Clark Wealth Management Group - ScotiaMcLeod Fredericton

I keep a plaque in my office that serves as an important reminder. It is particularly helpful at times like this. It says, “We cannot direct the winds but we can adjust our sails”.

Since 1960 the US Debt ceiling has been raised, extended or revised 78 times by both Republicans and Democrats  Surely as the sun will rise tomorrow, the 79th adjustment since 1960 to the US Debt ceiling will happen too – exactly when and under what conditions are to be decided.

Among the 78 previous debt ceiling changes, some were acrimonious, while others slipped by barely being noticed. This time the changes required seem incredibly problematic. It could be because of the fact that the US Government debt and deficit problem has rarely been as bad as it is today (it was worse just following WWII ). It could be that the global financial system is more inter-connected than it has been in the past. It could simply be reflecting the growing incivility between political foes. It may even be being blown out of proportion by the manic news coverage on 24/7 TV news channels.

The real issue is that the US Government spends more each day than in collects in revenues, and borrows to cover the shortfall. It has been doing this for decades so it owes a lot of money. They have never had a plan and still don’t have a plan to reduce their day to day overspending or increase their revenue. At some point they need to 1) live within their means and 2) pay back the nation’s debt. It will no doubt be a multi-generational project.

Some European Countries, notably Greece, Ireland, Italy, Portugal and Spain, have similar problems. Between these issues and the US political brinksmanship, there is a good deal of uncertainty in world financial markets at the moment.

Using the sailing analogy, given the financial storms that are brewing some investors should likely adjust their sails. Those investors who have been playing it fast & loose or who are very concentrated (e.g. investing in only Canadian equities or focused in speculative investments), are most vulnerable to expected near-term volatility. They may want to reduce risk in their portfolio.

While they remain positive on equity investments over the medium to longer term, ScotiaMcLeod’s Portfolio Advisory Group Investment Committee provide the following advice Tuesday for more tactical, trading oriented investors. “…the current political debate in the US regarding raising the debt ceiling and the ongoing euro debt crisis makes us increasingly cautious in the immediate short term”. They go on to say that they would “not be adding to equity positions until there is greater clarity on the US debt ceiling issue”.

Many investors won’t need to make changes because they have diversified, asset allocated, and appropriate portfolios that are designed to withstand varying conditions. For investors who are unsure how their portfolio is positioned, it makes sense to be in touch with their advisor. They’ll want to confirm that they are reasonably positioned to weather what may be a significant but temporary storm, but still invested to make progress toward their goals.

Jumping in and out of investments en masse in anticipation of market events is not a viable strategy. It remains impossible to accurately and consistently predict the future. The fact that there are reasons to be concerned is not new. There have always been reasons to be concerned if that’s how you approach the world. The fact is however that in the fullness of time even the worst storms pass. This will be no different.

Keir Clark, is a senior wealth advisor, with Clark Wealth Management Group and branch manager at ScotiaMcLeod in Fredericton, NB. He can be reached online at www.keirclark.ca or by telephone at 506-450-6465.

Information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, expressed or implied, is made as to the accuracy or completeness.