By: John P. Napolitano, CFP®, CPA, PFS, MST

This is undoubtedly the most frequently asked question posed to me. The answer is, what market?

I believe that most people ask this question in the context of the headline news that they hear on their favorite news or business channel. That news is typically U.S. centric, with a heavy focus on the indices representing the largest companies in America.

When I think of the “market”, my mind goes about a million miles an hour because to me, the market means anything that may reasonably be included in an investment portfolio. That may include, but not limited to: U.S. Equities, Developed Foreign Equities, Emerging Market Equities, U.S. Fixed income, Foreign Fixed Income, Real Estate, Closely Held Businesses, Precious Metals and Oil, Interest Rates, Currency and many other asset classes in which you may invest. To the professional, it is really impossible to answer that question with one word or a savvy made for TV sound bite.

Depending on which headline news you want to believe, any world markets can appear to be in good or bad shape. Contrary to the opinions of economists prior to the election and to those who are still protesting the results, U.S. Companies appear to be optimistic about some of the economic and policy changes being bantered about as the cabinet for the new administration is formed.

U.S. Fixed Income markets, however, have not fared well since the election. The long-standing fear that a rate rise may harm your fixed income portfolio is happening as we speak. Advocates for fixed income, however, contend that the drop in fixed income values pale in comparison to an equity market downturn and that there are measures that one can take to mitigate harm from rising rates. Some of these measures include shortening the duration of your fixed income portfolio and evaluating fixed income investments with rates that can adjust upward.

In case you’ve been in a cave since the financial crisis, U.S. Equity Markets have outperformed most global markets for the past 7 or 8 years. Based upon fundamental characteristics such as unemployment, inflation and strength in the U.S. Dollar, it appears as if that trend is still intact. But because no one can tell me exactly when, and what will cause that trend to end, I believe that it is not wise to avoid exposure to some of the other markets aforementioned.

Headline news, world events and the occasional hard to predict rare event will always impact the value of any investment. But remember that this cuts both ways. Remember Brexit? The world was falling on the days immediately following that surprising move. Some markets got clobbered, but most have recovered to erase those losses and reach new highs.

Volatility is here to stay, and may even accelerate due to electronic trading and the pace at which news travels. And in the end, the returns you make, are related to the risks you take.

 

*Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

John Napolitano's weekly Making Cents article is published by several Gatehouse Media outlets such as the Patriot Ledger.

John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA.  Visit JohnPNapolitano on LinkedIn or www.uswealthmanagement.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.  John Napolitano can be reached at 781-849-9200.