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BY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY
Every year, The MDE Group in Morristown – named after its founder and CEO, Mitchell D. Eichen – makes sensible predictions about the year's investment markets. (Eichen prefers the word "themes" to "predictions.") In the past, these whatever-they-are have done quite well, so one should pay attention.
This year, a key whatever is that the stock market may go nowhere. Price-earnings ratios may remain flat or even go down. For, even though there may be "modest improvements in economic fundamentals and corporate earnings," they may be offset by higher interest rates, higher taxes, and higher inflation.
Other points: MDE thinks large corporation stocks will outperform small ones, high quality low quality. Volatility should increase. It expects real estate prices to rise gradually across the country. Mergers and acquisitions will become more common.
So, what might an investor do? Based on these and other themes, MDE suggests, among other things:Prepare to invest in an environment of rising rates and inflation: Gold, commodities, real estate and similar investments have done well. Also appropriate: an emerging-market income fund that invests in high-quality, short-term government debt. A modest allocation to master limited partnerships and high-yield bond funds may also prove rewarding – their relatively high yields may "cushion the possible loss" from a rise in interest rates.
Adapt to changing market conditions. "Black swans" – the rare and unexpected – may lurk out there: That calls for, among other things, maintaining a diversified portfolio – including stocks, fixed income, and alternative asset classes. And a greater exposure to global investments – to create more opportunities. Plus using cash to lower risk and to be opportunistic – even while yields are low. And seeing that most of your investments are liquid and transparent – you can easily get out of them, and you know what's in them.
Look for investments off the beaten path: To find bargains now, "we have to look at under-followed investments." Examples: having an experienced real-estate team buy undervalued, foreclosed properties across the nation, properties "that meet their stringent acquisition criteria." Along with off-the-beaten-path financial assets, like pre-funded legal settlements or pre-funded legal fees and medical liens.
Look for healthy yields: Where? High-quality stocks with an average dividend yield of 4 percent to 5 percent. Along with off-the-beaten-path fixed income like non-rated municipal bonds.
Avoid traps for the unwary: MDE is steering clear of long-term U.S. Treasury Bonds...long-term bonds in general ... and illiquid, non-transparent investments. And it's avoiding a purely "long-only" portfolio (not betting on stocks going down). A 100 percent long position may have been wonderful last year, MDE writes, implying that this year selling some securities short seems appropriate. The MDE Group is a "holistic wealth-management firm" that focuses on active and retired corporate executives. "We are one of the first independent, executive-centric financial advisory firms and an industry-recognized innovator."
In Barron's 2009 survey of independent investment advisers. MDE was ranked No. 1 in New Jersey. It was ranked 4th in the nation in both 2007 and 2008.
A seven-member investment committee comes up with the yearly themes and a resulting asset-allocation policy.
The folks at MDE are humble. "We can state with some confidence," they write, "that some themes we offer for 2010 are likely to be correct, some incorrect, and some partially correct. We can also predict with great confidence that what will ultimately prove to be some of the major themes of 2010 are neither on our list, nor on anyone else's."
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The Institute of New Dimensions in Paramus is offering a five-part financial course, which I arranged, starting Tuesday, March 23, from 10 to 11:30 a.m. at the First Unitarian Church in Paramus. Speakers: March 23, yours truly on creating an all-weather portfolio; 4/13, Marylou Reeves, CFP, on boosting your income; 5.4, John Longo, Ph.D., on where to invest now; 5/18, Jerry Miccolis, CFP, on asset allocation; 6/1, Peggy Knee, JD, on keeping Uncle Sam at bay. Cost: $35 (includes $20 registration fee). Write to IND, 15 Essex Road, Suite 105, Paramus, NJ 07652.
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You're invited to send financial questions to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
