Investing During a Fiscal Cliff and Other Odd Mark
Investing During a Fiscal Cliff and Other Odd Market Conditions
The "fiscal cliff" is a recent invention, having first been discussed during the near expiration of the Bush tax cuts in 2010. It represents a possible negative economic outcome if our politicians don't change a previous “kick the can down the road” deal on taxes and spending that basically said “if we can’t agree with a better deal by a certain date, automatic cuts in spending and increases in taxes will be implemented”. Both items have historically been proven to reduce economic growth. On top of this dilemma is the need to increase yet again our legal limit of credit (the debt ceiling).
If our credit limit is not raised we would no longer be able to spend borrowed money, which will likely result in a government shutdown. This in turn may lead to additional reductions in our credit rating, and possibly a resulting liquidity crisis similar or worse than 2008. Without a rewrite of our current laws, the potential damage to our economy and the world has become known as the fiscal cliff.
This possibility has led some fiscal cliff believers and risk averse investors to take the “ostrich approach,” burying their money in the sands of no return to watch from a safe distance. We understand this proactive approach, but in our view that investment decision may be misguided, since there are investment opportunities that indeed may thrive even in these challenging circumstances.
The first thought for many might be gold. In times of global turmoil and uncertainty, gold tends to be a safe haven. If the world can no longer in the USA trust, it seems gold might become a temporary currency of choice. But as you probably know, it is never a good idea to put all your “golden” eggs in one basket.
So what else may perform in spite of economic concerns? Actually, there are many possibilities. In our opinion, we think you should take a look at a category called Alternatives. Basically, an "Alt" is a catch-all phrase for any investment that isn't a stock or bond. Alts are not just investment types, they are also investment strategies - some of which show predictable positive return in up and down markets, or designed for good or bad economies.
Think of your portfolio like a football team. Your offense is stocks, your defense is bonds. What's missing? Special teams. The kickoff, the punt, the field goals – to your investment portfolio these are alts. And who ends up being the NFL top scorers? Field goal kickers. Adding alts to your investment portfolio will likely improve your return while reducing your portfolio fluctuations and downside risk. Massive institutions have been using them for decades, but very recently access to these same managers is now available to the “average Joe.”
The move to “safety” at the expense of return potential as we face this “fiscal cliff” is yet another example of our natural human nature to do the wrong thing at the wrong time when it comes to investments. Remember the Y2K “crisis?” (If you don't remember Y2K, you should look it up on your still functioning computer.) I believe your fear may be misplaced, and so may be your money. At Heartland Financial Strategists, we can help you fix that with elite planning tools and investment solutions that can protect growth and assure needed income in what needs to be. Our team can provide the offense, defense, AND special teams that result in a better experience and more predictable outcomes. Indeed, cliffs are not a concern when you're going over one in a glider with alts as your updraft. So get your head out of the sand - building gliders is our specialty!
Heartland Financial Strategists