December 14, 2011
With another year in the books, now would be a great opportunity to review the past year, and position yourself for the future. Volatility was a constant theme in 2011, as a number of events pulled markets in a variety of directions. The movements in markets made some investors feel a little uncomfortable, while some other investors sat on the sidelines. The past is behind us, but moving forward it is important to have your portfolio aligned with your short and long term objectives. At Alamo Capital, we encourage investors to create and define goals for themselves, then establish a financial path within your risk tolerances, which can help you achieve your goals.
Markets have moved all over the place in the past year. News regarding the European sovereign debt crisis has been a leading driver of the volatility, with a struggling housing market, persistent high unemployment, and domestic politics adding to the uncertainty. On a positive note, U.S. corporations are continuing to report strong earnings, and have large cash positions on their balance sheets. However, there is a belief that across the board structural reforms in Europe may be necessary, as the short term fixes have not had the impact that many market participants are looking for. Domestically, local, state, and federal budget problems are persisting, but austerity measures are being enacted which are scheduled to put us on a more sustainable path.
If markets have taught us one thing, it is that they can be unpredictable. Therefore, it is of great importance to align your assets with a strategy that can help steer you toward your goals. Begin by defining your short and long term goals. Understand what kind of cash flow needs will be necessary to accomplish certain goals, and how your current assets are helping you accomplish your goals. Then, of paramount importance, consider if there may be a more efficient means to accomplish them.
Various asset classes have varying levels of correlation with one another. For example, bond prices sometimes increase when equity prices decrease, and vice versa, as is explained by the low correlation between the two asset classes. Some investors believe exclusively in large cap stocks. However, large cap stocks have a high correlation with one another, and investors may find themselves taking on unnecessary risk by having too much exposure to the one asset class. Some investors who sought safety this year flocked to gold. While gold has historically been viewed as a safe investment, gold prices have fallen more than 15% since the August 2011 highs. MF Global filed for bankruptcy earlier this due to excessive exposure to European sovereign debt. While risk can bring about a potentially greater return, Alamo Capital believes in engineering portfolios that will produce returns without taking unnecessary risk. We encourage our clients to have a diversified portfolio with global equity, fixed income, real estate, insurance, and commodity investments, based on a given level of risk tolerances.
The world is becoming more interconnected each year, as is explained through globalization. According to the United Nations, the middle class has been decreasing as a percentage of the total population in many developed nations, but it is increasing in both absolute numbers and as a percentage of the total population in developing nations. An increase in the middle class could create an increase in consumerism, which has been among the leading drivers of economic growth. Developed markets should continue to be an important part of your asset allocation strategy, but emerging markets could play an important role as well. Alamo Capital encourages investors to build a diversified portfolio that can grow with the world economy. By managing risk, and focusing on efficient investments, your money can work for you and be an integral part in helping you achieve your goals, dreams, and aspirations.
This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service. Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital. Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.