Sustaining Wealth in an Uncertain Environment
by Axel Merk and Charles Rotblut, CFA
Axel Merk is author of the new book “Sustainable Wealth” (John Wiley & Sons, 2010). I spoke with Axel prior to May’s market correction about how some of the principles discussed in his book apply in the current market and economic environment.
—Charles Rotblut, CFA
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Charles Rotblut (CR): Many people have seen their portfolios rebound since the bear market, but still do not have the wealth they had a few years ago. What are some steps that someone in this situation should consider if they are trying to figure out what to do with their portfolio now for the next 10, 20, or 30 years?
Axel Merk (AM): The big challenge facing investors right now is where to place their savings. We have witnessed a major rally across most asset classes from their lows. While the major stock indexes may continue to go up, there is considerable risk that stock prices may experience a significant correction. In parallel, there is a substantial risk that interest rates might go up. There’s a substantial risk that inflation might go up. There’s also a substantial risk that all the government intervention that has occurred over the past two years is causing distortions, including a disincentive to invest because of erratic policies. All this may impact investments, and investors are spooked.
From my point of view, in this sort of an environment caution should prevail. This may sound counterintuitive—especially if people are desperately trying to make up the money that they previously lost—but being very conservative can be the best strategy.
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Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/charlesrotblut.