Crisis Investing: Moving Forward with Confidence

By Christian Koch, CFP®

On December 30, 2011, the closing price of the S&P 500 index was 1257.60 versus 1257.64 on December 30, 2010. That’s not a typo!

The current market environment can be characterized by large uncertainty and the absence of visibility. For example, a slow growth United States economy, high unemployment, tax policy reform, European debt crisis and the start of the Presidential election cycle to name a few issues. From the look and feel of things one would think a depression is coming. We disagree

Sir John Templeton stated "To buy when others are despondently selling and sell when others are greedily buying requires the greatest fortitude and pays the greatest reward."

What About Stocks? At this point in time, we would strongly encourage adding exposure to individual stocks. While most financial advisors have become defensive by choosing to increase their fixed income investments because of market volatility and lack of visibility, we are doing the opposite.

We believe the current absence of tax visibility, economic visibility, political visibility has created a generational opportunity to create wealth for clients. "Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria" stated Sir John Templeton.

Our solution: Now is the time to change the Asset Allocation Mix in an investment portfolio to 70% stocks and 30% fixed income with the focus on total return. Going forward, making this decision appears crucial for both early career and preretirement individuals to achieve their basic retirement goals and objectives.

Furthermore, preretirement individuals with a need for current income should favor an investment strategy that has a focus on preferred securities and dividend paying stocks. As a rule of thumb, it is important not to become too conservative too early with fixed income investments because inflation will erode the purchasing power of a dollar in the future. The current context is telling, as the benchmark 10-year Treasury yield ended 2011 below 2% for the first time since at least 1977. This is why it is so important that your investments outperform inflation over time.

One of the biggest road blocks to successful retirement planning is not allocating assets properly and adjusting as needed.

Author: Christian Koch

Mr. Koch is a Certified Financial Planner ™ professional. He is a NAPFA Registered Financial Advisor and is a member of the New York Society of Securities Analysts and the Harvard Business School Club of Atlanta. Mr. Koch has been awarded the Paladin Registry’s Five Star Designation (www.paladinregistry.com/advisor/christian.koch).

Contact Christian