MAKING CENTS: Cliff walking with your portfolio

Whether we jump off the cliff or have a soft landing because of a compromise that Wall Street and employers both like is yet to be seen. The short-term reactions to the cliff and any deal are just that, short-term reactions that may be more heavily influenced by emotions rather than fundamental valuation standards.


pic credit: blog.ecivis.com

If you have the vision to see beyond the changes that are sure to stick with tax policy and spending cuts, you too shall realize that life, and investing for that matter, must go on. Most of us will still be seeking returns in excess of inflation, and unfortunately, we also know that this choice carries some risk of loss.

The two ends of the spectrum include a second recession caused by the 4-percent GDP cost from a full cliff jump or a slowdown from a compromise that also reduces the nation’s output, but not enough of a slowdown to throw us into another recession. At this point, it is difficult to see how 2013 will be a banner year for investors in the U. S. compared to other great years we have witnessed. But this slow-to-fair forecast doesn’t eliminate your need for investments gains; it just forces you to look elsewhere for your investment returns.

Elsewhere could be in a different asset class or industry. For example, an asset class that has been in the dumps for quite a while is real estate. Most see prices in their neighborhoods still far below their 2007 peaks. Certain markets, such as prime downtown residential space, have appreciated considerably over the past few years. But others, like suburban single-family or residential property in the Sunbelt have not appreciated considerably over the past few years, and may be worth a look for the handy person who doesn’t mind a second job.

What about Europe? Sure they’ve still got issues to deal with, but did you realize that European equity markets were generally up in 2012? Most people wouldn’t think of investing in European assets this past year because of all the headline scares about their own fiscal crisis. Germany, which appeared to have the most to lose from a European meltdown, appears to have been one of the economic champions in the equity markets from a strong rally in the second half of 2012.

For you hard-asset buffs – get more diversified. Sure, gold grabs the headlines and you see it nearly every day on the neck of a friend or co-worker, so it is always on your mind. But there are many more precious metals and resources to own other than gold. If you are looking for an inflation hedge, it would be wise to spread your risk over more than one or two metals.

Some of you will choose to stick your head in the sand and hunker down. This guarantee of principal may feel good in the short term, but the loss of purchasing power to inflation is hard to make up over extended periods.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.

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