IMGCAP(1)]As an accountant, you most likely have clients seeking investment advice.
In 2008, many average investors saw their retirement portfolios fall between 50 to 60 percent as global hysteria gripped the financial markets as a direct result of the subprime mortgage crisis.
As you advise clients concerning different investment avenues, keep in mind that this is the most uncertain economic period of recent history, and possibly since the Great Depression. Before we address specific investment vehicles that you may want to discuss with your clients and research yourself, a few key points should be understood concerning the macroeconomic environment.
Today, two years after the Great Recession, the U.S. economic recovery has stalled significantly. Unemployment remains at stubbornly high levels, consumer spending is stalling, and overall economic growth is stagnating. In late July, Federal Reserve Chairman Ben Bernanke testified before Congress and said the U.S. recovery is “unusually uncertain.”
This uncertain outlook in the U.S. has caused great uncertainty in the realm of retirement planning and general investment because, to be honest, no one is sure what will happen in the U.S. economy over the next five to 10 years. However, one scenario that will most likely not play out is a massive bull run in the stock market. It is always good to offer clients a general market outlook and make them aware of the possible scenarios in the United States economy over the next few years. At this time there appear to be two distinct possibilities.
The most realistic possibility is that the U.S. will have several years of very slow economic growth that is between 1 and 2.5 percent of gross domestic product. This extremely slow growth in the U.S. will make it virtually impossible to significantly bring down the unemployment number, and investment opportunities in the U.S. will be scarce for the average investor. The equity market will most likely move sideways for several years.
A second possibility is the U.S. economy will move into another round of recession as measured by two consecutive quarters of contracting GDP. This would, of course, cause equity markets to sell off sharply, and general global investor unrest would most likely reach very high levels. This type of slow growth will cause major problems for the average investor. A forex platform will offer more volatility.
One of these two possibilities most likely will play out in the U.S. Twenty and 30 years ago, college graduates in the U.S. were assured of above-average gains in the stock market as the U.S. was in a long-term bull market. That has changed, though. Those days are over. As hard as it may be to hear, the U.S. economy will not grow over the next 20 years at the same rate as it grew over the last 20 years.
Investors who want yield on their investments over the next five years should consider looking to foreign markets. China, India, Brazil, China and Russia are emerging markets with huge growth potential. The growth rates over the next five to 10 years in these countries are huge.
The problem is how can an average investor take advantage of this huge growth potential in emerging markets? A few practical guidelines should be followed:
1. Stick to the most developed emerging markets because they have the most political and economic stability and should not collapse as some less stable emerging markets could. These include China, India, Russia and Brazil.
2. Think of 1950s investment in America, and apply the same ideas to those countries. If you can find the GE, Wal-Mart, etc., in these developed nations and build a portfolio around them, you should see strong growth for years to come.
3. Stay away from new technology companies or other companies that are still in their infancy. Any investment in these companies should be done strictly with risk capital, and they should not be a part of your portfolio nucleus.
4. Invest in large companies in telecommunications, energy, technology and other major industries.
You can also take advantage of this investment idea by investing in U.S.-based mutual funds that are completely exposed to Chinese companies such as the Templeton Global Opportunities Fund, Matthews China Fund, or the U.S. Global Investors China Region Opportunity Fund.
Another option for investors who do not want to put capital at risk in the form of foreign equities is to focus on emerging market bonds. Emerging market bonds should significantly outperform bonds from developed nations over the next five years as interest rates stay at artificially low levels in the developed world. This interest rate yield spread should entice many investors and cause a massive capital flow into emerging market bonds.
Traders who are going to expose assets to a foreign currency should check forex broker ratings to make sure they are investing with a broker that is reputable.
Vincenzo Desroches started a financial and forex journey as a young entrepreneur and through years of self-taught investment. However, his interest in economics has been a lifelong hobby, fulfilled through various books, magazines, and courses. He has added to his knowledge of international economics in business trips around the world including Europe, Asia and Africa. Currently, he is writing a small business book while continuing his exploration of economics together with all of his prodigious interests. Read more at
