FINANCE
By April M. Oliver CFP® CERTIFIED FINANCIAL
PLANNER™
Investment Strategies Amid Downgrades, Downturns and Slowdowns
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, one independent agency downgrad- ed its 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 the major events occurring in the global environment affect your personal portfolio strategy?
Here are five 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 – The economy is being tested, but
a repeat of 2008 is not inevitable. Recent memory can have a significant impact on investor behavior. The financial crisis that put the global economy on the brink in the fall of 2008 (and contributed to a 50 percent+ drop in the value of the S&P 500 stock index) remains etched in most of our memories. Fears have been raised that we may be facing a similar situation this year spurred on in part by the problems many governments (Greece, Ireland and Spain to name a few) are facing with their own debt issues. But it is not a foregone con- clusion that we’re headed for the same result as three years ago. Circumstances are different today. For instance, many of the economic problems in the last downturn were related to the housing mar- ket bubble and excessive consumer debt. Today, housing prices are dramatically lower and consum- ers have begun to wind down their debt. There are other challenges facing the economy today, but a “double-dip” recession in the U.S. is far from certain.
#3 – Good news is often hidden In periods like these when troubling news leads the headlines, investors are often surprised when mar- kets perform well. This is due to the fact that some
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