Gasoline prices “roiling the markets.” Investment performance jostling with 10 percent ups and downs. Modest gains anticipated for the year. Stocks, bonds and people pressured by volatility. “Greed and manipulation” enveloping the markets. Price breaks at the gas pumps trading for inflationary food costs. “Green” technology companies thrust into the limelight.
All in all, it is a challenge for investment advisors and their clients to track all of that and “just try to be ahead of where the market is producing,” according to Nancy Jauregui, owner and financial advisor for Grand Canyon Financial Advisors, expanding that assessment of what investors can expect for the year.
“Volatility is the new norm,” Jauregui matter-of-factly stated, as she has done with clients since that trend became the market reality since Sept. 11. That changeability “is being driven by the mental component right now.”
QCBN asked several area financial advisors for their insights into the markets for the coming year. Among them were Eric Fairbanks, CFP, private wealth advisor at Ameriprise Financial, Will Hepburn, president, Hepburn Capital Management, LLC, and Jauregui.
“The bigger the market, the bigger the movement,” Jauregui said, sharing her approach to optimal investment return: employing dividends and capital gains as renewable resources by buying more shares during market dips.
Political and economic news – terrorist activity, election year jitters, the debt ceiling, no additional government shutdown – have not “scarred” the market, she says, but investors should look nearer to home – not Washington or Wall Street – for the solution.
“The truth is always in your personal numbers,” Jauregui said. “Know your personal economy, your budget, where you can expand and contract. Know what you need [financially] now and in the future.”
While going to cash always remains an option, if the market performs poorly, maintain a “three-month stint of history before making moves,” Jauregui advised. “Let your portfolio time the market. The funds have really good managers… [still,] we are not out of the woods yet.”
The three investment advisors – Hepburn, Fairbanks and Jauregui – each answered five specific questions about the state of today’s investment markets and where they are headed. Read on to see how their opinions often agree, but periodically diverge.
QCBN: How would you describe the markets today?
Hepburn: Although the current stock market volatility can certainly be unnerving to investors, [the market’s] uptrend from 2009 has not been broken. However, the bond markets are so overpriced that over the next decade or two, bond investors face more bad years than good as inflation returns.
Fairbanks: The rollercoaster has persisted through the early weeks of 2015 as a “Santa Claus” rally in the waning weeks of December has given way to another round of volatility. So, capital markets have been volatile as we exited 2014 and as we have entered 2015. Each recent past period of heightened volatility, however, has been answered by a follow-on recovery in the stock market and high yield bonds price levels. Will this latest episode result in the same? I think so.
Jauregui: Normal for the current economic, political and social climates. The market has been through a lot in the last 15 years and truly is reacting in accordance. We are truly a connected global economy now, thanks to the Internet, and all markets daily feel the effects of what is going on domestically and internationally. The last 15 years – especially with the happenings of Sept. 11 – were the beginning of the second Great Depression of modern times. People had to really look at their financial lives and question the choices they made in the past and will make (going forward) to try and restructure their futures. The markets reflect that and will continue to do so. Volatility IS the new norm and investors have to position themselves to not be devastated by [it], but be in a position to benefit.
QCBN: What can investors expect to see over the remainder of the year?
Hepburn: Central banks in Europe and Japan have started stimulating their economies by flooding them with cash, just like our Fed was doing recently. Some of this rising tide of foreign money will flow into the U.S., helping our markets for the foreseeable future. I expect 2015 to be a good year.
Fairbanks: Longer-term technical indicators and fundamentals conditions still favor the continuation of the bull market. However, long-term investors should also ensure [that] their allocations are properly balanced against risk tolerances, in light of equity gains in recent years.
Jauregui: More of what last year showed us. The markets will probably keep the same behavioral pattern, especially with some volatility “temper tantrums.” There are going to be periods of volatility to the upside and downside, resulting in mostly sideways activity when all is said and done. The banks still are not paying anything on cash savings. People have to turn somewhere to try and get some level of return on their investments. The market will be one of the places they will continue to turn to.
QCBN: How can investors best prepare for that/those scenarios?
Hepburn: We are currently keeping clients fully invested by moving them into the strongest elements of the markets. Currently, the best opportunities appear to be in future technology (nano tech, robotics, Internet), health care and real estate stocks. We also advise clients to be ready for markets to change, because no trend lasts forever. As a hands-on manager, we take care of making these moves on the client’s behalf as change becomes warranted.
Fairbanks: It’s time to review your asset allocation and ensure that your portfolio is well diversified. With many risks increasing, there still is opportunity. But this is a great time to make sure that your investments are aligned with your risk tolerance.
Jauregui: First of all, is by keeping their financial homes in order. Live within your means; find the money in your money by keeping a well understood working budget, and pay attention. Know what your risk tolerance is at all times. The best way is to know where you stand with yourself financially. Therefore, if there is a need to make a financial adjustment, you will know where you can contract and expand accordingly. Second, within your investments, make sure you have holdings that produce a dividend. That way, when the market is in a downturn, you are gathering more shares by the mere fact that your money made you money. Also, companies that produce a dividend are making sure that you see a reward for your risk… and why shouldn’t they!
QCBN: Is the market bull, bear or up in the air?
Hepburn: The bull is still alive. I watch it closely – so that I can react when and if it turns down in a meaningful way – but so far, it has not.
Fairbanks: We are still in a bull market. It is just a more mature bull market. We have come a long way since 2007/2008, and investors need to be cautious in the risk they are taking.
Jauregui: The answer is a simple “yes” to all. We are going to see periods of bull and bear markets internally in the whole overall market. Look at gold prices and gas. While the market has basically been in gain territory for a few years now, the most recent major bear markets were gold and oil/gas. We are going to continue to see bear and bull markets occurring internally within the overall market. This is usually seen among sectors, which are areas of the economy where businesses share the same focus in an industry. What will be the next sector to have a bear market? That’s what is up in the air.
QCBN: What else would you like our readers to know about investments and the markets?
Hepburn: The one thing that is certain in life is change. As investors found out in 2008, ignoring your investments as markets change can produce life-altering losses. An investment style that can change with the markets works best in this environment. I believe that active management – systematically moving money into investments that go up, and out of investments that go down – is the secret to successful investing.
Fairbanks: This is not the time to become complacent in managing your portfolio. Investors need to be thoughtful about the risk, but not be shortsighted about the volatility. There are still opportunities for a long-term investor.
Jauregui: Keep aware of your own personal financial condition at all times. Do not look to Washington or Wall Street to fix your problems. If you are still not completely aware of your financial situation, do a budget immediately and find out where you stand with yourself. Once people really look at their numbers, they can see where they need to make changes that usually end up relieving a lot of financial stress. Also, once you know where you stand in your own finances, you will get a better understanding of what your risk tolerance is, as well as where you would like to invest. Expect an exchange of inflation among different areas of consumerism. You may be feeling a bit of a relief at the pump, but try and go buy a steak at the grocery store. Man, it’s expensive! Expect rising prices among grocery, healthcare and travel to probably hit a noticeable level of inflation. Volatility is here to stay. The markets are only going to do three things: go up, down or sideways. If you know how you can handle – both financially and emotionally – your position in all three of those market behaviors, then you and the market will get along nicely! QCBN
By Sue Marceau
Quad Cities Business News
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