Year-end in the investment and financial services business is traditionally
the proverbial “forecasting season” in which many firms issue their fearless prognostications
for the forthcoming year relating to such things as financial market returns, interest
rates, the economy, Federal Reserve policy, etc. In truth, it is important
stuff: having the best, or at least, better vision into the future is certainly
a huge advantage in investing. The problem with the “forecasting” business is
no one can forecast the future precisely; if we could we wouldn’t be……well, you
know how the rest of it goes.
History shows that pundits and forecasters you read about or see
on TV are right about half of the time, the equivalent of a coin toss. So are
their forecasts worthless? Not necessarily. The pundits can provide ideas,
data, and food for thought that can be helpful in formulating investment
strategy. Having an investment strategy based on fundamental analysis is part
of our due diligence in managing client assets. In an environment of
uncertainty, we do this primarily through deriving probabilistic assessments of
the factors that will impact future market and portfolio performance. In short,
as of now our best probabilistic assessments for the economy and stock market
in 2020 remain positive.
Importantly, in an environment of uncertainty where we know things
will happen that we cannot currently forecast, there are always actions we can
take to enhance our probability for financial success. Think of it as “finding
strawberries” in a roughed up and messy garden, “strawberries” being positive
things that are tangible in an environment of uncertainty. Here are six
“strawberries” we see for 2020.
1. 1. The economy should again be strong in 2020. This
is based on strong employment and good probability for robust consumer spending
and stronger capital spending.
2.
Good probability for improving corporate
profits which are the underpinning of stock prices.
3.
Good probability that global central banks will
remain accommodative. This implies healthy liquidity to the financial system
and is a positive for valuations of financial assets.
4.
The ability to be proactive in positioning
oneself better financially for 2020. This includes such things as improved spending
and budget discipline, establishing a more disciplined savings program,
reducing debt, tax planning, and/or maxing out tax qualified savings plans such
as IRAs and 401Ks.
5.
The ability to take steps to improve one’s
financial future through implementing a comprehensive financial plan that
focuses on long-term financial goals and improving one’s financial health and readiness
for retirement.
6.
Being proactive in managing portfolio risk
through appropriate asset allocation, asset class diversification, and adhering
to a disciplined financial plan.
Robert Toomey, CFA/CFP
Vice President, Research
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