Investment Advisor Chapel Hill Raleigh NC

Headwinds or Head Fake?

In General Financial Planning, Investments, Personal Financial Planning, The Economy by Chip Hymiller

Over the last several months, both the stock and bond market have been impacted by the actions, or inactions of the Federal Reserve Board president, Ben Bernanke.  Where are the economy and the financial markets headed?

With the economy strengthening, it seems that the Fed is contemplating the discontinuation of its quantitative easing program.  In the past few years, the Fed has kept interest rates low and (in theory) stimulated economic growth.

It seems that we are also entering a period of extensive political posturing with the government shutdown, debt ceiling debate, and the implementation of the Affordable Care Act.

How will each of these issues impact the economy and more importantly investment portfolio performance in the future?  If interest rates rise somewhat over the next few years, will economic growth grind to a halt?

To some, it may seem obvious that these political hurdles and economic headwinds are going to result in at least a temporary decline in the investment markets.  After all, the markets have experienced extraordinary results in the short term.  In fact, stocks have advanced by nearly 20% so far this year!

While we certainly believe that it is a great time to rebalance your portfolio (which we have been doing in Beacon client accounts), it is most definitely not the time for an abrupt shift in investment strategy.

We believe that it is not until there is a change in your financial planning initiatives that an investment strategy change is warranted.  In fact, we subscribe to the mindset that one’s investment strategy should be dependent upon a financial plan that analyzes the following:

  • Personal Circumstances and Financial Goals
  • Risk Tolerance and Risk Capacity Current and Projected Tax Considerations
  • Retirement Objectives and Cash Flow Needs

It is unfortunate that temporary events like political bickering and grid lock can cause investors to lose focus on their goals and—for some—abandon a well-devised investment strategy.

However, we hope that as an informed investor that you are able to differentiate the headwinds from the head fake.  Have a great Fall!