History Repeats (or at least rhymes)

Investors often use historical comparisons to help gauge expectations on their investments.  While this is a useful practice, history is full of time periods that have little in common with one another.  If we look at the returns of a balanced portfolio (60% stocks / 40% bonds) from the years 1900 through 2010, the inflation adjusted returns were roughly 4%.  However, there were long periods of booms and busts.  There were the post war booms in the 1920’s and 1950’s, as well as the deregulation / declining interest rate boom in the 1980’s and 1990’s.  On the other hand there were painfully long bust periods such as the war decades and the Great Depression.  My point is that some time periods were better than others.  So it helps to focus on the time periods during which the overall economic environment is similar to what we are experiencing today to get a better understanding of what we might expect.  Consider the following features of today’s economic environment:

• High misery index
• High unemployment
• Rising energy and commodity prices
• Low inflation adjusted yields on government bonds
• Rising government regulation and involvement in the economy
• Decelerating productivity growth

It was Mark Twain who famously said that “History does not repeat itself, but it does rhyme.”  And so it is true today as the points above were also uniquely prevalent during the 1970’s.  Unfortunately the 70’s were one of the long bust periods.  But there were investments that did relatively well.  So, when you are looking to the past to help inform your current decisions and expectations, pay extra special attention the 1970’s.  It may help you navigate today’s stormy seas.

Brennan R. Redmond, CFA
Vice President
Brighton Securities

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

As Good As It Gets?

Recently my DVD player abruptly stopped working after a decade of service.  Without another DVD player handy, I was relegated to watching VHS movies on my VCR from college.  Over the past few days, I’ve watched As Good as It Gets.

Near the climax of the story there’s a dialogue between two of the main characters, Melvin Udall (Jack Nicholson) and Simon Bishop (Greg Kinnear):

Simon Bishop: But Melvin, do you know where you’re lucky?
Melvin Udall: [Shakes head no]
Simon Bishop: You know who you want; I would take your seat any day!  So, so do something about it!  Go over there, now, tonight.  Don’t sleep on it.  It’s not always good to let things calm down.  You can do this Melvin…you can do this!  You can…

This dialogue made me think of how “lucky” those are that have a plan compared to those with no plan for retirement (or haven’t gotten around to it).  Those who have a plan have invested time and consideration in their future.  They’ve thought about how they want their retirement to be and a strategy for how they can do it.  After all, “a goal without a plan is just a wish.”

Others that don’t know where to turn or how to get started, may be thinking is this “as good as it gets?”

If you’re looking for something better, I say “Do something about it…you can do this!  You can…”

When you’re ready, here at Brighton Securities, we’re happy to meet with you personally to get started on a strategy for your retirement.

Joe Boyd
Financial Advisor
Brighton Securities

Who Do You Trust?

The S&P 500 is near post-financial-crisis highs.  The 10-year yield on U.S. Treasury’s is near post-crisis lows.  The former points to confidence and growth potential.  The latter points to extreme risk aversion.  The question is: who are you going to trust?  The preponderance of the evidence, I believe, is currently in favor of the message that the Treasury yields are sending. 

First, you have the rate of earnings growth at a low point during this “recovery”.  That suggests we are near peak earnings in this cycle.  Without stronger global GDP growth earnings are unlikely to accelerate again.  Global GDP growth is being hampered primarily by the perpetual European financial crisis, which has already tipped many of the EU member nations into a recession and has left several big ones on the brink (Germany, France, UK).  Although we may not share their fate and tip into a recession as well, it’s hard to see how we improve with one of our largest trading partners suffering so much.  Additionally, we’ve used all of our ammo if another global shock hits;  the Fed has already bottomed interest rates and our deficits are already north of $1 trillion annually.  That leaves us vulnerable and it’s not hard to imagine where a shock might come from.  We have Europe, as mentioned above.  But there is also the Middle East.  And those are the risks we know about.  The ones that usually hurt the worse are the surprises.

 It’s not all roses out there.  So, what’s a smart investor to do?  It will always seem attractive to think the market has returned to growth like we saw in the late 1990’s or again in the mid-aught’s, but the need for a conservative outlook is strong for the reasons outlined above.  My suggestion, in general, is to be very cautious.  In this climate, this essentially equates to pulling in the reins on your growth assets to an underweight position relative to your long-term financial plan.  If you don’t have a financial plan that includes specific guidelines for investing, meet with an advisor as soon as possible to make one.  Otherwise, it’s hard to know the specific risks you and your family are facing.

Brennan R. Redmond, CFA
Vice President
Brighton Securities

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).