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Quality Investment Portfolios for 2011

 

A semblance of sanity has crept back into world financial markets, according to Forbes 2011 Investment Guide. If this is true, many of us aren’t aware of it. Yet, what goes on in those markets and in the economy as a whole has an important impact on our personal bottom line. Financial welfare in 2011 — and beyond — will depend a great deal on our own individual efforts. The problem is that typical investors (you and I) don’t keep up with the intricacies of financial markets, international or otherwise. Does inflation make it better or worse to own bonds? How do national earnings and capital spending affect local trends (especially those at my house)? Should we splurge at Christmas – we do want to stimulate the economy, don’t we? – or put something aside to invest during the coming year?

 

The message from many investment gurus is not only that we should take charge of our own economic well being, but that there are increased opportunities to do so. That doesn’t mean you should chuck all the investment books you’ve stockpiled in preparation for 2011, or put your broker on your no-call list. What it does mean is that after all the ups and downs of the stock market, not to mention the “I never saw it coming” excuses during the financial crisis, it’s time for us to wake up and smell the economy.

“Stability and certainty about future economic conditions are the keys to recovery,” said Ken Maxey, analyst for Arizona Economy Tracker, an online service of National Bank of Arizona. Much of that certainty comes from taking charge of your financial decisions, adopting tried and true patterns, and investing time, not just money, in finding quality investment products. These simple and sound rules apply to many business activities, including spending, setting business objectives, and deciding where and when to make investments.

“Now, more than ever, businesses should consider cash flow,” said Marjorie McClanahan, CPA. McClanahan is a partner with Nordstrom and Associates PC, CPAs in Flagstaff. “Look at the products and services that have been profitable in the past, and scrutinize all transactions made by the company,” she advised. McClanahan said we are in an uncertain period “due to the current lame duck session in Congress” and coming changes due to the recent election. She suggests that “businesses be prudent and conservative about the direction they want to take.”

“It’s best if investors prepare for good times and bad times by reviewing the quality of their investments, said Mark Frank, CFP, a financial advisor with Edward Jones Investments. An 11-year financial veteran, Frank has practiced locally since 1999. “When it comes to investing,” he said, “we believe it’s always good to review short-term events and trends; however, these should not dictate your strategy.” Frank said that many quality companies are “well-positioned because they’ve reduced their debts, slashed costs, and have track records of managing through past challenges.”

Given a much weaker than anticipated forecast from the Federal Reserve, we should also wonder about what that means for our present and future portfolios. The Fed expects the economy to grow between 2.4 percent and 2.5 percent for the remainder of the year, compared to an earlier forecast of growth between 3.0 percent and 3.5 percent. Early in November 2010, federal policymakers decided to kick start growth with a strategy known as “quantitative easing,” that is, to pour money into the economy by purchasing long-term bonds.

“In our view,” said Frank, “the majority of your investment portfolio should be in stocks and bonds issued by quality companies, as well as municipal bonds if appropriate. Some investors have not recovered emotionally from the 2008 financial crisis,” he added.

But, he cautions against inaction. “Investors may risk missing some of the best days in the market by sitting on the sidelines,” Frank said. “We believe investing is about time in the market, not timing the market.”

And if you make money in 2011, caution is still advised. ”The IRS is becoming more aggressive,” said McClanahan. “More than ever, keep good records of income and expenses. We are told there will be more paper audits in the future.” FBN

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