Looking Ahead to 2013
While a recession is possible it is still highly unlikely. We may temporarily go over the cliff, but if action does not take place in 2012, early 2013 is very likely.
Don’t be underinvested in Equities. With cash earning zero and bonds rates surprised, the hurdle rate for stocks is very low and belong in most any diversified portfolio. They are one of the few assets that can appreciate over the long-term in an inflationary environment. 25% is the bare minimum for most investors.
Don’t be overexposed to long maturity Bonds. One day rates will rise and the Fed nicely outlined this for us last week. Higher rates could come as early as mid 2014.
Diversification continues to be important. Don’t rely on single stock picks unless you are properly diversified.
Avoid buying municipal bonds. Risk vs reward makes little sense now. Rates are 1-2% and have many pitfalls ahead with respect to possible partial taxation and growing pension issues.
Relative Value Partners