|
Dear Clients, Friends and Associates; We have received a couple of calls from clients and others who have been reading books and newsletters about the “upcoming economic collapse”. Because of the European situation and our own bickering lawmakers, these authors have captured more interest lately. We first started noticing these type publications in the 1970’s and it seems they are always out there, but they proliferate after a recession like we had in 2008 – 2009. We certainly agree that if the leaders of the Eurozone completely fail in their efforts to control their debt crisis and the EU itself completely falls apart, we would be in for a severe global recession and possible depression. We, and the economists we follow, consider this a remote possibility due to the high motivation of the countries involved to avoid such a scenario. That said, we still must be aware of the possibility and plan our investment strategy accordingly. One of our trusted economists is Ed Easterland of Crestmont Research. In his recent book, “Probable Outcomes”, he said the key to successful investing is in three parts:
- Early recognition of the financial landscape
- A well managed investment approach
- A realistic expectation of lifestyle spending
Early recognition of the financial landscape:
2011 is a great year to have behind us. As you know the S&P 500 ended flat, but the overseas markets ended down 12% to 15%, depending on the global market sector. Since the beginning of 2000 we have been in the throes of a long-term (secular) bear market. Though corporate earnings are still very strong, and stock valuations remain favorable, we do not expect to see the end of the bear market for a while yet. Though bear markets are generally not much fun, they are punctuated with multiple short-term (cyclical) bull markets. These cycles provide opportunities for good money managers to generate reasonable returns to help keep us on track to meeting our objectives. For example: Our current bear market started in 2000, but the market returns for 2003, 2004, 2005, 2006, 2007, 2009 and 2010 were quite satisfactory. In other words, we still had 7 years of happy results. So – what does all this mean for us right now? That is where the second principle noted above comes into play. A well managed investment approach:
The models and strategists most of you are in right now have been designed to make the best of our current financial landscape. These detailed models have been designed to reap as much as we can from the opportunities that are out there, yet to be defensive enough to minimize the pain when the winds are against us. Another huge advantage to having a well-managed approach is that it reduces the risk of allowing the “emotions of the moment” to lead any of us to dangerous decisions. If you are not already involved with the managed approach we have mentioned here, we strongly suggest that you discuss your situation with us to see what should be considered in your personal situation. A realistic expectation of lifestyle spending:
Occasional analysis of our spending habits vs. our resources can often do wonders for our long-term financial security. Please don’t hesitate to call if you have questions on any of this – or anything else. Sincerely, Max W. Smith, CFP®, CIMA®, Chairman
Kent G. Forsey, President |
