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Which investments look attractive, and which don’t, as 2020 elections approach

SEC Chairman offers advice on diversifying your investments

U.S. Securities and Exchange Commission Chairman Jay Clayton offers advice to investors about diversifying their investments.
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U.S. Securities and Exchange Commission Chairman Jay Clayton offers advice to investors about diversifying their investments.

As of this summer, the economic expansion is the longest in U.S. history, according to the National Bureau of Economic Research. Uninterrupted GDP growth has lasted 120 months, or 10 years, from July 2009 to July 2019. Experts have predicted some negative growth every year since the Great Recession, but this has not come to pass.

May was a rough month for stocks, with major averages declining around 7%. June showed great resiliency as interest rates declined, and hope for Chinese tariff relief cheered financial markets. Watch for lots of corporate earnings announcements in July as a barometer of economic health.

U.S. economic growth is muted around 2.5%, with tame inflation as measured by the Consumer Price Index. Pockets of inflation exist —

Investors who are not diversified in any foreign stocks should consider increasing target allocations for emerging market equities by rebalancing away from over-allocated asset classes, including large U.S. companies. Home bias towards our successful local and domestic companies is natural, but we believe adding other categories reduces risk and mutes volatility.

Income-producing stocks like real estate investment trusts, or REITs, utility stocks and high-yield bonds look expensive. Master limited partnerships, or MLPs, look attractive and provide higher-than-average income. MLPs present different risk and tax issues than regular stocks, so check with your investment and tax advisers before investing.

Daly, Mark.jpg
Mark Daly

The 2020 election cycle is in full throat as nearly two dozen presidential hopefuls gear up for debates, primary elections and caucuses. Thoughtful planning, frequent reviews and discipline will help prevent mistakes when political winds change direction — and they always change direction.

Keeping some cash available for immediate spending needs is essential. Adding high-quality short-duration bonds and bond funds as a buffer between cash and a diversified low-cost global stock portfolio is a good idea.

According to a recent Bloomberg story, $11 trillion in sovereign country debt around the world sport yields less than 0%. That means you get less money back than you invested when the debt matures. Add in taxes and inflation and these bonds look even worse. Despite massive intervention by central banks around the world, the inflationary force is not with us.

Savers remain snake-bit as nearly every attempt to increase interest payments on savings, CDs, and money-market accounts has been temporary and unsatisfying. Some strategists have suggested that interest rates could remain muted for a generation, suggesting price deflation around the globe will remain.

People are working, central banks hit the “pause” button, interest rates remain low, volatility is abating, corporate profits look healthy, and equity valuations are slightly above average. Make a midyear heading check on your plan, make the necessary course corrections, and enjoy the third year of the election cycle — typically a kind period for patient, optimistic investors.

Mark Daly is an investment management analyst and a partner in The Perpetua Group in Boise. mark@theperpetuagroup.com

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