In the first of a regular series in my Informed Investing blog, let’s count down the top 10 things that give investors the willies in today’s investment environment. These are situations known to even casual investors, but may or may not be communicated to them effectively by their financial advisors. The explanations will be brief here, but I will certainly go into them in more depth if blog readers request that. Here goes:
10. Housing bubble II – in the spirit of great movie sequels, this one would get low ratings…but everyone would be glued to the screen. There is growing evidence that in parts of the country, home prices are again stretched beyond the reach of reality (not to be confused with “realty”).
9. Inflation – no one talks about it, but all of this easy money has a counter-effect down the line
8. European debt crisis – Greece, Spain and Italy have been quiet…too quiet. The situation overseas has been far less newsworthy of late, but the still-missing ingredient is sustained economic growth. That is the worry.
7. Iran and the Middle East – this is a permanent member of any list of investor worries. The Syria situation is not helping, either.
6. China’s possible economic slowing – the production of goods may have peaked for a while, but the spending? Surging, on everything from staples to high-end luxury goods. How to harness that mega-trend? My colleagues and I have a pretty good idea how.
5. Unemployment rate – the Fed is hoping the rate drops to 6.5%, as this is their sign that the financial crisis of 2008 is in the rear view mirror and they can stop backstopping the financial system. But to me, the real jobless rate is the so-called U-6 rate which includes the long-term unemployed and those who are under-employed (working part-time jobs only because full-time work is not available). The U-6 rate is a whopping 12.6% and while this is a percent lower than a year ago and three percent below four years ago, it is still a concern.
4.Congressional gridlock over budget, debt ceiling, what brand of toilet soap to use in the Senate washroom and anything else they can think of to disagree on – this is too frustrating to talk about any further.
3.Low returns on cash and other traditional portfolio stabilizers – this is THE big one. With 7,000 Baby Boomers retiring every day, solutions must be found to this issue that the Boomers could not have foreseen back when they were avid wealth accumulators. “Safe investing” being redefined – the dip in bond prices earlier this year was a good warning shot. Think that Treasuries, Munis and higher-rated corporate bonds are ideal investments for retirees seeking income and stability? Don’t count in it. That train has left the station. This is creating aretirement crisis – too many retiring people have only limited assets with which to do so and others who have accumulated wealth can’t get a good, reliable return on that life savings.
2. U.S. budget deficit and total debt – we owe a lot and we owe it to some of the wrong people to owe it to – China, Japan and OPEC top the leaderboard. Whether Congress does anything or not is only part of the problem – the bigger problem is the size of the problem.
1. QE: Quantitative “Ending” – QE is probably not well understood by many investors. While it serves a purpose, the money is not really circulating through the financial system, so it is more for show than for dough
I welcome your comments, feedback and suggestions for what you think is missing from this top ten list!
© Sungarden Investment Research