Thoughts on Investment and the Global Economy

How Global Markets Can Impact Your Personal Portfolio

Incorporating global markets into an investment portfolio certainly creates a broader platform for building wealth, but it also incorporates a degree of challenge.

The Kremlin

Consider the past five years beginning with the market’s bottom in 2009. Here are just some of the global and national factors that investors were struggling to interpret as they pertained to economic cycles.

·       U.S. Unemployment topped 10%

·       Haiti suffered a devastating earthquake

·       The massive BP oil spill in the Gulf

·       The Arab Spring

·       The tsunami and nuclear reactor disasters in Japan

·       U.S. debt was downgraded

·       The debt scares in Europe, in particular, Greece

·       The Fed announces its intention to taper its efforts to stimulate the economy and begins to reign in its bond buying program

These events, despite their significance, only scratch the surface of global activity in the past five years. And now, here we are in 2014 with the market charging forward at record-setting pace.

So how does this translate to your investment portfolio, or better yet, how do you navigate a shifting global economy to maximize your investment strategy?

Here are a few things to consider.

Keep Things in Perspective

Throughout the course of history, virtually every economy in the world has suffered war, recession, depression, and cultural challenges. And while some countries steer their way through difficult times more effectively than others, the global market always manages to find its way back to center. An effective investment advisor will understand how to allocate capital to take advantage of improving or emerging markets and underweight those at risk.

Consider also that exploring beyond U.S. borders for investment opportunities is becoming increasingly important. Look at this statistic:

The U.S. share of GDP in 1970 was 32%, in 2012 it was 22%.  Some projections estimate it will be 15% by the year 2030.

As an investor, the important thing to remember is that like historical events, an economy works in cycles and being overly timid or impulsive about global investments can cause unnecessary short- and long-term risk.

Understand your options

The creation of Exchange Traded Funds (ETFs) has made it easier than ever to access areas of the market that were once only available to institutional investors. There is no longer a need to invest in expensive hedge funds with lock ups and low liquidity. Through ETFs, individuals can instantly get exposure to commodities, emerging market stocks, real estate, timber, currencies, and MLPs. Investors can even obtain short exposure to areas they think will decrease in value.

ETFs and mutual funds continue to allow investors new and improved access to asset classes and strategies that help managers attempt to enhance returns and manage portfolio risk. 

Quick Thoughts on Russia and the Ukraine

Russia’s re-emergence as a major player on the global stage is certainly an event to watch closely. It’s penetration both economically and militarily into the Ukraine is already causing significant civil unrest in the country and the increased talk of sanctions will undoubtedly have some level of impact on the global economy. At the same time, HawsGoodwin does not anticipate these event significantly adjusting our global outlook as investors; particularly in developed markets.

The current situation brings fresh perspective on the influence that news and financial media can have on the investment community. While media has a valuable role to play in keeping the public informed, accurate speculation is not their strongest asset, and more often than not it causes unwarranted panic which in turn causes rash decision making.

Good advisors and managers help clients develop their plan based upon their specific life situations, risk tolerance, and their short- and long-term objectives. Good advisors also help clients be patient and enable their strategies to unfold and be successful. Too many times people make changes based upon near term events (such as the emerging situation in Russia and the Ukraine) that eventually hurt, not help, their opportunities for increased wealth.

Final Thoughts

Proper diversification is key in today’s environment.  Many investors that come to HawsGoodwin believe they are properly diversified, but when we assess their portfolios they often find that their actual risk level is higher or lower than they originally intended.  Proper diversification and asset allocation is what aligns a portfolio with an investor’s short and long term goals. 

Whether global or domestic in nature, take the time to confirm that your portfolio is properly diversified and taking advantage of the growing number of options our world economy can provide.

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