The U.S. just recently finally came to terms on the debt deal, but there is another large dilemma to face: the free-falling stock market and growing concerns that have ensued and further curb the already slow economy.
Signs of further slow growth have been building. Unemployment remains high, consumer spending is low, and lending is not what we hoped it to be. Also, the projected 3.2% growth of GDP has fallen short and only grew 2.5%. And while the final details of the debt deal have yet to be worked out, the cuts in government spending are likely to further weigh on the economy, experts say. “The debt deal is certainly a modest drag on the economy,” says Thomas Higgins, global macro strategist at Standish Mellon Asset management.
Luckily, there are some brighter points. Oil prices are down, meaning gas prices are lower, and that could boost consumer confidence and spending, says Frank Germana, U.S. equities client portfolio manager for J.P. Morgan Asset Management. “Some headwinds have subsided,” says Germana. “There could be some upside surprises in the back half of the year.”
There are very sound principles that should be utilized in dealing with this shaky stock market such as diversification.
It’s always wise to spread your risks over many sectors, and slow markets can be extremely volatile — making diversification even more important. A good strategy is to diversify in companies that will do somewhat well regardless of the economic condition such as utility and telecommunication companies. Also, health care and consumer staples, provide a solid investment because consumer cutbacks are unlikely even when the economy is going through a rough patch. The same thinking applies to bonds, commodities and other alternative investments.
It may sound obvious: “don’t put your all your eggs in one basket.” But when emotions get involved with financial decisions, it may be hard to remember this obvious principle. No matter how wonderful the investment may seem, putting a significant amount of your money into one investment is a dangerous game to play.