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Question: Now that we’re solidly into 2015, what is the outlook for financial markets? All this volatility makes me nervous.
Answer: Last month we attended Jerry Seinfeld’s performance in Naples. Your question brings to mind the phrase “Serenity Now” from his television show. In the show, Jerry was portrayed as very deliberate and habitual. The same holds true in real life. In fact, I’ve read that it can take him up to two years to write a single joke. There is a plan and a process for everything he does, no matter how easy it looks. His reasoning is that strategies, habits and methods reduce anxiety.
Whether we’re preparing for a simple night out, or making investment decisions, choices must be made and plans implemented. It was fitting that Seinfeld opened his performance by congratulating the crowd on our arrival at Artis-Naples that evening. Jerry acknowledged and outlined how many choices had to be made just to get to his show. First, there is the ticket purchase; to paraphrase Jerry, “do we buy them online, in person or by mail? What seats do we want, whom should we invite, do we want to have dinner before or after the show, who should drive, valet or self-park? How will we get out of the parking lot, what’s the quickest way home? Yada, yada, yada.” Seinfeld’s premise is that decision-making and uncertainty are uncomfortable. The problem is that investing is the epitome of uncertainty.
Festivus for the rest of us, or the proverbial financial punchbowl
Since the financial meltdown of 2007-2008, markets have become increasingly volatile. A global economy, creative lending practices and innovative debt instruments contributed to the crisis.
One component of the experimental cure for this dire situation is quantitative easing (QE) as the easy-money monetary policy of choice used by central banks in Europe and the United States to stimulate the economy. When long-term low interest rates no longer inspired the economy, quantitative easing (the purchase of existing debt and resulting cash influx) became the way to fuel the economy.The QE cash spigot is the medical equivalent of an experimental drug treatment trial. As with drug trials, we’re not certain of the long-term consequences of this prescribed cure for unprecedented economic conditions.
Financial markets have become increasingly volatile. Many experts predict a pullback during the first quarter of 2015 based on slowing global growth, declining oil prices, Eurozone issues and lower American exports based on the strong U.S. dollar.
Although raw unemployment numbers as reported are down, broad-based wage growth has not increased. Even though lower energy prices do help consumers, wage growth is necessary to create real economic improvement.
The combination of a soft global economy and a stronger dollar reduce exports and dampen earnings results for a number of U.S. firms. At the same time, low interest rates contribute to corporate profitability due to reduced borrowing costs. These same low interest rates discourage savings and provide minimal return for investors.
Any moves the Federal Reserve makes on interest rates would be in response to a strong and improving economy, which is good news. Right now, an increase in rates could put the brakes on a fragile recovery. The latest gross domestic product (GDP) report showed the U.S. economy expanded at a slower rate than expected in the fourth quarter – a 2.6% annual rate compared to a 5% pace in the previous quarter.
If you’re confused, you’re not alone. This is why “knowing what you own and why you own it” remains an important statement.
Seinfeld’s success is based on simple and humorous observations of the human condition. He’s made a career of poking fun at our inner dialogue of fears, doubts and insecurities, confirming that we abhor uncertainty.
The structure and discipline provided by a personal investment policy statement helps us focus on what we can control. The answer to your question about the outlook for financial markets is simple, “it depends…” on a number of outside issues we cannot control, which tends to increase volatility. As an investor, knowing your needs, resources and temperament will help you map out the proper strategy to comfortably match your goals.
Investing isn’t about making as much money as you can in the up market, but about building wealth and maintaining it over time. The goal is to providing higher lows and lower highs. Stay focused and invest accordingly. “Not that there’s anything wrong with that!”
Investing involves risk, and investors may incur a profit or a loss. Diversification does not guarantee a profit or prevent loss. Past performance is not an indication of future results. The process of rebalancing may result in tax consequences. The information herein has been obtained from sources considered reliable, but we do not guarantee the foregoing material is accurate or complete.
Views expressed are the current opinion of the author, but not necessarily those of Raymond James & Associates. The author’s opinions are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.
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This article provided by Darcie Guerin, CFP®, Associate Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email firstname.lastname@example.org Website: www.raymondjames.com/InvestmentInsights