The Finish Line
1. Technology bubble…
2. Real estate meltdown…
3. Credit collapse…
Is there BIG TROUBLE ahead? Maybe. Maybe not. Conservatism is the theme for today. Should you be more conservative in 2011? I believe so!
Cash, CDs, Treasury Bonds, and other short-term fixed income instruments should be a part of most investors’ portfolios.
These conservative investments are essential for those in or near retirement. However this should not be the only part of your portfolio. Being too conservative runs the same risk of being too aggressive. For example, bonds run the risk of collapsing in value if interest rates spike or potential inflation rears its ugly head.
If you are too conservative you could see your purchasing power eroded by inflation. If you are too aggressive and a downturn takes place, this could seriously alter your retirement lifestyle. Diversification (spreading out your assets) and duration shortening (having less exposure to interest rate changes) should be a part of your strategies going forward into 2011.
With the global economy is in the middle of scary times with fiscal imbalances in Europe, Japan and the U.S., caution should be our theme. Adding to the mess is increased regulation, which is paralyzing companies and individuals.
Need evidence? Look at the record amounts of cash on balance sheets as executives wait in the balance to see how new regulations will impact the bottom line.
It’s not all sour grapes though! What has been very encouraging is the plethora of strong earnings reports coming from Corporate America. The biggest risks are the dual threats of deflation (declining prices) for certain goods like real estate and inflation (increasing prices) for certain goods like food and steel. I still like the emerging markets (Brazil, India, and China to name a few). At Faith-Based Investor, we plan to continue focusing on company fundamentals and looking at valuations as a way to manage risk.
What does this mean to you, the investor? Let’s take some profits “off the table” and take a more cautious approach in 2011. This doesn’t mean sell everything and go to cash it just means it’s better to be safe than sorry!