Posted: December 12, 2011
When it comes to your money, politics matter
What's going on globally can hit you in the walletBruce Hemmings
Economics in the U.S. and globally are being affected by governments and their actions more than any time in recent history. With that in mind, we recently invited Sean West, Director of U.S. Political Risk for the Eurasia Group to travel from New York to Northern Colorado to speak with a group of our clients.
As the world's leading global political risk research and consulting firm, the Eurasia Group provides information and insight on how political developments move markets, which in turn can help investors anticipate and respond to instability and opportunities.
When it comes to your investment portfolio, politics do matter and can be managed. A few interesting observations I took away from Sean's presentation on the current political landscape include the following:
• With major elections on the horizon in both the US and several European countries, including France and Germany, political positioning seems to be trumping economic decision making on both continents.
• The 2012 elections in the U.S. appear to continue to be very competitive with no clear winner or losers, although the Republicans are battling the strength of the incumbency while the Democrats are dealing with the effects of a weak economy.
Global and national political events can certainly affect the U.S. stock market. Throughout its history, however, it's important to remember that the U.S. stock market has proved to be quite resilient over the long term-bouncing back time and time again.
Even if your portfolio has suffered losses as a result of recent volatility, a long-term view is critical to helping you achieve your goals. So a consistent, patient approach is important. Your financial professional can be particularly helpful in this regard-and in helping you follow these basic principles:
Don't try to time the market-It may be tempting to move in and out of the market in search of fast gains or to avoid losses. But timing the market can have a big impact on opportunity lost if your assets are out of the market when it begins to move upward.
Keep your investment goals in mind-At times like these, it is a good idea to revisit your goals to ensure that your asset allocation and investment strategy are correctly aligned. Your financial advisor can help you define and categorize your short-, medium- and long-term goals and serve as a sounding board as you prioritize your goals and balance them to help meet your needs. By helping you develop an investment strategy that focuses on what matters most, your financial advisor can help you avoid making decisions based on short-term emotions.
Remember investing fundamentals-Balancing risk and return potential in your portfolio through asset allocation can be critical in this economic environment. Your financial advisor can work with you to help you assess the amount of risk that is appropriate for you and help you apportion assets among the basic asset classes, such as cash, equities and fixed income securities. Whether you seek optimal returns or to generate income from your portfolio, your financial advisor can help you determine an overall asset allocation and also help you diversify your portfolio within these asset classes..
Diversify your holdings-If your portfolio is properly diversified across and within asset classes, you may be able to take advantage of sectors and markets that are performing well, while protecting your portfolio from weaker performers.
For example, in the equity sector, many investors are turning to companies with a steady record of consistent or maintained dividend payouts or payments, such as companies that focus on consumer staples like health care and telecommunications. While these types of stocks may help mitigate risk and volatility, fixed income securities, particularly those of high credit quality, may help to provide stability and diversification.
Bruce Hemmings is a Senior Vice President - Wealth Management and Financial Advisor at Morgan Stanley Smith Barney at Centerra. He can be reached at email@example.com or (970) 776-5501.
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