Money Matters airs February 18th, noon PACIFIC STANDARD TIME- Market Update- Please read

Is the stock market broken?

Money Matters airs Thursday Feb 18th, 2016  Tune in for the latest in market news!

Noon 12:00 pm PST on KVMR FM 89.5 FM or Worldwide at www.KVMR.ORG

Marc's Notes:

The first few weeks of 2016 witnessed a record setting fall for the start of a new year and investors ran for the exits as each new day seemingly brought more pain in portfolio balances.

With February bringing some relative calm to the selloff, investors are now wondering what went wrong and what should they expect in the days and weeks to come

Many theories abound as to what exactly caused    the sell off from the Federal Reserve raising interest rates to the plunge in oil prices just to name a few. Regardless of what caused it, the fact remains January is now behind us and the question is what investors can expect in the rest 2016.

Being election year, the theory goes although the Federal Reserve is supposedly not beholden to the political whims and wishes of Washington, many would argue otherwise.

Would the weight of which party rules the country after November’s election have enough sway convince the Fed to insure market stability? Are the Feds hands tied in addressing any market weakness to insure it does not give the appearance of moving in the interest of those in power?

Market pundits offer up improving economic statistics as proof the economy is improving and so the markets will eventually reflect that, but recent months have showed a slowing of the economy in many areas by many figures put out by the Bureau of Labor Statistics, Washington’s official mouthpiece.

Rising deficits and a halt to the sequester cuts also may be causing investors to wonder just when Washington will gets it spending under control, however talks surrounding fiscal responsibility have all but disappeared both on Main Street and in the ivory halls of Congress.

US dollar strength has hurt exports and with talk of more interest rate increases from the Fed, investors and analysts alike seem split on which way to turn as it relates to the stock market.

With the price of oil in the doldrums, this fact is also causing contradictions in the minds of Wall Street. Lower oil prices are helping to put more money in the pockets of consumers to spend, yet these same low prices are causing economic pain in companies that deal in the black stuff and to financial institutions that lent money to those companies. The thinking is that some oil producers will have a hard time meeting their obligations due to low oil prices and that in turn might bleed into the other debt markets as defaults in one area tend to cause contagion in others.

With other currents and cross currents pulling markets to and fro, indeed the next few months if not the entire year could be in for a volatile ride, and the best thing investors could do is maintain enough positions to participate in markets rallies while maintaining a healthy cash position to have some dry powder available to scoop up better buys later on should markets turn negative. Moderation and diversification in all things might be the order of the day.

-----------------------------------------------------------

Looking for guidance in today's markets?

Building a portfolio for investors can be a daunting task. Many portfolios I see use what I call a “shotgun” approach. 

What I call shotgun portfolios are built on a variety of mutual funds which may include large cap (large companies)  mid cap (midsize companies) , small cap (small companies) , emerging markets, global stocks, municipal bond funds, corporate bond funds, high yield income funds (usually comprised of a variety of junk bonds) and even individual stocks. I also might see sector funds (certain industries), mortgage REITs (real estate investments trusts), business development companies (BDC’s) and even Treasury debt and a variety of other debt instruments.

The common thread among this shotgun approach is to buy some of everything with the belief is your “covered”, or in plain English “diversified”.

I often find this approach grossly inadequate for today’s markets but this is my opinion only.

Rarely if ever do we see all assets classes move in concert.  Every day I see red and green on my board, meaning certain market areas will go up while others go down and some will even remain where they are on any given day.

That being said, holding a shotgun portfolio may have a tendency to be profit neutral, meaning it may be going nowhere fast, a complaint I hear often.

Going nowhere may be desirable in down markets but in up markets can be frustrating.

There are different strategies and many theories on how to build a successful portfolio and it may not include just buying a chunk of every asset class

Select a period in time and there will always be sectors that are hot and some that are not, some that have had tremendous runs and some that have been hammered mercilessly

The trick is of course when do you buy into a sector, hold a sector or outright sell it?

Although no one holds the proverbial key to guaranteed success, active involvement in selecting certain sectors and avoiding others may have its advantages.

Selling sectors whose run could be over might avoid losses. Buying beat up sectors (known as value investing) looks to capitalize on assets that could be regarded as “on sale”.

Avoiding assets that are sensitive to interest rates (fixed income such as bonds, preferred stocks and even utilities) might be considered when interest rates are expected to rise.

If world markets are reeling, the US market may attract “flight to safety” capital in lieu of emerging markets which tend to sell off more violently during global upsets.

If markets look to run however, emerging markets may amplify a move, allowing more profits to investors placed there.

In inflationary environments, precious metals and commodities may rise and during deflationary times, cash and cash equivalents hold value while most other asset classes may deflate.

For conservative investors, higher cash percentages might sooth anxious nerves and younger investors may want to take on more risk in high growth areas.High cash positions may also be warranted in uncertain times for all investors. High cash not only preserves portfolio balances, it’s also dry powder one can use to buy more of an asset after a crash when prices are lower.

Retirement accounts have compounded growth from assets that pay out cash because of their tax structure (avoiding the yearly tax that non IRA accounts may pay) while non retirement accounts may look to hold some tax free assets such as certain municipal bonds. Avoiding income tax on tax exempt assets essentially gives investors a higher net return if the asset is tax free or taxed at a lower rate.

Dividend paying stocks and funds pay an investor income while they hold the security in lieu of assets that yield nothing. In flat markets, these payments can bring smiles to the faces of investors while others wait for markets to rise with assets that pay nothing.

Target funds aim to maximize time frames with a moving mix of stocks and fixed income holdings. This means investors select a definitive time period to target maturity in which the fund then slowly goes from risk assets to lower risk assets as the target date approaches.

Target funds are popular in college accounts, where the age of child is known as is the projected date of college enrollment. The thinking is when a child is younger, the account can hold more stocks which might grow over time, but as the college date approaches, stock are slowly replaced with a higher percentage of fixed income assets such as bonds and preferred stocks which traditionally are less volatile.

There are many considerations which depend on the factors of the investor and of the market in general. Avoiding the typical “Shotgun” approach to investing could be compared to the mistake that one size fits all. Each market is different as is each investor. That being said, instead of a blasting away with shotgun, perhaps a better approach would be a carefully selected advisor with a good aim.