Reflecting back on 2011, Lowe Wealth Advisors, and the financial markets in general, started the year with high hopes of a domestic economic recovery. This optimism was quickly replaced with pervasive feelings of doom and gloom throughout most of the year. A multitude of global events overshadowed the positive domestic economic developments including: the Japanese earthquake/tsunami disaster, the Middle Eastern uprisings, the ongoing Euro-Zone sovereign debt crisis, political uncertainty in Europe, political gridlock domestically, and S&P’s downgrade of the U.S. credit rating. It is safe to say that most of us are glad to have 2011 behind us. Now we turn our attention to 2012 and ask what might lie ahead for us financially. Given the uncertainty in the economic and political climate in the U.S. and abroad, we believe it is prudent to consider both optimistic and pessimistic factors for 2012.
Factors That Would Encourage Optimism in 2012
- Continued positive domestic economic growth
- Continued upswing in consumer spending
- A modest Euro-Zone recession not spreading globally
- Survival of the Euro-Zone (at least for 2012)
- Stable or improving unemployment
- A Presidential election that boosted business and consumer optimism and reduced economic uncertainty
Factors That Would Reflect Risk and Elicit Concern in 2012
- Domestic political gridlock
- Further erosion of the Euro-Zone and a possible break-up
- A Euro-Zone recession spreading globally
- Iran’s global relations and impact on oil prices
- Reduced consumer spending
- Revisiting the U.S. debt ceiling and any further reductions of our credit rating
- Any large exogenous shock to the domestic economy
- Failure to extend the employee payroll tax holiday for the remainder of 2012 (Note: This could subtract as much as 1% from 2012 GDP [source: Ned Davis Research.])
Presently, Lowe Wealth Advisors believes an optimistic scenario is more probable for 2012. Yet it is important to recognize that while we are in the midst of an economic expansion, the nature of this expansion is currently subpar.
Emphasizing Lowe Wealth Advisors’ belief that an optimistic scenario is more probable in 2012, due to the number of potential risks you should not expect dramatic changes in our allocations. Overall we anticipate the continued avoidance of the Euro-Zone, U.S. financial sectors, and global financial sectors for our clients’ investments.
Our primary focus remains on large-dividend-paying domestic companies complemented by a diversified mix of asset classes and holdings such as: precious metals, emerging market foreign bonds, small-cap stocks, bond funds and possibly individual bonds as appropriate. (Note: This is not a recommendation to purchase any particular investment. Commodities, foreign bonds and non-diversified strategies carry additional risks that may not be appropriate for all investors.)
For the past few years our strategies have focused on the preservation of capital. Currently, we do see the tide shifting in that remaining “too risk averse” could result in missing out on opportunities for potential recuperation of asset prices.
Cash had been an important part of our overall strategy for financial planning in 2011; it provided potential stability and a liquid resource in a market when time was of the essence for implementing a revised strategy or making a purchase. From time to time in 2012, Lowe Wealth Advisors may still hold elevated levels of cash in order to protect against potential risk and volatility.
While cash in itself is not an exciting portion of your portfolio, it is a critical component with numerous benefits that are vital to the total portfolio strategy. Nevertheless, Lowe Wealth Advisors expects to have opportunities to begin to put the excess cash reserves to work during the first part of 2012.
Lowe Wealth Advisors has already begun to reposition the equity component of our Moderate Growth and Growth allocations in our actively managed portfolios to reflect our 2012 views.
We will begin to look for longer-term opportunities for potential growth as we adapt our strategies. One example is the anticipated rise of numerous middle class consumers in China and India. In some of our allocations we already have modest exposure to these regions through currency and equity positions.(Note: This is not a recommendation to purchase any particular investment.) Lowe Wealth Advisors will continue to look for new opportunities, and may gradually build positions that could benefit from growth in these regions.
Realistically, longer-term positions could have a bumpy ride over the next few years. Yet, adding them gradually, and in modest quantities, will help us to be sure that you are well-positioned to participate in any potential growth developments. This transition will likely be gradual as we do not believe we have seen the last of market shocks and volatile days.
We look forward to guiding you through 2012 and hope that it is a prosperous year.
Lowe Wealth Advisors is an SEC registered investment adviser with its principal place of business in the State of Maryland. Lowe Wealth Advisors and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which Lowe Wealth Advisors maintain clients. Lowe Wealth Advisors may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of Lowe Wealth Advisors, please contact Lowe Wealth Advisors, or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).
This commentary is intended for the dissemination of general information regarding market conditions to Lowe Wealth Advisors clients. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this report will come to pass. While any general market information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. Any opinions expressed are current only as of the time made and are subject to change without notice.
- Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us.
- No diversification can completely protect against market risk or other risk factors with investing. A diversified portfolio could still lose money.
- An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.
Foreign investing carries additional risk such as currency risk, political risk and different accounting standards.
*Lowe Wealth Advisors is a registered investment advisor.