Investing sea change
Bear Stearns”™ feet of clay in 2007 proved a wakeup call for many small-time investors. Bear Stearns? Isn”™t it too big to fail?
In retrospect, the Bear Stearns story was but a harbinger of a larger economic earthquake. But now that the economy is emerging from the economic temblor, even as unemployment remains a wild card, what is a savvy investor to consider when deciding where to put funds?
Expect inflation to increase. And seek peace of mind and a steady return, as opposed to spectacular profits.
In a nutshell that is the advice clients receive from Christopher J. Conover, president of Hudson Valley Wealth Management in Pearl River, a fee-only, SEC-registered investment advising firm.
“Many people are coming in because they are wounded financially,” said Conover, talking of clients who were only a couple of years from an affluent retirement when the financial world buckled. “I say you can”™t make up for mistakes made in the past; all you can do it position yourself for the future. So my counsel is save aggressively, invest conservatively.
“An overriding theme for the future is inflation,” said Conover.
The short- to medium-term outlook does not include inflation, he said, with job creation and the consumer price index both somewhat flat. But Conover said the federal government has made decisions to ward off short-term instability and even to avert another depression, which seem to have been effective but which will not come free.
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“It appears the decision has been made to try and print (money) our way out of this recession and to this point all indications are it has worked,” said Conover. “But there is a price to be paid later for decisions government makes today and one of those prices is inflation.”
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With the continuing growth of the money supply and low interest rates, the dollar is already weakening. “So inflation is something we are positioning our clients”™ portfolios for,” said Conover. “It”™s not ”˜if”™ but ”˜when”™ and I”™d rather be early than late to that party.”
“Equities tend to do well in inflationary times,” Conover said, but added there can be a lot of volatility “So people are worried, because the world has changed.”
He said investors want returns but worry about huge snapbacks degrading their wealth overnight. “Everyone loves volatility when the market is going straight up,” he said, but caution is a watchword now.
“There is a certain degree of hesitance; we find it”™s much better to ratchet down the risk,” said Conover. “Yes we might have a little less return, but we find our clients sleep better.”
There is a common theme among portfolios Conover helps assemble. “They are significantly overweight in commodities,” he said. Usually 5 percent to 7 percent of a portfolio stock is tied up with commodities, but now, “We might go as high as 15 to 20 percent for some commodities and commodity equities.”
Other investments he is steering clients toward are government backed TIPS, Treasury Inflation Protected Securities, which contain mechanisms guaranteeing they retain value if inflation appears during their term.
Conover said the stock market is a leading indicator, and based on what investors are doing in recent months, “A lot of people would agree that the future is brighter than the days are today.
“At the end of the day when all the dust settles and we do get back to quote-unquote normal, I think we”™ll find people have gotten back to a realization of what is really important,” Conover said. “Having a brand new BMW every three years is maybe not as important as they once thought it was.”