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LPL Research has changed the format of how they present their “Mid-Year Outlook”, and has recently produced a pretty nice video. We have attached the link in this email.
Here it is: https://youtu.be/px5joQivJx8
Prior to watching the video, I’d like to interject a few of my opinions on the content. The video is well-done and covers a lot of ground.
The overall message is of a “long-term bullish” view, which is an opinion that I share. If you watched some of the videos I was releasing as the coronavirus began to affect our portfolios, I have been saying similar things since experiencing our March market lows.
There is a comment on Emerging Markets that indicates that these markets may present a more robust potential for growth, as the GDP numbers are projected to be a little better than are expected in the domestic markets. GDP growth does not necessarily translate into growth in investment returns. In fact, I submit that the element of risk inherent in Emerging markets, for a number of reasons, can effectively offset the growth potential.
We manage risk as much as we manage growth in our portfolios, and that has led us to become more domestically oriented with our portfolios, as we feel the domestic markets represent less volatility than Emerging Markets. At some point, I expect that we will begin to provide more exposure to international and emerging markets, but we are not at that point presently.
Another interesting part of the presentation is the section about fixed income (bonds). I think it is well-illustrated in the charts, that being heavily dependent on bonds for income can be challenging. As many have seen, we are big proponents of utilizing stock growth and dividends in an attempt to generate sustainable income for our clients.
The “accepted wisdom” of investing used to consist of moving to bonds in retirement in an attempt to lessen risk, as bonds are assumed to possess lesser amounts of risk. Keep in mind that bonds still represent potential risk, as an “inverse relationship” between interest rates and bond prices exist. When interest rates decrease, the price of bonds increase, and when interest rates increase, the price of bonds decrease. We are at historical low interest rates as I write this note. So, when rates approach zero, as they are in our current environment, interest rates have nowhere to go but up. So, we need to be aware of these changes as they occur.
The political elections also represent some challenges as we move forward, and there are interesting charts and comments presented that provide good food for thought.
Simply said, thank you for the trust that you place in our firm. We are here for you, and if you have questions about this or other topics, please feel free to call on us.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts may not develop as predicted. Please view the full Midyear Outlook 2020: The Trail to Recovery video for additional description and disclosure. This research material has been prepared by LPL Financial LLC. Stock investing involves risk including loss of principal. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.