The overriding principle of investment consistency relates to television and the Internet: There’s such a barrage of 24-hour information these days that people attempt to respond to the frenetic news cycle, according to Jerry Webman, Ph.D.
Webman, chief economist with OppenheimerFunds, wrote Money Shift: How to Prosper from What You Can’t Control, and frequently discusses his views on the economy and markets in The Wall Street Journal, The New York Times and The Washington Post and on CNBC. He visited Colorado Springs last week to address financial advisors with the Cascade Investment Group.
“There is a tendency to get caught up in the day-to-day financial news,” Webman said. Despite the news’ focus on the negative, “the human condition is actually getting better. The market is up more frequently than it is down.
“There’s not enough focus on balance in portfolios. Set a course and follow it,” Webman told the advisors. “More often than not, we benefit from consistency.”
Between 1993 and 2012, the average investor made 2.3 percent on his or her investments. That compares with investment returns of 11.2 percent for Real Estate Investment Trusts (REITs), 8.2 percent on gold, 8.2 percent on U.S. equities, 6.5 percent on international equities and 6.3 percent on government bonds. Homes returned 2.7 percent on average, and inflation was at 2.5 percent, according to Webman’s OppenheimerFunds statistics.
Each generation faces its share of challenges, Webman said, citing Black Tuesday in 1929, the bombing of Pearl Harbor, President Kennedy’s assassination, the recession of 2008 and others.
Through it all, the stock market continued its general pace upward, he said.
“The longer you are in the market, the greater the odds are in your favor,” Webman said. “I’m required to say that past results don’t guarantee future returns. …
“With consistency, we’ve been able to profit.”
“Hating the government is not an investment strategy.”
– Jerry Webman, Ph.D.
[/pullquote]Citing the principle of balance, Webman said the majority of Americans’ portfolio stocks are in companies based in the United States. Meanwhile, stocks with a market cap of more than $1 billion in international and emerging markets show tremendous growth, he said.
“We become emotional. We really would rather invest in companies that you can visit without a passport. We have a home bias, and that leaves us unbalanced,” he said.
Webman showed a graph that displayed U.S. presidents and their approval ratings in relation to the stock market growth since 1945. During times when the presidential approval rating was low, between 36 and 50 percent, the gain in the stock market was relatively high at 11.6 percent, Webman said, citing Gallup as his source.
“Hating the government is not an investment strategy,” Webman said.
The impact of lower oil prices can be spun on a positive axis or a negative one, he said. On one hand, the savings to Americans will likely be $225 billion, should the average price of gas remain at $2.02 throughout the year, according to AAA as of Jan. 16. On the other hand, energy-related employment accounted for 12.4 percent of job gains since January 2008.
Webman advised people who want to grow their investments to put their money in U.S. and emerging market stocks. For income, money should be placed in global high-yield investments, senior loans and municipal bonds.