor does diversification assure against market loss . Please consult a qualified advisor regarding your individual circumstances .
S P R I N G 2 0 1 3 G I L R O Y T O D A Y 13