Wednesday this week (October 8, 2014) and Thursday this week  marked the biggest one day rally and worst one day drop for the Dow Jones Industrial average of 2014. That’s the first time those extremes have been hit on back to back days in nearly 17 years (source Yahoo.com).

We anticipate increased volatility in the markets and that this will be reflected on many client’s statements over the next six to nine months.  Volatility, however, is different from risk and does not mean a change should necessarily be made.  If your portfolio is properly diversified based upon both your needs and risk tolerance then changes could be more harmful than good.  Volatility means that things go up and down, risk means losing something.  Over the longer term the biggest risks that most people will face in our opinion are inflation, taxes and medical expense.  This can result in losing buying power and are real risks.   We can insure against medical expenses with health and long term care insurance and can work to minimize income tax with tax efficient investments.  The key to keeping up with inflation is having investments that have the potential to grow.

We anticipate that inflation could be significant in the next three to five years and therefore it is critical that portfolios have the potential to keep up.   While it is important to have cash for short term needs and some fixed income investments, it is also important to have investments with growth potential such as equities and hard assets. The mix that you own should be based on your personal needs, objectives, tax situation and risk tolerance- not what the markets are doing or some model predicts.  This is why we utilize a customized asset allocation for each client.

While we do foresee continued and perhaps increased short term volatility we are very optimistic about the outlook for the next five to ten years.  Corporate profits and profit margins are record levels, energy prices are at historical lows, foreign investment is flooding into the United States, the economy continues to grow and there is record amounts of cash on the sidelines.  The key is to ignore the short term noise and focus on the longer term fundamentals.   We feel there are a number of opportunities for investments today in both the tax-exempt and growth areas.

Please contact your advisor with any questions, concerns or whenever we may otherwise be of service.

 

 

The opinions expressed are those of Randy Carver and not Raymond James or RJFS.  Opinions are as of 10/8/14 and subject to change.