Getting your stock portfolio back on track

Getting Back on Track

Courtesy ANB Bank, Colorado Springs LIVING WELL Magazine

After experiencing a year in which the S&P 500 had its smallest change in value in history, stock investors were determined to start off 2012 in a positive manner, and boy did they succeed. The S&P 500 had its best first quarter since 1998, returning 12.58%. The S&P 500 closed the quarter at 1,408.47, which is within 10% of its all time high of 1,576 achieved in October of 2007.

Equity markets were primarily driven by stronger than anticipated economic growth. The unemployment rate remains above 8%, which is still too high, but the employment picture did improve in the first quarter. As companies added employees, consumer confidence increased and retail sales numbers indicated that consumers were again spending. While we certainly have not come close to replacing all of the jobs that were lost during the previous recession, it appears that we have turned the corner and are now working on putting Americans back to work.

As we head towards what I am sure will be a very enjoyable election season (or Not!), the predominant theme for the election looks to be what is happening in the domestic economy. As investors focus on the economy, they will be primarily concerned with the following:  a slowdown in China, Europe’s financial crisis, and higher energy prices.

Most headlines continue to focus on what is happening in Europe with the continuance of the sovereign debt crisis. It seems that investors now watch Spanish debt auctions more than what the U.S. Treasury is doing. If countries in Europe see escalating interest rates and most of the continent ultimately falls into recession, the global economy will be impacted. The events of Europe must remain on investor’s radars, but I believe that we should be much more concerned with what is happening in China. China creates the equivalent of the economy of Spain every 18 months at its current growth rate. Growth in China has slowed in recent quarters but the Chinese economy is still growing at 8.2%, which compared to the 2.5%-3% that the U.S. is expected to grow at this year is very impressive.

Energy prices might be the single biggest factor in the health of both the domestic and global economy. Energy costs are the biggest input cost for a majority of companies and almost all consumers are impacted by the cost of energy in some form or another. In the U.S., February historically is a tough month for energy prices, but this year gas prices set a historic high for the month of February. If prices continue to rise as we head toward the summer driving season, the economy will be affected and energy policy will turn into a major election focus.

Going forward a well diversified portfolio with a mix of both stocks and bonds gives investors the best chance to meet their goals in the long term. While markets have certainly had their highs and lows over the years, investing in a well diversified portfolio of stocks and bonds has proven to be a money making proposition over the long term. For the stock or equity investors a portfolio with exposure to large cap, mid cap, small cap, international, and emerging market companies provide investors with the best opportunity to meet their objective on a risk adjusted basis. For bond investors we would recommend investments in shorter maturity securities.

For more information, please contact an investment management and trust professional at 719-381-5622.