Worried about A Double-Dip
07/30/2010 0 comments
The estimates of second-quarter GDP growth are starting to appear. Bloomberg’s consensus forecast calls for the U.S. economy to have expanded at a 2.5% pace. The actual reported number will be revised in subsequent reports from the Commerce Department. (First-quarter GDP was 2.7%.) Many forecasts for the second half of the year call for more of the same.
As far as the dreaded double-dip recession, the threat depends on who is making the forecast. The consensus is that we will avoid it, though the degree of certainty varies. Vanguard recently published a report putting the odds of a double-dip recession at 20%. Conversely, Sam Stovall at Standard & Poor’s observed that "several factors" suggested that concerns about double-dip occurring have ceased.
Of course, all forecasts are only as good as the people who are making them. The environment remains uncertain and both economists’ and analysts’ crystal balls are cloudy at best. This should not be surprising given that visibility has been limited for quite a long time.
The best strategy continues to be what many of you already practice: diversify, focus on the long term, and allow for a margin of error in all of your investment decisions. Diversification will allow you to be exposed to whatever asset class generates the highest return in the second half. It will also help to cushion your portfolio against any downside volatility.A long-term focus keeps you from being swayed by the market’s day-to-day moves. (If you don’t need the money for another 10 years, does it really matter if the Dow is up or down by 200 points on a given day?) A margin of error means buying securities at low enough valuations so that the long-term upside potential outweighs any short-term downside.
Tags: Retirement, investment
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