United States is in a much better shape than Europe as far as growth over the next few years is concerned. But the key question is how good of an investment destination is it? As far as growth is concerned, it might grow above two percent, but that will be real GDP growth.
The real problem with US is that it has been printing paper for last 25 years to boost consumption, but what the country really needs to do is boost investments and start making things.
Face the reality, on the bright side US is the hub to intellectual property and innovation so it’s a better bet than the Europe. Just look around from where does the innovation comes? Who does it better than Google, Apple, Microsoft and Amazon to name the few that popped my mind. But the glitch to this innovation and intellectual property creation is that these are not creating enough jobs to kick start the economy.
At the same time the housing market isn’t improving more than a few hick-ups every now and then. If you go by analysts’ forecasts, the consensus is that the housing will show some meaningful recovery 2-3 years down the lane. So, it you are willing to invest in US, be prepared for the dampening effects of the housing slump. Also, US debt situation will continue to concern investors time and again.
There is nothing wrong with the protests; it was coming all the way. Masses feel cheated and this is a democratic nation, so one should learn to live with protests and discontent among masses. You better understand it as the American Way of Life. But this should not continue for long as such uprisings threaten political economic stability. What needs to be done is that the Washington and the financial community, who have acted irresponsibly, should now bring their act together to resolve the current situation.
2012 looks very uncertain for Europe, US might show taped growth, and the emerging markets will grow at slower rate than recent past but in high inflationary environment. The key investment theme will be to look for Safer Havens, which are quite hard to find right now.
So, my take away from such environment is that without high level of growth investors cannot generate the kind of returns that they are used to from past decades. Now you need to throw out the classic mix of asset allocation and focus more on high dividend yielding stocks for returns ranging anywhere between 5-8 percent. For higher returns you need to have a higher time frame, at best 10 years, so that you can have higher allocation in equities, but ensure that you are not country dependent. It’s a good time to diversify across the globe.
The future of investment returns relies on the ability of developed economies to successfully re-inflate. As in case for US, one can only be hopeful for it to achieve 4-5 percent growth in few years down the lane, but that’s not a likely scenario.
In case you are nearing retirement, you may need higher exposure in bond not necessarily government bonds. The last bit of advice would be to not pay attention to market volatility, good quality stocks have the tendency to return to mean valuations. Stick with stocks beyond a cycle, its better you take clues from warren buffets investment approach.
Capital is going to be king in the times ahead. Allocate capital properly going forward.
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