It is difficult if not impossible to forecast the outlook for the markets or economy in the near term with any degree of accuracy. Happily we believe that what the markets or economy does in the short term should not affect how you invest. Your investment allocation should always have cash on hand for near term needs and also an emergency reserve while being based upon your individual needs, objectives and risk tolerance.
Having said that, we feel that the next 6 – 9 months will see continued volatility in both the equity and fixed income markets with interest rates and inflation rising slightly. We anticipate increased concern with regard to municipal bonds and the ability for some issues to pay interest and perhaps even principal. Over the next two to four years we expect interest rates, taxes and inflation to all go up significantly. At the same time we expect the equity markets to move up strongly. The key as always is to focus on real risks (inflation and taxes) and not media driven or created panics.
For the period 2011 – 2015 we expect to see a situation similar to what was experienced in the early 1980’s where people felt worse off but those with investments did exceptionally well. As higher taxes reduce income and higher inflation increases expenses many people felt their standard of living is reduced or under pressure. At the same time the equity markets did exceptionally well – the DOW Jones Industrial Average* went up over 400% from August of 1982 – 1987. Past performance does not guarantee future results but can give us some insight into what we may be able to expect.
We expect that government entitlement programs will be reduced and/or means tested. We continue to believe that the media will focus on the negative and short term and that people may lose focus of real risks such as inflation and taxes to their net worth. With people living longer and risking expenses it will be critical to monitor and update your portfolio and your overall financial plan on a regular basis and to focus on realistic return and withdrawal expectations. If and when inflation increases it will become more important to maintain a growth component to your well diversified portfolio.
We believe that there will be a unique opportunity for those with foresight and vision to accumulate a lot of wealth in the next few years; however, there will also be pitfalls for those who fail to plan properly, focus on the wrong things or simply spend too much. As we see increased complexity with regard to tax, estate and financial planning it remains important to work with an advisor who can coordinate all aspects of your plan. It is vitally important that clients not withhold information from their advisors just as they should not withhold information from their doctor about other medications they are taking. Without a clear and complete picture of your situation your advisor cannot give you’re the best recommendations for your needs and objectives. There is no cost or obligation for us to review all of your holdings and to discuss what your personal financial vision is.
We look forward to working with you to discuss your wealth management plan in the context of your overall needs, objectives and risk tolerance. We expect that the next few years will be challenging for many but that there are also some wonderful opportunities. We appreciate the opportunity to partner with you.