Despite the constant ringing of doom and despair about political uncertainty, fiscal implosion, the demise of Europe and the eternally doomed US economy, I see the great potential for a prosperous 2 year outlook. “How can this possibly be?” you might ask.
Well for starters we live in a consumption driven culture where demand is still in the driver’s seat. Over 70% of our economy is consumption compared to approximately 20% government spending*. Stated another way, we, and all of our fellow Americans as a group, outspend the drunken sailor that is our federal government by more than 3-1. Wait, how can it be that consumption is 3 times more prevalent to GDP than government spending? You can find the answer just by observing common behaviors. A few simple examples of this are filling your car up with $4 gas to drive in traffic, people waiting in line for consumer electronics and the percentage of adults who pay for telecommunications, internet and cable TV services. From my perspective, the might and will of the US “consumer” is widely overlooked in this conversation.
Further, economic revolutions are occurring at barely measurable paces throughout the “emerging markets” and in certain pockets of the developed world. If all we had to judge by was the traditional media’s daily message, we would not be able to interpret the opportunities at hand. I wouldn’t blame anyone at all for not being able to share this contrarian view at first glance, but I present a logical alternative for many to consider.
Not to demean the trials that many struggling Americans and some in our families are facing, but the US economy is stronger than perceived and growing, there is evidence of this that the media and politicians have an incentive to conceal from you and me.
Further on the political dialog of 2012, you will hear nothing but gloom and doom from both the GOP field as well as President Barak Obama and for one simple reason: they all have an incentive to make you believe your house is going to cave-in if you don’t vote for one over the other. Republicans surely have this as a motive and the president will tell you he needs another term “to finish the job”. While either of these scenarios may sound scary, I want you to strongly consider their motives versus the practical logic of “consumer based” demand for things that we all “want” versus those that we simply need. If you can agree that both parties have an incentive for us to believe we will suffer in peril without them, then you might also agree that the media will universally take the negative side of my 2-year forecast as well.
For a long-term investor, the volatility of the markets and hysteria of the 24-hour news-cycle is a perfect climate for stomach sickness yet, the US Govt. did NOT default, China has not dumped their treasuries and we have NOT suffered a devastating financial catastrophe as constantly predicted by growing numbers of prognosticators.
No matter what the outcome in the next 24 months the key to a successful long-term investment strategy is proper diversification and regular rebalancing. I see general prosperity ahead where I think others are missing the opportunity and, using this diversified approach to our one-on-one relationship, I believe we can participate in this future. However, if this is not the case, using a diversified approach will help us to avoid a financial disaster, just like it has in the past 12-24 tumultuous months. It is vital to our success that we communicate about this regularly and stay diversified and balanced no matter what unfolds in the next 2 years.
With that, I wish you and all of your families the very best for 2012 and beyond and look forward to our next conversation. Please call me if you have any questions about this or anything else.
D. Scott Bloom, CFP®
*Source: Bureau of Economic Analysis, Factset
Components of GDP; Data reflect most recently available as of 9/30/11.
The opinions voiced in this material are for general information purposes only and not intended to provide specific investment advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
International and emerging market investing involves special risks such as currency fluctuations and political instability and may not be suitable for all investors.
There is no guarantee that a diversified portfolio will enhance overall results or outperform a non-diversified portfolio. Diversification does not protect against market risk.