What is the most common mistake you see investors make during a market downturn? What do you advise they do?
I can attest that during uncertain economic times a natural reaction for many investors is to retreat in fear or panic. Despite current challenges, we should not let fear or emotions drive our investment decisions. Troubling as the markets appear to be at present, this is in fact an ideal time to step back and put events in a broader perspective.
Do you anticipate more or less volatility in 2009? When do you think a bull market will return?
It is difficult to predict an exact timeframe, but as investors gain more confidence in the market, conditions will undoubtedly get better. Despite this slowdown in global growth, encouraging signs point to renewed strength in U.S. investment opportunities. U.S. stocks are poised to outperform over the next six to 18 months.
The unpredictable performance of the markets so far this year demonstrates an even greater need for proper diversification and long-term planning. We reiterate a three-pronged approach to building long-term wealth. They include 1) lengthening the investment time horizon 2) compounding dividend income and 3) maintaining a well diversified portfolio.
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Are there any sectors you believe could fare better or worse than others in 2009? What factors might drive their performance?
As global growth slows and the dollar begins to regain its strength, U.S. equity markets are poised for recovery. Despite this slowdown in global growth – and the financial crisis affecting the U.S. and global economies – encouraging signs point to renewed strength in U.S. investment opportunities. Strategists indicate three factors that are driving this shift: a strengthening dollar; relatively stable earnings and GDP growth in the U.S., compared with international markets; and the increased likelihood of higher volatility in global markets, compared with the U.S.
We believe that quality and stable, demonstrable growth remains paramount when choosing which sectors to overweight within a portfolio. Furthermore, the current period may be a particularly opportune time to shift a portion of an investor’s assets from cash or more liquid assets into a fixed income strategy. A fixed income strategy provides the kind of diversification that can help protect an investor’s portfolio in troubled times-and also offers solid growth potential. Specifically, Merrill Lynch strategists identify three types of bonds to serve as safe harbors in the current environment: Treasuries and other high-quality bonds, municipal bonds and treasury inflation-protected securities.
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What are some investing recommendations you would give Hartford investors to help them weather tough economic times?
Based on the insights from our firm’s research analysts and strategists, we believe the new leaders are likely to come from defensive, cash-flow stable sectors such as consumer staples and health care, as well as developed markets.
