David Goldner, principal at Gross Mendelsohn gave an interesting presentation to the Baltimore Chapter of AAII this morning. He began with the oft heard but always appreciated joke about God creating economists so that weather men would feel good about themselves.
He believes stocks have gotten a bit ahead of themselves and is somewhat cautious. Interest rates he believes will remain basically the same over the near term and inflation will "...stay low for a long time...". On the tax front he feels the phased out estate tax may surprise people and "...come back with more of a vengeance...".
He briefly covered the pros and cons of doing a Roth conversion. Bottom line: despite the hype, the conversion is not a great idea in most cases. Members appreciated the thought that the government once promised that Social Security wouldn't be taxed and wondered how the government could be trusted on the non-taxing of Roth withdrawals.
On the investment front, the firm's suggested asset allocation, in line with their cautious economic outlook, is 30% high quality corporate bonds, 10% mortgage REITs, 30% stocks, and 30% alternative investments.
In the fixed portion of assets the firm feels that yield spreads are unattractive at present levels and therefore are investing in 3 year duration high quality corporate bond funds. They note that spreads are tight even though the economy has a ways to go to get on firmer ground. They like munis because they offer yields that are almost equal to Treasury yields and still offer a tax break. They do caution investors to be careful because there are some states to avoid.
They like mortgage REITs but stress the importance of being nimble. Holders have to be ready to exit when short-term rates begin to rise.
On the equity front they prefer the growth sector, both large and small cap, to the value sectors based on their analysis of historical P/E ratios. In both the value sectors their analysis shows that P/Es exceed historical averages.
The firm likes healthcare closed funds and also offered a couple of business developement names, with attractive yields, that they like.
Alternatives comprise 30% of their model portfolio allocation. Mr. Goldner stressed that they have the attractive feature of being non-correlated with equities. This of course is something market participants have been interested in recently because so many asset classes are now, in fact, correlated as evidenced in the 2008 downturn. In the alternatives portion of the portfolio the firm likes, for example, options strategy, merger, and market neutral funds.
The information presented was of an educational nature and is not to be construed as specific recommendations.
If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets you have landed at the right spot. I am a fee only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at http://www.rwinvestmentstrategies.com. If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.