Following historic stock market highs in May, higher volatility and sharp reversals are back. Mid-year is a good time for investors to review strategy, especially asset allocation decisions. Such discussions are always a priority at ASG, regardless of the mood of the market.
Looking forward, we are well served to consider that all asset classes carry risks. As we have seen so many times before, stock market risk is elevated near market tops. Bond market risk is exposed in a rising yield environment. A loss of purchasing power over time is a well-known risk to cash. One way to face these risks head on is to hold a combination of asset classes in percentages that are consistent with your goals, your age, and your appetite for risk. Buying and selling stocks and bonds to match certain economic conditions, predictions, or behavioral biases is often an invitation to painful timing errors.
As we enter the second half of the year, much of our attention at ASG will focus on corporate earnings. If the economy is on the mend, companies will likely grow profits with corresponding strength in stock prices. We will also continue to follow the policies of Fed Chairman Ben Bernanke and the Federal Reserve Bank. A gradual withdrawal of monetary stimulus by the Fed would be welcome later in the year, if it means that the US economic recovery is finally able to sustain itself.
Fiscal policy (taxation and government spending) is on hold in Washington what with the distraction of multiple scandals and heightened geopolitical risk. The full effect of sequestration (indiscriminate, mandatory spending cuts) is still unknown but it seems as if there is no other way for elected officials to address troublesome deficits. So, we would be surprised to hear of any progress on the much needed reform of tax policy, social security, Medicare, Medicaid, disability and unemployment compensation.
As we enter the third quarter of 2013, we keep an eye on the following dates:
|July 2||Auto Sales|
|July 4||Happy Independence Day!|
|July 5||Unemployment Rate|
|July 22||Existing Home Sales|
|July 24||New Home Sales|
Our commitment to help you reach your financial goals is top of mind as we celebrate Independence Day. After all, a merit worthy goal of investing is total financial independence defined as life savings that cannot be outlived. Happy Summer!