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OppenheimerFunds Senior Economist Brian Levitt on how investors can adjust their strategies to boost their portfolios.
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-- all the uncertainty surrounding fiscal -- should you be investing differently right now.
One economist says investors have to look beyond this fiscal crisis Brian Levitt senior economist at Oppenheimer Funds joins us now.
Well more than that what you say -- you've got the you've got the perfect split.
6040 as sixty being equities and forty being dot dot dot something else.
How do you divides remain -- you know some big board are gold bugs say it's all gold are our cash -- -- you gotta be flexible keep getting cash how do you divide up that 40% that's not an equity.
Well first and foremost we took a step back and looked at how investors allocated their portfolios right now and there actually is a general 6040 split between stocks and bonds but the 60% is predominantly in domestic equities the 40% is predominately in high grade fixed income instruments now.
That might not -- that 40% is in casual all cash government related -- -- -- right now if you think about that 40% that might have made sense.
Thirty years ago when.
Yields on treasuries were significantly higher and inflation was falling for thirty year time period today if you look at -- yields are paltry now what do you need to do.
We talk about allocating exposure to higher yielding bonds.
Think about it cash high yield or government related high yield bar -- now that's step one.
50% government related securities 50% high yield bonds you can increase your really -- real yield and you're trading some interest rate risk first some credit -- now.
Investors usually say to me you've generated income for me but it's all dollars writes -- how to like diversify my dollar exposure.
We talk about international bonds higher yields outside the United States foreign currency exposure.
And then the next question often -- but I don't want any currency exposure and that's how you start to think about adding gold.
Real estate master limited partnerships.
And physical commodities.
-- single global with some of your investments and leisure equity investments where globally.
-- countries well I don't think it's about countries it's really more about where companies generate revenue and there's a lot of great companies here in the United States that are gonna generate revenue all around the world but -- just look at these companies domicile -- -- fifty states for our opportunities.
Doesn't make a lot of sense and might -- made sense forty years ago.
When the US represented 75% of the world's market cap today -- less than fifty so we think about is if you're starting with a domestic exposure you want to add international to your portfolio Western Europe right now looks about as cheap as it has in decades.
We also talked about how you wanna look to the emerging markets there's a lot of great companies in the US tapping Mac growth there's a lot of great companies that are domicile in the emerging markets tapping -- growth what about the dollar risk -- -- -- -- obviously some because of the reelection the president.
Bernanke's gonna continue to print money yen and you know we we may get a hold new extension of the -- -- is does that concern you at all well absolutely and you know this this plan by central a lot of central banks around the -- it's sort -- this -- -- -- -- not just a -- you talk about these currency -- so when you think about it from an international perspective there's a lot of attractive real yields that you can generate outside the United States the question becomes which currencies do you -- have exposure to and would you advise I would say you -- what did you know strong demographics strong.
Fundamentals in the south African Rand.
You wanna look too by the Indonesian -- there's going to be currencies around the world -- -- can generate high yield and more policy.
Is going to be beneficial to those currencies be -- to be selective and it's not always going to be the same answers over the long term.
Right and gas so market panel this questions -- you do you think we will go over the fiscal cliff is that priced into the market at all and are we in a recession next year forget that that what questions for one.
Since -- -- I believe that you will see some form of a compromise the way I view it is a from a Tea Party member of the house of representatives on looking at major tax increases.
Major cuts to defense spending no changes to its partners -- private Tea Party member of -- my legs vote.
I'm John Boehner that is absolutely none of that has -- important position that is actually -- and upon the president of the United States -- senate Democrats I need a plan that allows us to raise the debt ceiling.
In the beginning -- -- -- thirteen silhouettes you it is you'll blunt the more severe components of it but you'll still have some fiscal drag at the beginning of the year and then you're still gonna have the uncertainty -- what the size and scope of the federal government will look like.
2013 and beyond him is it priced into the market.
These markets are trading -- generally reasonable valuations and it's certainly not as it's cheap as it was last August but stocks are cheap the bonds as they've been in a very long time.
Thank you Brian let it let -- -- our portfolios are out of style it.
I don't see why he's a senior catastrophic.
Thank you very much thanks well a --
