Investing for the Future

Happy New Year everyone!!

I hope 2012 is starting off right for all of you. I wanted to continue adding to the blog and address investing over a longer time horizon. In , we discussed the risks and concerns in trying to make money over the next 12-18 months. 

In this post, it's important for many of you to look beyond that short time period and think how you can grow your money over a longer duration. This may impact some of your decisions regarding your 401k, IRA, 529 plans or other long-term saving vehicles.

If you are investor who is thinking longer term—fund a college education, fund your future retirement or some other long-term goal—well then I think the future is starting to look better. I tend to be an optimist, glass half-full person so take everything with the proverbial grain of salt but I see a lot of positives long-term for stocks, particularly global, high dividend paying stocks. 

The long-term risks are all there. The U.S. government and other world governments can continue down the path of protectionism, over regulation, out of control debt levels, etc but if they do enough to improve the structural issues (a discussion for a different time) then I think it’s a great time to look into stocks for the long term.

Coming out of the recession and financial crisis of 2008, most US companies have improved their balance sheets and are in immaculate condition with large balances of cash on hand to re-invest in their company, make acquisitions or increase dividends. Technology stocks are one of the areas that may have attractive long-term growth potential with large cash balances on hand.

With interest rates and yields on bonds low and remaining low since the FED announced it to be the case until mid-2013, it may be important for many investors who need income producing securities to look beyond bond yields. High dividend paying companies look very attractive. Who are some of these companies? Open up your refrigerator or kitchen pantry and look on the back of your food containers.  Most of those companies have dividend yields above 3 percent and are trading at attractive prices too. 

Another interesting area would be industrial type of companies or as one famous investor says, “companies that make something that if you dropped it on your foot, you would say ‘ouch.'"  If you are comfortable with the prospect of owning tobacco companies, they continue to offer high dividend yields relative to the rest of the market and well within the 5 to 6 percent range.

Thinking long-term should also allow you to diversify your portfolio too. In short time periods (i.e. 2008), diversification may not prove beneficial as all securities may move in the same direction. However the power of diversification still holds true when your time horizon is greater in length. Any access you can get to stocks, bonds and other eclectic asset classes like oil or gold can improve your portfolio’s performance as some asset classes move in and out of favor.

So in summary, to answer the question “what do I do with my money?” it is difficult to address with a blanket statement since a lot of variables matter when assessing your personal financial situation. If you are not invested in the markets currently, now may not be a bad time to start knowing that in the short-term, there are some immediate risks and volatility to get through while long-term prospects still remain quite attractive.  (In the , we discussed some ways to get into the market now). Avoid the constant parade of news that may drive the market day-to-day. Focus instead on the financial goals and objective you are trying to achieve and building the portfolio best suited to accomplish it.

I hope you found this commentary useful and informative. It is just one local man’s view that may or may not be consistent with other views out there (differing opinions is what makes a market).  I am open to your feedback and comments.  If there are specific topics you would like me to address, let me know.

Thanks!

All of my views above are just opinions and are not any representation of the views of my employer.  Investing involves risk and you should research on your own or consultant your financial advisor before doing so.