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.
Discussion
Regarding:
In the fall of 2008, most people came to the harsh realization that allocating their portfolios among growth stocks and value stocks, large cap and small cap, and real estate, did not provide sufficient diversification.
Excuse me, but if you had such a portfolio and you left it alone, then by some time in 2011 it would have fully recovered. If, instead, you sold the portfolio as it went "south", then you have experienced sex without love. You will have needed to pick the point where "the market is really recovering" and bought back in. Warren Buffet may not live at your house, but he does release "clues" to everyone who can read. There are no real "timing geniuses". Own things that you believe in and believe in them when others do not.
posted 4 months ago by Robert Heacox from Washington
"...the headwinds for corporate America are going to get stronger because the cost of borrowing is going to go up with higher taxes."
What is the basis for that statement? Haven't I been reading about how the fed is supposed to be guaranteeing QE through 2015? Doesn't that mean borrowing rates are going to remain low or go down?
As for the statement regarding portfolio allocation among growth/value/largecap/smallcap/real estate not providing enough diversification, well then what did? Hold it - don't answer, because whatever the optimal mix was from 2008-2011 I'm sure will perform abysmally 2012-2015. Remember, "...the poor investor will always try to chase the next trend, and will ultimately be bound to invest at the top of any trend and lose a lot of money"
There is so much conflicting information in financial media. The whole thing is paradoxical and it is dang frustrating. You have all these qualified people offering their own opinion, but at the end of the day nobody really knows anything.
There is a lot of worthwhile information in this article. I don't mean to sound crotchety. But our financial futures are at stake here.
posted 4 months ago by NewJoizey from New Jersey
NwJoizey - Correct - 100% - Our financial futures are at stake. Not knowing our direction in the world is not an road the U.S. need's to go down. The greatest generation has much wisdom. Politico's should ask for a spoon full.
posted 4 months ago by Clifford Wyble from Pennsylvania
