Stuck in the Muddle

The economy’s in a muddle. What’s an investor to do?

The employment report came out and showed that the US economy shed some 90 thousand jobs last month. That’s on top of losing 60 thousand in August and 70 thousand in June. This of course was augmented by the elimination of temporary census jobs, but the overall picture is sorry: the economy isn’t putting enough people to work.

By contrast, the stock market looks healthy. No, we haven’t erased the losses, but we’ve come back a long way. After a brief hiatus this spring and summer for the European debt crisis, most of the market averages have regained half to two thirds of what they lost in the recession. If the job market was as robust as the stock market, people would be calling this a booming economy.

So where can you put your money? The Fed’s low interest rate policy means that cash yields nothing and 5-year Treasury notes provide only money-market yields. Dividend-paying stocks come with stock-market volatility. And real-estate? Please. That’s what led to this mess in the first place. So what to do?

How about, what we normally do? This is a great time to invest “according to plan.” A balanced portfolio of stocks, bonds, and cash yields close to 2.5%. That’s not far below historical averages. Yes, the income is biased towards dividends, but it’s important to look at the full picture, not just one part. Rebalancing the portfolio periodically enhances the return and should increase income over time.

A muddling economy cries out for a balanced portfolio. This allows you to flex with the market and reduces risk. The whole really is greater than the sum of the parts.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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