What investments will and won’t do well under President Obama
After the dust cleared and the election concluded, many people are left wondering what it all means for their invest portfolios. What is the big-picture outlook for the economy? What trends are we likely to see on Wall Street? And what investments would we do well to avoid?
To help get a clear picture of this year’s post-election economy, I sat down with our portfolio manager, Kip Pazol, at Fiduciary Capital. In an effort to reach out to clients, he explains how to view both the opportunities and risks, and the strategies he intends to use in the current environment.
As far as the big picture goes: “We believe the economy is still in recovery and if Washington can stay out of the way, Americans will figure out a way to thrive.”
As far as the short term goes: “The immediate risk facing the markets is the so-called fiscal cliff which is a combination of broad tax increases along with pretty draconian cuts to the defense budget.”
Kip predicts a deal will eventually be struck but in the meantime, negotiations could drag on, causing volatility in the market resulting in negative short-term effects. To combat this, he prescribes reducing your exposure to certain industries that look to be affected by the sequestration cuts.
“The wild cards here are the unelected agencies, in particular the EPA, that could interfere and put industries out of business. We will be avoiding anything related to the coal industry, and watching closely for any new regulations on natural gas “fracking.”
This begs the question – which investments could stand to do well under Obama’s administration, and which ones would best be avoided? Kip has broken down a few investments with his advice on the following:
Sectors/Asset Classes that Might Do Well Under Obama
- Drug Companies- Kip predicts there will be billions added to health care spending and the effects will be wide spread among the industry.
- Mid to Lower Grade Corporate Bonds- With interest rate risk taken off the table for a while, higher yielding corporate bonds look attractive.
- Fast Food & Discount Stores- With unemployment remaining elevated, frugality will continue to be the theme for many Americans.
- Technology- It’s no surprise to find that we have become addicted to our gadgets. The rapid pace of change in this sector defies legislators’ ability to get in the way, making it a pretty safe bet during this administration.
Sectors/Asset Classes that Might Do Poorly Under Obama
- Banks & Brokerages- The effect of near zero interest rates, higher capital requirements, and onerous, yet-to-be-written Dodd Frank requirements mean that top line growth will be hard to come by. In addition, brokerages are dealing with the lack of enthusiasm by the individual investor, and Kip sees this as unlikely to change in the near future. As these companies make up a large part of our economy, look for select companies and opportunities, but expect returns to be underweight for the time being.
- Consumer Discretionary- Discretionary big ticket purchases are likely to remain subdued in the economy predicted.
- Payroll Processors- With unemployment remaining high and near zero interest rates, growing revenue will most likely be a challenge for established companies.
- Coal Companies- At Fiduciary Capital, we are avoiding anything related to coal as we predict tighter regulations coming down the road.
- Health Insurers- Some may disagree as many new customers will be added to the insurers books. However, we foresee that as being offset by two factors:
1) Insurers must cover everybody including those with expensive pre-existing conditions
2) When Insurers try to raise premiums, the government may respond with more regulation. The end game to turn these insurers into a regulated industry similar to utilities will require a longer process to justify rate increases.
Regardless of what you see in your crystal ball, it’s always best to seek a balanced portfolio, making sure not to put too many eggs in any one basket. Much appreciation to Kip at Fiduciary Capital for his valued advice.
To leave you with one last RichLife tip, make sure to sit down with your financial professional before making any decisions that could affect your investment portfolio. We want to make sure you keep in mind the big-picture that is your RichLife before making drastic changes that could put you at risk. For a free review to make sure your strategy is on track go to www.RichLifeFinancial.com.
Beau Henderson is a financial advisor, author, coach, radio personality, and CEO of RichLife Advisors. He has helped over 3,000 clients to not just improve their relationship with money, but to live the life of their dreams. Beau's newest book, The RichLife, 10 Investments for True Wealth, can help you succeed in building the life you really want. Order yours by visiting http://www.richlifebook.com and begin making investments in your RichLife today!
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