As an investor, you know that 2011 was a somewhat “choppy” year, with the financial markets going through many ups and downs. So what can you expect in 2012?
As baseball Hall of Famer Yogi Berra is quoted as saying: “It’s hard to make predictions — especially about the future.” And these words certainly are applicable for anyone who would like an accurate forecast of the investment climate.
Yet we do know of some factors that may affect your portfolio in the months ahead. Here are a few of them:
• Strong business fundamentals — This past year, all the noise about the debt-ceiling debate, the size of the U.S. deficit and the European financial situation tended to drown out some fairly good news: U.S. businesses’ balance sheets were strong for the most part, borrowing costs remained low and corporate profits were good — and corporate profitability remains a key driver of stock prices. Heading into 2012, these fundamentals continue to look positive, which may bode well for investors.
• Europe’s debt crisis — Greece’s economic problems made a lot of news in 2011, but they weren’t the end of the story in Europe, as major financial difficulties also face Italy, Spain, Portugal and Ireland. It’s by no means clear how these problems will be resolved, so don’t be surprised to see them lead to intermittent, if short-lived, shocks to the markets.
• Election-year patterns — As you’re well aware, we’re voting for a president in 2012. But you might be surprised to learn that the S&P 500 index has shown negative returns in only three of the past 21 presidential election years. Coincidence? No one can say for sure — and at this point, no one can say if this pattern of positive returns will continue during this election year. Still, it’s an interesting phenomenon.
So there you have it: the good, the bad and the quirky. Take them all together, and you still may not be able to foresee what will happen with the markets this year, but you’ll have a lot to think about.
But instead of trying to predict what will happen in 2012, you may be better off following these tried-and-true investment strategies:
• Diversify your holdings. By spreading your money among a wide range of investments, you can reduce the effects of volatility on your portfolio. Keep in mind, though, that diversification, by itself, can’t guarantee profits or protect against loss.
• Don’t ignore your risk tolerance. If you worry excessively about market fluctuations, you may have too much risk in your portfolio, which means you may need to make some changes.
• Always look at the “big picture.” Financial markets always will fluctuate. But if you can keep your focus on your long-term objectives and make decisions accordingly, you can avoid overreacting to short-term events.
Like other years, 2012 will bring with it periods of both turbulence and smooth sailing. But by making the right investment moves, you can chart a course that can allow you to move ever closer to your future goals.
Cardella is a consultant for Edward Jones in Hinesville.