Investors are being forced to cope with what many perceive as unprecedented circumstances in the economic and political environment. At the same time that the U.S. economic recovery appears to be slowing, Standard & Poor downgrades the U.S. credit rating on debt issued by the U.S. Treasury. Confidence that government policymakers can do anything significant to help improve the environment is low.
These and other concerns are contributing to a sense of unease for many investors. How should these major shifts in global politics and financing affect your personal portfolio strategy?
Here are three realities to give you an appropriate perspective on the challenges that lie ahead:
1] The downgrade may be justified, but might have been premature.
Standard & Poor’s shifted the nation’s credit rating from AAA to AA+. Part of their rationale appeared to center around concerns that a dysfunctional political environment will prevent budget issues from being resolved in an effective manner. However, history is filled with examples of how American politicians have forged deals to resolve crises. It may not be fair to discount the potential that policymakers will come to agreement not just on budget issues, but other legislation designed to give the economy a boost.
2] Good news is often hidden.
In periods like these when troubling news leads the headlines, investors are often surprised when markets perform well. This is due to the fact that some market observers are looking beyond the headlines to see other trends that are favorable. The same is true in today’s environment. Corporate profits remain strong and companies in the U.S. and elsewhere generally have solid balance sheets. Emerging markets are growing robustly and will likely help spur ongoing economic activity in other parts of the world, including the U.S. prices for gasoline have moderated in recent weeks, boosting consumer purchasing power. Even in difficult times, seeds of future prosperity are planted.
3] Stocks may offer more attractive value than bonds.
Many individuals have been pulling money out of the stock market and investing in bonds (or bond funds). Yet with interest rates on U.S. Treasury securities near their historic lows there appears to be an limited upside. Worse yet, bonds paying extremely low interest rates can be risky for investors. If interest rates begin to rise, bondholders could be in for a negative surprise. That’s because bond prices decline when interest rates rise. Stock values, meanwhile, remain well below the peak they reached in the fall of 2007 before the dramatic, 50 percent downturn occurred. At that time, the S&P 500 Index topped out at 1,565. Today the S&P 500 is 20 percent to 25 percent below that all-time peak. This indicates that upside potential remains over the long run, though the market will likely continue to suffer through ups and downs along the way.
Have you ever owned something that became a prized possession? One of our donor’s fathers, a retired truck driver named John, purchased a new Lincoln Town Car years ago. For John, the Town Car was a special vehicle, a possession he delighted in maintaining as well as driving. For his daughter, Jodi, a kidney transplant recipient, it came to be a special car, too. Jodi suffered from a disease that damaged her kidneys. John drove Jodi to her doctor’s office and dialysis facilities for 15 years. That Town Car ended up being the place where father and daughter bonded.
The mission of the National Kidney Foundation of Hawai‘i is to prevent kidney and urinary tract diseases. It also improves the health and well-being of families affected by these diseases, and increases the availability of all organs and tissue for transplantation in Hawai‘i.
Each year thousands of caring individuals use the Charitable Gift Annuity to secure a lifetime income and provide critical financial support for Salvation Army programs and services in their communities. This time-tested technique has resulted in many gifts that otherwise might not have been made.
In today’s economy, it seems that everything old is new again … albeit with a bit of a twist. Years ago, it was common for older couples – and frequently widows – to rent out rooms for extra income. Taking in boarders was a viable way to supplement income.