You’ll often hear financial advisors say the biggest investment risk is not having enough money accumulated by the time you retire. That’s all well and good, but it’s not really actionable advice. On the cusp of our nation’s recovery, there are strong reasons to view U.S. equities as the key to the future – both in leading economic growth worldwide and in helping each of us meet our retirement goals.
Warren Buffett certainly thinks so. Fortune magazine has published an adaptation of his most recent letter to Berkshire Hathaway shareholders. It offers a fascinating discussion on how the concept of risk is largely misunderstood – and how he views risks when it comes to making investment decisions.
In a provocative statement, Buffett claims that, “Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as ‘safe.’ In truth they are among the most dangerous of assets.”
He goes on to explain that the combination of personal income taxes and the ‘invisible inflation tax’ (not to mention investment expenses) can strip an investor’s return to the point of little to no real purchasing power. Buffett also takes aim at investment in assets that will never produce anything, but rather rely on the hope that someone else will pay more for them in the future. He asserts that fear of currency collapse is what motivates investors to move to sterile assets, such as gold (which he likens to the widespread investment in Tulips in the 17th century).
An outright fan of long-term equity investing, Buffett presents a strong case for productive assets, such as businesses, farms, or real estate. He believes that in the future, the U.S. population will “move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.”
[CLICK HERE to read, “Warren Buffett: Why stocks beat gold and bonds” at CNNMoney.com; February 9, 2012.]
In its “Investment Ideas for 2012,” Morgan Stanley Smith Barney’s Global Investment Committee (GIC) reinforces Buffett’s position with an endorsement of U.S. large cap growth stocks and ‘Dividend Aristocrats.’ These aristocrats are represented in the S&P 500 Dividend Aristocrats Index, comprised of 42 large-cap, blue-chip companies that have raised dividend payouts annually for at least 25 years. According to the latest GIC report, “In a period of record-low money market and bond yields, dividend-paying equities can offer an attractive source of income.”
[CLICK HEREto read Morgan Stanley Smith Barney’s latest “On the Markets” market commentary; February 2012.]
Tech on Track
One sector on track for stable growth in the near term is information technology. SmartMoney recently posted an article offering four reasons why even risk-averse investors may find this sector more stable than other options. One reason: Since many companies have deferred technology investments since the 2008 financial crisis, they’re ready to increase spending now. According to the article, “Technology has become more of a necessity, and companies can only delay investments for so long. That helps make the sector more stable.”
While you’re at the SmartMoney website, check out this fun tool that gives you an at-a-glance, comparison view of sector performance through various visual filters.
[CLICK HERE to read, “Tech Stocks: Safer Than You Think” at SmartMoney.com; January 30, 2012.]
[CLICK HERE to tool around with the “Map of the Market” at SmartMoney.com; February 2012.]
If you’re interested in strengthening your U.S. equity allocation for 2012 and beyond, please contact us to schedule a portfolio review and consultation.
*This information is not intended to provide actual investment advice. It is important that your unique situation, goals and objectives be evaluated before such advice can be offered. Please seek a professional specializing in these areas regarding the applicability of this information to your situation.