‘Nobody Knows For Sure’ Where Economy Is Heading

Appeal-Democrat (Marysville, CA)

Commentary

Economists over the past few weeks have debated whether or not the country is headed toward another recession.

Some are certain the country is nearing a recession because of a scenario known as the "inverted yield curve," which occurs when short-term bonds generate more in interest than long-term bonds. This occurrence has proceeded every recession since 1955, so investors showed some signs of worry when it occurred earlier this month. However, others aren't as quick to make a conclusion on where the economy is headed.

Whether the country is headed toward a recession or not, local financial advisors say there are a few things readers can do to prepare themselves and their investments for whatever comes. -- Matthew DiGiacomo, certified financial planner with Core Financial Group:

Since 1950, there have been 10 recessions, on average approximately one every seven years, according to the Bureau of Labor Statistics and National Bureau of Economic Research.

Despite those recessions, DiGiacomo said, the U.S. economy has performed well over that period of time.

"Of course nobody knows for sure where the economy is headed, despite the fact that we would all love to have a crystal ball," he said. "However, it's important to remember that the economy is cyclical and that recessions are a normal, and even healthy, part of the economy."

He said there are more factors than just the inverted yield curve that should be considered when trying to predict the next recession, even if there has been a correlation in the past.

"Interestingly, while it's true that a recession normally follows an inverted yield curve, the recession has generally occurred 8-20 months after the inverted yield curve," DiGiacomo said. "Also, an inverted yield curve does not have any relationship as to the length or severity of the recession."

For those who are concerned about where the economy is headed, he said there are a few things they can do to prepare for the unknowns.

"A well thought out investment plan based upon an individual's risk tolerance, time frames, and goals should not be altered just because of economic news.

Having said that, it never hurts to review your portfolio -- with your trusted investment professional if you have one -- to make sure it is diversified and on track for your goals," he said. -- David Shaw, president and CEO of Shaw & Associates:

Shaw said he is cautiously optimistic when considering the current economy and where it's headed.

"While we have had some indications of a potential pull back, we have many indications that the economy still has room to grow," he said. "Unemployment is at an all-time low, retail sales are strong, and consumer confidence is good."

When trying to predict whether or not the economy is headed toward another recession, he said, it takes more than just an inverted yield curve. Other factors that should be considered include gross domestic product, unemployment, durable goods orders, retail sales figures, housing, oil prices, and the federal reserve actions.

"Do not get caught in the emotional roller coaster of investing," Shaw said. "Also, make sure you have a well-diversified portfolio and understand what your exposure is to the various areas of the market. What is best for your friend is not always best for yourself. Set your financial goals and have a plan on how to achieve them."

Those either close to retirement or already there should evaluate and review their current and future needs and make sure they do not have too much risk or exposure in their portfolio, he said.

"Everyone must have a disciplined goal focused approach to investment/retirement planning. Remember, everyone's financial needs are not the same and avoid the investment roller coaster. You will always hear both the good and the bad of the market, but at the end of the day you should be focused on what is best for you and your family," Shaw said. "Do not invest blindly and have at least a minimal understanding of what you are invested in and what your real risk in the market is. If you are too nervous about the market volatility, then it is time to find out why." -- Rik Jimerson, senior partner with JM Wealth Management Group:

Jimerson said there are two things the market is sure to always do: go up and go down.

While there seems to be increased volatility currently, which isn't that unusual for this time of year, investors always need to be aware and regularly review their policies, he said.

"It is important to keep in mind that volatility is a natural and expected element of investing. This is the reason we take a holistic long-term approach," Jimerson said. "I know it doesn't feel good to see potentially lower account balances, but the best way to manage market declines is to stay with your long-term outlook."

For those concerned about their investments, Jimerson suggested reviewing their positions to see if any adjustments need to be made.

"Remember, your investments and cash each have a significant roll in your Life Plan, and you need to have portions earmarked for different needs. Short-term monies not to be at risk, to be used anywhere from six months to two years from now.

Mid-term monies to assure expected and unexpected expenses over the next five to seven years. These are what we look at if concerned regarding the market. Long-term monies you plan to use, or not, but like knowing it is growing and offsetting inflation and taxes," Jimerson said. "Do not try to jump out or into the market. That is all about luck. Develop a plan and stick to it."

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