Economists: Investors should adopt worldwide view

Recent record highs in the Dow Jones industrial average are tempered by a tumultuous European market and unrest in the Cyprus banking industry.

Stephen Evans, wealth management adviser and owner of Evans Wealth Planning LLC, said investors need to be conscience of today’s global economy. “The world is projected to have 5.1 billion middle class people by 2025 and as a leading manufacturer, America is poised to supply the world,” he said. “This can dramatically affect how we choose to invest.”

KC Mathews, executive vice president and chief investment officer of Kansas City-based UMB Financial Corp., believes global fundamentals are improving.

“Since June 2011, there have been 345 stimulative initiatives worldwide, interest rate cuts, quantitative easing, lower tax rates and loan programs,” Mathews said in a recent economic commentary. “When examining the performance of commercial bank stocks in the U.S., they returned 24 percent in 2012, yet banks in Europe were up 32 percent. The performance of bank stocks gives us some insight into the health of the banking industry.”

Mathews said as the global environment improves, U.S. corporations will ship their goods and services around the world, continuing the improvement of corporate earnings.

Recently, Missouri Gov. Jay Nixon led a trade mission to South Korea and Taiwan, inking agreements for Missouri to sell $1.9 billion in goods to consumers in the two countries during the next four years. He also led trade missions to China in October 2011 and Brazil in April 2012, which led to agreements to sell $4.6 billion in goods.

Following the 2008 crash, Mathews said as recently as 2009, U.S. economic fundamentals have been improving.

“Corporate fundamentals are strong,” he said. “Companies are lean, productivity is high and margins are near record levels. Corporate earnings also are at all-time highs, and businesses, while still uncertain about the economic environment, are looking to invest the cash they have sitting on the sidelines.

“Additionally, corporate balance sheets have never been stronger, and because of this, earnings have outpaced the stock market performance since 2009, growing by 96 percent, while the S&P 500 has increased by 68 percent.”

Retirement plan
A market in constant flux isn’t anything new, said David Mitchell, associate professor of economics at Missouri State University and director of the Missouri Bureau of Economic Research.

“The recent rise in the Dow probably means your retirement account is doing really well right now, but it shouldn’t be considered standard operating procedure,” he said.

Mitchell said what actions are taken next depends on the individual’s retirement picture.

“If you’re young, by all means, keep your money in the market and ride the wave for the next few decades,” he said. “If you’re looking to preserve what you have already built, the best way is to diversify in stock, bonds and even cash.”

Mitchell said playing the stock when young and buying into bonds when older isn’t the best advice. “Shifting from stocks to bonds is just shifting from one bubble to another,” he said.

While Evans acknowledged investing can be emotional, he advises against emotions influencing decisions.

“If you let ebb and flow of the market control when you buy and sell, you’re investing through fear, not knowledge,” he said.