The Fed Recently Downgraded the U.S. Economic Outlook – How Should You React?

During his June 27 broadcast on 640 WHLO, Jim Albright asked Bruce Jentner, president of Jentner Wealth Management, for his thoughts. “Last week, the Wall Street Journal reported the Federal Reserve downgraded their assessment of the U.S. economy but gave no indication they intend to take new steps to boost growth and jobs. Bruce, is this a cause for concern?”

In response, Bruce provided this summary on the state of the economy.

“The Fed said that they are sticking with plans to end the purchase of $600 billion of U.S. Treasuries on June 30. They admitted the economy is recovering more slowly than previously expected.

Although the Fed is less comfortable with the economic outlook, it has little leeway to take new steps to fix it. Interest rates are already at historic lows. Government debt is already at historic highs. Inflation is beginning to move higher. U.S. corporate tax rates are already among the highest in the world.

Additionally, unemployment is once again creeping higher, and personal incomes are relatively flat. Employed workers are not particularly interested in seeing increased personal tax rates.

Mr. Bernanke shows little appetite for another quantitative easing program. Some investors worry that this could hurt financial markets.

Opinions range from catastrophic market declines to little impact on the long term trend of the markets. In our opinion, it is difficult to predict.”

And so, what does Jentner Wealth Management recommend be done during these times for a prudent investment strategy?

“We recommend broad diversification in both equity and fixed income markets, using asset class mutual funds and exchange traded funds. Your investment allocation should represent your tolerance for risk, based on long-term historic trends of various asset classes.

By investing in broadly diversified funds that represent the global markets of stocks, bonds and cash, the long-term investor has the opportunity to hold the course and obtain a successful investment experience without attempting to predict the future.”

He summarized what should be done by saying:

“Do not attempt to time the markets. Even professionals cannot reliably do this. Avoid seeking the elusive safe haven. There is too much risk if you select the wrong ‘safe haven.’

Use diversification to help you avoid emotional reactions to daily market news. Rarely does responding to daily news headlines result in a successful investment experience.

Finally, only invest your long-term money. Money you need in the short-term should not be invested. This should be kept in safe cash-type instruments.”

For more advice and financial insight, tune to WHLO 640 on Mondays from 8-8:15 a.m. to hear Bruce.