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Seeing the ‘lay of the land’ can help us invest more effectively.
Investment landscapes can change, sometimes very quickly. I believe
the investment landscape we’ve experienced for decades has been
changing and that the speed of those changes is increasing. If you
agree, you may need to make significant changes in how you invest.
I believe that preserving and growing wealth over the next 5-10
years will require a radical change in the way we think about
investing. Traditionally, you could invest in the large, well
established American companies and see your wealth outpace
inflation. When it came time to tap your investments for income, you
would sell most of your stocks and buy the high-quality long-term
bonds of those same blue chip companies. The strategy was
straight-forward and relatively simple to execute.
That’s not the case any longer. Those who continue to take this
approach are going to find that they aren’t able to maintain their
standard of living when they retire—if they can ever afford to
retire. Those using US bonds for income are going to find it hard to
afford gasoline, milk, meat and other the other essentials because
of increasing prices.
Why am I being so negative? It’s not because I am against America.
I’m not. It’s my job, though, to survey the land and prepare my
clients for what is ahead. Just because there is a likelihood of
thunderstorms doesn’t mean it isn’t going to be sunny tomorrow.
We in America have gotten ourselves in a pickle. We’ve been spending
more than we make for years and years as individuals and for decades
as a country. Rising home values have made that possible. But
surprise, home prices won’t keep going up forever. That is going to
affect how much we can spend.
Interest rates have only gone up marginally in the last couple of
years and now we have the sub-prime mortgage fiasco. What would
happen if interest rates went up 3% or 5%?
The Federal Reserve is walking a knife’s edge. They’ve lowered
interest rates to keep the mortgage mess from pushing our economy
into a recession. Lowering interest rates has caused the value of
our currency to drop even further. That means everything we buy from
overseas (including oil) has or is going up in price. That’s
inflation.
Normally, the Federal Reserve will raise rates to prevent inflation.
Doing so now will only cause more mortgage defaults, slow our
economy and push us toward recession. So they have a choice…a
recession based on a slowing economy or a recession resulting from
inflation. Neither is good for investors.
The U.S. used to be the place to invest. It provided safety and good
long-term returns. My concern is that it’s no longer going to be the
case. This is a global economy and we can’t look at the returns of
our markets in isolation. Sure, our markets may be up 15%, but what
good does that do us if the purchasing power of the dollar has
fallen 20% (like it has against the Canadian dollar in just the last
6 months)?
Over the next 5-10 years, preserving and growing wealth will require
a change in thinking. We are going to have to invest in markets and
companies outside the U.S. Europeans have been used to dealing with
multiple currencies for decades. We will increasingly find ourselves
needing to do the same thing.
We need to identify the economies of the world that are strong,
stable and growing as well as those that are weak and struggling.
Investments, including cash, should be shifted away from the weak
and struggling into the strong and stable.
I expect that the cash in my clients’ accounts may at some point be
kept in a more stable currency such as the EURO. Investing in local
exchanges around the world, such as Hong Kong, London, Australia,
Germany or Canada is going to be as common as investing in the New
York Stock Exchange is today.
Not many advisors nor firms are ready for this change. And time is
running out. That’s why I am rushing to develop software that will
allow me to offer my clients this capability. That’s why, even now,
I have implemented strategies that take advantage of strong world
economies. Perhaps you should, too.
Nationally-syndicated financial columnist and Certified Financial
Planner® Jeffrey Voudrie provides personal, in-depth money
management services and advice to select private clients throughout
the USA. He’ll answer your financial question – FREE at
www.guardingyourwealth.com. |
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