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Market Outlook

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Conservative investments

The stock market has never been this weak in any of the past 19 recoveries going back to 1912. The economy is growing – the market is declining. When will the market turn around? Probably when we least expect it to!  Last week, the number of new 52-week highs on the New York Stock Exchange was about the same as the number of new 52-week lows. Many investors are mindful that the economy is strengthening. Valuations are reasonable given the prospects of modest earnings recovery over the next year, very low inflation and low and falling interest rates. It is just hard to get excited about investing in anything but gold or treasury notes with the headlines news.

The market needs some encouraging news. The stock market has sagged in direct correlation to the opinion polls on how America feels about the way the war is being conducted. The opinion polls peaked out in late January, very close to the point where the stock market peaked after its huge surge following the September 11th attacks. Corporate America seems to be waiting for good news on the war front before committing to important expansion decisions. Business development, capital spending and new product or marketing announcements are needed to strengthen the economic recovery and restore confidence. 

It is important to restore a level of trust in Americans regarding corporate management. Thank goodness there have been serious consequences due to the misconduct of some auditors and CEO’s of corporate America. We continue to get the question from our investors: "Why should I trust any of them?" The question will be answered over time by conservative reactions from corporate boardrooms and pristine behavior. We suspect companies will show more variation in their quarter-to-quarter results. Current stock price for many companies already reflect that expectation.

What Are Your Investment Alternatives? As an equity investor I am sure you have seen your investments decrease in the past year. If you are uncomfortable with the situation, it could be a good time to review your investment portfolio and decrease your risk level by choosing more conservative investment vehicles. Broad diversification amongst asset classes and investment styles will help. You could consider a conservative income mutual fund or a bond fund to add some stability to your portfolio.

Low interest rates have left many bank customers scrambling to find safe investments that pay higher returns than certificates of deposit. Putting your money where it can grow without exposing it to undue risk clearly is a must in the capital building process. A higher return does mean taking a little more risk. However, more risk does not mean speculation. It represents a move to other quality investments for the purpose of maximizing your income.

The biggest risk is jumping from CDs to something you do not understand. Many experts advise risk-averse savers who want to preserve capital to wait until these basement-level rates rise. Unfortunately, the people who live on income generated by their savings do not have the luxury of patience. How can you increase your income without taking excessive risk? What are the options? Some new strategies may be in order.

In general, there are two conservative investment vehicles that are designed to help individuals achieve their long-term goals. These vehicles are mutual funds and fixed-income products. Within these two categories there are many different types of investments from which to choose.

 

· Conservative Income Mutual Funds

· Short-Term Global Income Funds

· U.S. Government Securities

· Mortgage-Backed Securities

· Municipal (Tax-Exempt) Bonds

· High Quality Corporate Bonds

· Tax-Deferred Annuities

 

Each of these investments has a different degree of risk and are not government insured. They are not the same as CDs. It is best to consult with a professional and be familiar with the details of each investment strategy to know if it is right for you.

Nancy Hadley is an investment representative with D.A. Davidson in Sandpoint.

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Nancy Hadley

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stock market, investments, mutual funds, fixed-income products, money

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