Worcester Business Journal

www.wbjournal.com • Worcester Business Journal • 2 020 Economic Forecast 29 S P O N S O R E D B Y C O L L E G E S & U N I V E R S I T I E S S P O N S O R E D B Y I t should not come as a great surprise to anyone that 2020 will likely be filled with more volatility. The best results may occur when knowing how and when to turn volatility into opportunity. CASH In our opinion, the statement "Cash is King" has never been more appropriate for 2020 than perhaps any year we have observed since 2008. We believe tactical investing is key to turning cash from a "safe haven" to an opportunity play. If we experience a 20% correction like we did in Q4 2018, you may want to consider this alternative. Over the past 25 years I have heard many prophesize a doomsday scenario similar to the Great Depression of the 1930's. Although 2008 was, by far, the scariest economic scenario since then, the resilient US economy has, in the past, brought opportunity. • Consider only using cash where suitable, but keep the mindset of putting some money into investments NOT correlated, or said another way, affected by the losses of the stock market. Please note that cash alternatives do still carry various risks, such as market or credit risk, and may lose value. BONDS Interest rates should remain fairly flat. We like corporate credit risk debt and municipal securities. Senior secured debt has historically offered less default risk than mezzanine or junior subordinate debt. Don't get greedy with the high yield. • Consider underweighting fixed income; government bonds are not likely to outpace inflation. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values vary, and will decline as interest rates rise. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. High yield/junk bonds – grade BB or below – are not investment grade securities, and have higher risks than those graded BBB and above. US STOCKS Valuations are a little expensive, but it doesn't mean that stocks can't continue to climb. In December of 1996, former Federal Reserve Chairman, Alan Greenspan, made his infamous comment about "irrational exuberance," and yet markets rose the next three years. Markets have become more volatile – maybe it's a good time to take some profits and diversify accordingly. I tell my team that when 10-year returns are negative, it's time to buy. What do you do when those same investments with 10-year returns have high double digit returns? You may want to consider selling, take some profit and bank in cash. A pull back is logical, but may not happen. Give yourself permission to not be fully invested if markets continue to roll. • Consider maintaining a slight overweight to U.S. equities. Overweight large cap stocks over small caps. • Consider a blend of large cap growth and value stocks with low valuations and low PEG Ratios. As with all investing, stocks investing has risk including loss of principal, and the prices of small cap stocks are generally more volatile than large cap stocks. ALTERNATIVE INVESTMENTS These are defined as any investment that is not a stock or bond. They can consist of investments like real estate, commodities, and currencies. We believe this asset class is critical going forward. Some investments are designed for income, and others for growth. Research should be conducted to discover which is appropriate for you. Some investments may not be suitable. Make sure you work with an investment fiduciary to try and uncover any potentially suitable investments. • Consider shifting some of your portfolio from stocks to alternative investments to potentially lower stock market risk while potentially increasing return opportunities. You'll also want to consider special risks with alternative investments, such as leveraging the investment, potential adverse market forces, regulatory changes, potential illiquidity, and those strategies could accelerate the velocity of potential losses. Investing in these investments is speculative, not suitable for all clients, and may be intended for experienced investors who are willing to bear high economic risk of investments. BOTTOM LINE Most investors use some combination of stocks, bonds and cash. The global economy and other factors have changed the traditional approach of portfolios containing a 60/40 stocks to bonds ratio. This Modern Portfolio Theory of 1952 is outdated. Alternative Investments have been used successfully by endowments for years 1 , and are less correlated with traditional investments. This means they may perform differently from each other under the same market conditions, and provide further diversification, lower portfolio volatility, and potentially increase returns. Lowering risk is more critical for 2020; having to fight your way back from losses can be a real portfolio killer. Work with an advisor with cutting edge analytical tools to turn volatility into opportunity – a critical move in 2020 to impact your portfolio for the short and long term. n Economic Forecast for Investing Factors and Moves to Consider: Roadmap to Investing in 2020 P R O V O wealth management group 1 Source: From 6/30/2012-6/30/2017, endowments over $1 billion returned 8.6% compared to the S&P 500® Index average return of 14.6%. NACUBO Endowment Study, Annual Report of the National Association of College and University Business Officers Endowment Performance and Management in Higher Education, 2017. e S&P 500 Index is unmanaged and available for direct investment. Past performance is no guarantee of future results. Allocations for endowment funds, may not be suitable for the average retail investor considering various factors, such as volume of invested funds and respective risk tolerances. Additionally, the performance shown may not be indicative of any results of a retail investor. e opinions and forecasts expressed are those of the author, and may not actually come to pass. is information is subject to change at any time, based on market and other conditions and should not be construed as a recom- mendation of any specific security or investment plan. Past performance does not guarantee future results. Securities offered through Securities America, Inc., member FINRA/SIPC. Advisory services offered through Provo Wealth Management Group. Provo Wealth Management Group and Securities America are separate entities. H I G H E R E D U C AT I O N Our team thinks critically to solve real world problems, meet challenges head-on, and provide guidance in all aspects of financial management. We strive to instill confidence that you're on the right path and in alignment with your values.

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