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Guarding Your Wealth for Senior Citizens
Understanding Trends of 2007 Helps in Building and
Maintaining Wealth in 2008
2007 could easily be referred to as the Year of the
Tums
By Jeffrey D. Voudrie, CFP
Jan. 11, 2008 - Last year (2007) was a tumultuous
year for the stock market. Now that the LED ball in Times-Square has
dropped and the confetti has been cleaned up, it’s time to briefly recap
2007 and, more importantly, look at how your portfolio should be
positioned for 2008.
2007 could easily be referred to as the Year of the
Tums.
Our volatile markets experienced three major drops
during the year. The first, at the end of February, caused the S&P 500
to fall 4.7% and the emerging markets over 10%.
The after celebrating a
great first half of the year, the Sub-Prime Fiasco hit in early July are
resulted in the S&P 500 losing 7.7% and the emerging markets 17.7%. The
year-end rally came early followed by another decline of 7.75% for the
S&P 500 and 15.3% for the emerging markets.
In the end, the S&P 500 was up 3.5% and the
emerging markets (EEM) were up 33%. Investors, even seasoned investors,
have been tempted to throw in the towel and get out of the market. Many
have.
Even institutions have increased their cash holdings. That’s why
interest rates having fallen so dramatically, with the 10-year Treasury
now yielding around 4%.
Let’s put this in perspective before you get too
depressed! The last time the S&P 500 had a losing year was in 2003. The
average annual return on it over the last 5 years has been over 12%.
That’s well above its long-term average.
The emerging markets (EEM) have done even better.
EEM wasn’t available for all of 2003, but has been up over 25% each of
the last 4 years. To put that in dollar terms, a $100,000 investment in
EEM when it came out in 2003 would now be worth around $600,000.
While there is risk associated with investing in
the markets, we need to be compensated for taking that risk. Over the
last 5 years I would have to say we have. The amount we’ve earned has
far out-weighed the amount we spent on Tums!
Enough about the past. How should you invest in
2008? I can’t speak to your situation specifically, but I will tell you
about the general themes that I see playing out in 2008 and how you can
profit from them. I expect it will be another volatile year so you will
have to determine if the potential reward is worth the risk. I believe
it will, if you invest correctly.
The U.S. economy is slowing and the housing
market/sub-prime crises may continue into 2009. I doubt that we will see
returns higher than 10% in the S&P 500. It’s more likely that the return
could be half of that—but it depends on the Federal Reserve. I expect it
to continue to cut interest rates because it must keep our economy from
going into a recession, even a mild one.
If you are serious about growing your wealth, you
need to invest a portion of your money outside the U.S. markets. The
growth in Russia, China, India, and other Asian nations will once again
far surpass the growth of our nation, while our inflation is likely to
increase. If you don’t earn enough, you will actually see your
purchasing power decline.
Asian economic growth, combined with even higher
mandates for ethanol production in the U.S., will continue to put
pressure on commodities like corn, wheat and soybeans. Demand for energy
will continue to increase far faster than supply. Oil and coal prices
should continue to increase.
This is why I plan to continue focusing on
investments outside of the U.S, along with an emphasis on energy,
commodities and raw materials. I expect high-dividend paying stocks such
as regional telephone companies to recover their recent loses.
Declining
interest rates should drive income-oriented investors back, creating
locked-in yields of 8-10% or more.
Investing in foreign companies, energy and raw
materials can increase the volatility of a portfolio. You will have to
be the judge whether you have the stomach for it. But think about it
this way—what are you are trying to accomplish over the next 5 years?
The best way to protect your wealth is for it to grow. A drop of 5% or
10% in the short-term pales in comparison to the growth that should be
achieved as these major themes play out.
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
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