Eiad Asbahi started Prescience Investment Group in April. The Denham Springs native and LSU graduate has worked with Commonwealth Advisors and Kinderhook Partners, and he’s back from New York promoting his own fund for high-wealth investors.
He divides the world into two spheres. First: the mature, industrialized debtor nations [hint: that’s us]. People in these countries have been overspending and piling up debt for years, but lately have started cutting back and saving a bit more. To make up for the reduced consumer spending, the government increases its own spending and prints more money.
Emerging nations make up the second sphere [think China]. The government might have stimulated the economy in the same way as the advanced nations, but did so primarily with savings and still has plenty of capacity to take on new debt.
So Asbahi believes the next phase of global economic growth likely will be dominated by actions taken in the developing world to prop up domestic growth. The take-home point is this: Don’t keep too much of your wealth in dollars or, for that matter, dollar-based assets.
“The era of safely being able to store your cash under your mattress is over,” says Asbahi, 30. “At this point, everybody is a forced investor, because our currency has a lot of risk to it.”
Raising taxes always is politically unpopular, so Asbahi says the government prefers the invisible “inflation tax.” The dollar, measured against a basket of other major currencies, is down 15% since March, and he says a combination of high taxes, increased regulation and rampant money printing probably will continue to drag the dollar down over the long term. And he’s not alone.
“Obviously the dollar is weakening, and it’s somewhat of a foregone conclusion the dollar will continue to weaken if we proceed down this path,” says Mike Patton of Integrity Wealth Management. As long as the U.S. keeps piling up debt, the dollar becomes less and less attractive.
Traditionally, a moderately aggressive investor might have been putting 70% in stocks, 25% in bonds and 5% in cash. But Patton says individual investors are starting to mimic the broader diversification institutions have long practiced.
“You can’t just use stocks, bonds and cash anymore,” he says. “You have to include alternative investments. … There’s always money being made somewhere.” Hedge funds, commodities, real estate and foreign currencies might provide some opportunities. Asia seems to be leading the global recovery, and any time the dollar weakens, that’s good for anything made overseas, Patton says. Pete Bush of Horizon Wealth Management recommends keeping at least 25% of your equity valuation in international stocks.
Brazil, Thailand and South Korea are doing the best right now relative to other emerging markets, while China and India also have strong growth potential, says Jerry Goss of Goss Wealth Management Group of Wells Fargo Advisors. He says investors need to make sure their adviser is looking at all investment classes, including both U.S. and foreign stocks and currencies.
“If you’re just limiting yourself to those big, broad categories [like stocks and bonds],” Goss says, “that’s not enough diversification.”
WHAT TO DO WITH YOUR MONEY
With the obvious caveats that everyone’s finances are different and you should consult a professional, here are some options many investors are considering:
Gold
Gold recently has been trading at an all-time high, but some people think it could go even higher. The supply only grows about 2% a year, as opposed to cash that can be printed at will, and gold always is attractive in times of economic volatility. On the other hand, some people fear gold could be the next bubble asset.
Treasury Inflation Protected Securities
Not everyone agrees, but many experts expect higher inflation in the near future to accompany the exploding federal deficit. The value of TIPS rises along with inflation, as opposed to a traditional bond, where inflation erodes the value.
Refinancing
If we’re on the brink of higher inflation, that’s good for the borrower and bad for the lender, since the borrower will pay back the loan with dollars that are worth less. Plus, interest rates are low. If your personal balance sheet can handle it, now might not be a bad time to take on some new debt.
Exchange-traded funds
An ETF that pits the dollar against, say, the Euro or Australian dollar, could be a good buy as the dollar continues to weaken, Patton says. ETFs that invest in particular commodities, like gold, silver or oil, might also be worth considering.
Roth IRA conversion
Roth IRAs can be held longer with less taxation than regular IRAs. The Roth IRA had been limited to those with incomes below $100,000, but that restriction is lifted next year.
Long/short funds
Basically, managers of these funds bet long on stocks they like and short stocks they don’t like. In theory, this allows the investor to have some upside whether the market as a whole goes up or down. These funds can be appealing in uncertain times.
Year-end taxes
Many investors took big losses early in the year, although the market is up since March. Pete Bush of Horizon Wealth Management says now might be a good opportunity take some capital gains, and rebalance those gains against past losses, especially if you believe [like many do] that capital gains taxes will increase in the next year or two.
