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Edelman Financial Services CEO Ric Edelman on the impact of the potential fiscal cliff on the economy and investors’ portfolios.
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The stock market rally today on hopes of fiscal -- deal may be here.
The Dow up 115 points at the close as you know many experts warn that will fall back into recession -- the fiscal cliff hits but my next guest says.
Maybe not.
Your portfolio could actually be spared joining me out -- cattlemen chairman and CEO of Andelman financial services -- -- really -- think about it's very contrary to what a lot of people might think.
And I wanna -- -- simple screens here to show people what you're talking about specific -- so.
You look at some recessions in the past.
So let's just start without first full screen here.
If you had a 100000 invested in night in the 198182.
Recession you would have earned 130644.
That would be the total -- Portfolio at the end of the recession.
Likewise moving forward to the next recession.
During -- 1991 recession if you started with a 100000 you -- ended up with more than a 1141000.
That you're getting the picture here.
And I think we have one more.
During the 20012003.
Recession.
You would've ended up with a 126000.
If he started with a 100000 dollars this is heal completely contrary Rick to what I think most people expect.
They think that the stock market goes along with the economy what do you say.
Exactly right -- and that and that's a myth the stock market in the economy are two very different things at look at the last four years the economy's been dreadful.
Low housing prices terribly high unemployment and yet the stock market has more than doubled.
So we have to recognize that the economy in the stock market are two different things and for that reason investors do not necessarily have to fear a recession.
Let's and we shouldn't be unhappy about it we shouldn't try to avoid it but don't assume -- that's Armageddon.
If it occurs.
-- they're trying to appear at how do I even talked to my financial advisor about this you've got some great questions.
The first -- how much concentration in my portfolio what do you mean by that.
What we have to make sure we don't have too much of our money in a single place you know twelve eggs in twelve baskets is the way to go so how much of your money is and a single stock.
How much of your money in stocks in the first place as opposed to bonds -- real estate or gold or foreign securities -- oil and gas diversification.
Is the best way to protect yourself.
In this economic uncertainty you also point that interest rates important you need to ask your financial advisor -- about that what is the risk here.
Well if interest rates begin to rise and eventually they will.
Bonds are going to fall in value so we have to make sure that you don't own long term bonds.
Your bonds should have maturity dates of five to seven years or less three years will be great so that -- interest rates rise you won't lose a lot of money due to rising rate.
Wow I think that's important to really underscore here you're saying shorten up lighten the load and bonds here shorter durations.
That's really fascinating.
You're also talk about credit risk.
How much credit risk you said that about the bond portfolio bond holdings.
Right we have to worry about not only interest rates rise and we have to worry about bond issue words.
Falling in their own value municipal bonds issued by state and county governments.
They're undergoing a lot of financial pressure right now many corporations issuing bonds are also -- shaky financial footing.
We need to make sure that the company or the government that issued by bonds of me is going to actually be able to pay off.
If they get a credit -- they go from -- the single way.
The value of that bond could get cut as well.
So I have to look at the -- behind -- ratings is that what you're suggesting and what do you think it's an essay -- right AAA is it only -- you should.
I would recommend that you go only with the investment grade triple -- a single -- would be the safest approach to take with bonds.
Here's another question you have for your financial advisor and I think this is a good -- how much turnover is occurring annually in my portfolio.
Is lower always better.
Yes slower is better because it's.
Lowering cost lower in risk it's amazing people buying of stock.
And then if it doesn't perform in the next couple weeks -- couple of months they dump it.
That high level of -- only creates volatility uncertainty higher expenses and higher risks you wanna make sure that the investments you hold.
Are genuinely being held for the long term for years.
And if you find that your investment advisor is constantly making changes and his advice or -- the mutual funds you on -- constantly flipping the stocks in those funds.
Well you're dealing with a high cost high volatile investment that isn't suited for your long term goals to -- to make all these changes before the end of the year.
You need to have the conversation with your advisor and Nelson the you can properly position your portfolio.
For what might come on January 2 once we get into the new year with a new tax laws with the new economic environments so it's definitely worthwhile having this conversation with your advisor right now I had I love -- advice Rick thanks for coming on -- always -- to CEO.
You to Jerry.
