Age Appropriate Investing

Age Appropriate Investing

Those of us with kids know the constant battle we face in making sure they are exposed to an age-appropriate world.  I’m finding that as my child gets older, she is influenced by everything from books to television shows, the clothing available in stores and most of all what her friends are doing.  As a responsible parent, I try and make sure that I teach her what other people are doing doesn’t necessary mean that it’s suitable for her or our family.

The same thing applies to investing.  Putting aside one’s general appetite for risk, it is important to consider an investor’s age when making investment selections.  For example, when a twenty-two year old invests his money in the stock market, and the market undergoes a dramatic fall as in 2008/9, this investor has decades to recover from this event.  For someone nearing or in retirement, however, events like this can have devastating consequences, forcing this investor to extend their working years or cut back on their lifestyle.

All of this goes toward what we investment professionals call “suitability”.  Each stage of life has certain metrics that define suitability, and taking one’s age into account as part of the planning process can lead to long term success.

Prior Month in the Markets

The markets continued what’s known as a “slow melt up” in the month of May, setting some new records along the way.  The term “melt up” is typically used to describe a market that goes up in the absence of major news that could influence stock prices.  The S&P 500 gained 2.1%, the Nasdaq gained 3.1% and the Dow finished essentially unchanged with a 0.8% move to the upside.  These gains were in the presence of lighter than usual daily volume, which sometimes is an indicator that the bull run is losing steam.

The US economy printed a revised negative GDP number, down 1%, for the first quarter of 2014 which was attributed to the weather.  Economists are expecting a rebound in Q2, but modest growth remains the forecast for the balance of the year.

The bigger news of the month was the 7.3% decline in the interest rate on the 10-year Treasury bond to 2.45%.  This decline was unexpected since as the Fed eases less, most predicted interest rates would rise. Instead they have been in a steady decline since hitting 3% at the end of last year.  Some attribute this to low interest rates across the rest of the world, accommodative policy by the US Federal Reserve and the European Central bank, and even short-covering by investors who were betting that rates would rise instead of decline.  To be sure, I view this as unusual and representing a disconnect from the market norm, and would look for interest rates to rise again by the end of the summer.

Have a great June,

Alan Goodman

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