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home : archives : archives August 19, 2014

6/18/2012 3:53:00 PM
A Conversation With ... Joe Williams III
Title: Chief Investment Strategist, since 2011Company: The Commerce Trust Co. Education: Bachelor’s in business administration, Drake University and a Chartered Financial Analyst Springfield stop: Williams, who is based in Kansas City, was in Springfield June 6 as a featured speaker at The Commerce Trust Co.’s Investment Summit. In addition to working with mutual funds and managing about $1.8 billion in customer accounts, Williams works with Commerce’s Investment Policy Committee.
Title: Chief Investment Strategist, since 2011
Company: The Commerce Trust Co.
Education: Bachelor’s in business administration, Drake University and a Chartered Financial Analyst
Springfield stop: Williams, who is based in Kansas City, was in Springfield June 6 as a featured speaker at The Commerce Trust Co.’s Investment Summit. In addition to working with mutual funds and managing about $1.8 billion in customer accounts, Williams works with Commerce’s Investment Policy Committee.
Maria Hoover
Features Editor

What did you discuss with clients at the recent Investment Summit in Springfield?
The economy – and of course, the hot topic today is the European financial malaise and what solutions can happen there.

The European situation, for now the third year in a row, is negatively affecting the equity market, causing a 10 percent correction in May, after one of the best starts in the first quarter we’ve had since 1998. The European situation is deteriorating again, as the financial crisis moves from Greece to Spain. Now Spain and Italy are much larger components of the European Union, so with the run on the third- and fourth-largest Spanish banks, that’s causing a lot of concern. That’s really affecting the stock market, sending it down to new lows and definitely affecting international investing, which has just been horrendous in the last year as the EAFE Index – Europe, Australia and the Far East – ---has declined 20 percent, versus the U.S. market, which is basically down less than 1 percent during the last 12 months.

Then also, the effect that this is having on interest rates – the 10-year treasury got down (in early June) under 1.5 percent. That was a 200-year low.

Is there such a thing anymore as a safe investment?
It all depends on how you define safe. People perceive fixed income as safe, but I don’t think they really realize the risk that’s in fixed income. Looking at the 20-year annual returns for stocks, bonds and gold, they’ve all converged in the last month. Bonds returned 8.7 percent; stocks returned 8.4 percent and gold 8.4 percent. We still believe stocks are probably going to give you the long-term average of around 10 percent, so we think they’ll probably be going up.

Bond returns are going to go from 8.7 percent to 20 years from now, when they’re going to be around 3 percent. With rates as low as they are (with) 20-year bonds around 2.5 (percent) to 3 percent, that’s where they have to go.

Are there specific investment challenges for clients with high net worth?
No. No matter how much money you have, you’d like it to grow faster than inflation. And basically, fixed income, if you want to go the safer route, gives you a 2 percent rate of return over inflation. That’s kind of the average return you get for the risk that you’re taking. Stocks give you 5 percent to 6 percent above the rate of inflation during a longer period of time. Now, you can’t do that in fixed income, and if you go into money market funds, you’re losing 3 percent to inflation. Everybody wants to see their money grow, and I don’t think you can do it in fixed income, so you’re going to have to take on more risk. We’ve been driving people, if they want to stay conservative, to high-quality, dividend-paying stocks, where they can put together a portfolio and earn, say 3.5 percent in dividends. One nice thing about dividends is that we think they’re going to continue to increase, so you have an increasing income stream to keep up with inflation. You’re not going to see that in fixed income.

What about income tax-related issues as some reduced rates roll off and new taxes begin at the end of the year?
There’s going to be a lot of uncertainty as we move into the elections. Right now, dividends get taxed at 15 percent, but (investors) don’t know if dividends will be taxed at 36 [percent], 39 [percent] or could possibly be as high as 42 percent next year. Capital gains, we know, probably, will be going up at some point. That is a very important decision for high-net-worth investors, because we know this year, they can get that 15 percent rate on capital gains, and if they extend the Bush tax cuts, maybe it will go into next year, but they’re probably never going to have a better opportunity to take capital gains at a 15 percent. That could put some pressure on the equity market toward year’s end as some of these people decide, “I’m just going to go ahead and sell some of these stocks and take my capital gains.” There are just a lot of uncertainties in the next six months. To counter that, I think the stock market is very attractively valued and can absorb some bad news. But if we get any good news – if something goes right in Europe or in the United States from a political standpoint, you could see this market do very well.

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