Correction, recovery, inflation…what is ahead?

Doug Horn

Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters. Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.

Today, headlines will include speculation about the direction of the market and the economy responding to each move in the markets, or release of new economic data. Be sure to remember headlines should not dictate investment policy. Each investor is unique with regards to risk tolerance, income needs, and the importance the investment portfolio has in their overall security.

Corrections, both large and small are part of investing and cannot be avoided. Like Warren Buffett, when others are selling, it is time to start seeking value and adding select investments to portfolios. Having a time horizon longer than one quarter or even one year will permit investors to take advantage of dips in the market and hold new purchases until they recover; thus providing the targeted gains every investor is seeking.

Following every market correction is the opportunity in the recovery. Only hindsight permits us to know how low a correction will go and the exact start of the correction. By this time, those waiting to ‘know’ will have missed the majority of the move. During November 2008, in the midst of horrific financial news, most investment markets dropped rapidly and reached multi-year lows. While the markets set new lows the following March, investors had months to search the markets for opportunities. Yet most investors sat on the sidelines waiting for the markets to be ‘safe.’

The news headlines will continue to include worrisome topics including unemployment rates and missed profit and revenue targets by many companies. But, this is normal and should not cause long-term investors to move from their objectives. Inflation presently seems to be the biggest worry based upon the headlines and stories. Personally, I do not believe this will be a factor for several years.

There are two key factors for inflation to begin to rise. First, demand must exceed supply; and secondly, wages must be on the rise. The economy has significant capacity that is available to come back online should demand catch supply. Until utilization climbs back to the upper 90 percentile range, available capacity will assist in keeping inflation in check. The unemployment rate is the second indicator that inflation is perhaps years away. Wages will not rise significantly when there are millions looking for work, and perhaps thousands more under-employed.

For the next couple of years, our economy should continue to heal and the available capacity shifts through mergers, closures, re-tooling, and gradually comes back on line. During this process, the economy should also start adding jobs which will gradually reduce the unemployment rate. However, this decline in unemployment rate typically starts after the economy has already begun its recovery.

Straight line increases or declines should not be expected now or in the future. Most likely, the indexes will be higher in five or ten years from today’s value, but to predict whether they will be higher next quarter is far more difficult. Thus investing for the long-term will for most investors provide the success needed to insure financial security.

For help with estate planning and managing investment assets, contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other tools all available for free.

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