Investors in Colorado feel confident about achieving their long-term financial goals, according to the latest Morgan Stanley Wealth Management poll. High net worth investors (defined as at least $100,000 in investable assets) are also bullish about the Colorado, U.S. and global economies.
Collectively, confidence has risen, as shown by 90 percent of Colorado investors anticipating their investment portfolios to be better or the same at the end of this year, compared to 83 percent at the same time last year.
On the flip side, Colorado investors were most concerned with government budget deficit, 85 percent; prospects for the U.S. economy, 82 percent; increased foreign conflicts, 81 percent; national trade deficit, 81 percent; and volatility in the stock market, 76 percent.
Distressing as that last item may seen, stock market volatility need not dismay investors, one adviser says.
Bottom line? Correct asset allocation and a balanced portfolio can mitigate volatility, according to local financial adviser, Jeff Jensen, senior vice president with Morgan Stanley Wealth Management.
On March 9, 2009, the U.S. stock market hit bottom, at 6,547.05. Prior to that precipitous plunge, the Dow Jones Industrial Average had been as high as 14,164.43 on Oct. 9, 2007. From the low point until the end of 2013, the Dow climbed 202.8 percent — a 5.9 percent annual rate of return or 35.5 percent cumulative return.
“People who are fully invested rode the wave all the way down and all the way back up. They’re in the black, and they want to know what to do with their money, now,” said Jensen, who’s earned a long list of certifications, including senior investment management consultant (with Morgan Stanley); certified investment management analyst (from Wharton School of Business); accredited investment fiduciary, and Series 7, Series 63 and Series 65 securities licenses.
Morgan Stanley executives expect the S&P 500 Index, at 1741.89 earlier this week, to reach about 2,014 by the end of 2014, an increase of 9 to 10 percent from the end of 2013, at 1841.40, he said.
In addition, the firm projects global gross domestic product growth of 3 percent in 2014. By way of comparison, average global GDP growth during the past five years has been 2 percent, while recovering from the worst financial crisis in 80 years.
“Overall it’s been very strong global growth recently,” he said. “But we are the only country in the world [whose stock market] has fully recovered from the October 2007 high. Japan still needs to grow 42 percent to break even.” For this and other reasons, Jensen remains bullish on international stocks, which are a bargain lately.
Of course, when interest rates go higher, bonds drop in value.
“Bonds are no longer a safe haven. If you do nothing with your bond portfolio, you will lose to inflation,” Jensen said. “Generally speaking, we see the impact of the tapering that the Fed is doing right now. And we see interest rates going gradually higher.”
To that end, Morgan Stanley managers are shortening the maturities of bond portfolios to reduce volatility.
“We are diversifying fixed-income bond portfolios into more asset classes and using bond ladders, so people can hold their bonds until maturity and get their money back,” he said.
Also, advisers are decreasing bond portfolios for their clients and buying more nontraditional assets, such as commodities, precious metals, real estate investment trusts (REITs) and the use of hedging strategies.
Although there’s been a market reduction since the beginning of the year, Jensen sees no cause for alarm.
As long as a portfolio is balanced, volatility will be greatly reduced.
“While the international market is getting hammered, U.S. stocks are down 5 percent, and investors with properly balanced portfolios are only down 1.5 to 2 percent,” he said.
Higher net worth people are trending toward diversification — investing in nontraditional assets and energy companies, as shown by Morgan Stanley’s poll.
Forty-four percent of Colorado’s high net worth investors have invested in oil and gas in the past three years, whereas 24 percent invested in alternative or renewable energy companies, and 21 percent in Colorado-based energy companies.
Also, more investors plan on investing in oil and gas, 38 percent, than alternative or renewable energy companies, 27 percent, or Colorado-based energy companies, 25 percent, in the next three years.
Among millionaires, the poll showed, alternative energy investments, from solar to electric cars, garnered especial interest for the coming three years.
UMB economic forecast
At a recent UMB Bank economic forecast luncheon at the Garden of the Gods Club, attendees heard a comprehensive overview of the vagaries of 2013 and the more positive outlook for 2014.
Fashioned after a movie plot, the presentation, complete with a cast of characters — Federal Reserve, the consumer, business, Washington politics, and potential villain or hero (the Fed, depending on what it does with quantitative easing and interest rates) — kept the audience riveted.
Ben Bernanke, outgoing chairman of the UMB Bank economic forecast, “is obviously making a big exit,” said Eric Kelley, senior vice president and managing director of fixed income at UMB Bank. “He was the right man at the right time … with an academic prospective, and the world’s leading expert” on economic policy, he added.
This week, Bernanke was succeeded by Janet Yellen, highly qualified and considered “dovish” — “in favor of using aggressive monetary policy and more afraid of deflation than inflation,” Kelley said.
With pundits and experts across the world watching her every move, only time will reveal Yellen’s strategy and timing in a delicate balance of inflation versus stagnation or worse.
In a script straight out of Hollywood, American consumers play a vital role in the nation’s economy. Consumers are “extraordinarily resilient,” said KC Matthews, executive vice president and chief investment officer at UMB Bank. Their behavior bodes well for the economy, as consumers have reduced debt, resulting in greatly improved balance sheets, Matthews said.
Adding to that momentum are recovering home values, further boosting investments, which creates deleveraging.
“Consumers are in a better position now. Their debt burden has come down significantly,” he said, and banks are extending credit again.
During and after the recession, growth was slow because “it’s hard to have robust growth when consumers are cut off from most credit,” he added.
But the thaw of credit continues and blue skies have peeked above the horizon.