Investing guru: Stick with stocks
The stock market may be boring now, but it should produce steady gains over the next five years, a well-known strategist told investors Friday at the Alta Sierra County Club.
Rod Smyth, chief investment strategist for Wachovia Securities and a familiar face to viewers of CNBC and CNN, said the market is now in the boring phase of its four-phase cycle (the others are boom, bust and bounce).
But Smyth expects stocks to post gains of 5 to 6 percent year after inflation for the rest of the decade “if you can put up with the volatility” of a cyclical bull market.
In a rare appearance outside of a metropolitan area, Smyth provided a 30-minute overview of investment trends to 150 guests and clients of the Grass Valley office of Wachovia Securities. He will make his another presentation today in Sacramento.
He told the audience that unlike meteorologists, market strategists are more comfortable making long-term forecasts than predicting what Wall Street will do next Monday.
Stocks have been the best place to invest during the past 200 years, growing at an annual rate of 6.5 percent. Smyth expects that to continue.
And depending on their tolerance for risk, Smyth believes there’s a stock for everybody.
For conservative investors, he recommends high-quality, dividend-paying stocks because of low tax rates and the expectation of above average dividend growth during the next 5 years.
Smyth likes oil, small- and mid-cap stocks and international issues for aggressive investors.
“Get used to $40 a barrel oil,” he said. “There is strong demand from developing countries, which are now 25 percent of the world economy. China is now the second largest oil consumer. Five years ago, they were just a blip on the market.”
Growth in southeast Asia – particularly China – makes stocks in that region attractive, Smyth said, but recommends investors stay away from Japanese firms.
Thanks to what he calls the “Wal-Mart effect,” Smyth expects inflation to remain in the 1 to 3 percent range for the rest of the decade.
Historically, manufacturers passed on cost increases to retailers, who passed them on to their customers. But Wal-Mart, which has captured 10 percent of the retail business in the United States, and its low-price competitors are forcing manufacturers to absorb cost increases through greater efficiency.
As long as productivity increases, Smyth expects inflation to remain moderate despite the volatility in oil prices.
Smyth also had something to say about California’s overheated real estate market: “You wouldn’t want to start from here.”
He pointed out that the price of existing housing has grown at the rate of 1 percent a year over the last 36 years. Nationally, prices are currently 14 percent above that trend, the highest level since 1979.
After noting that regional real estate markets differ, Smyth said: “We think investors who are currently using stock holdings as a source of funds for real estate investments may be making a mistake.”
Where to invest
Here’s some investment advice offered Friday by Rod Smyth, chief investment strategist for Wachovia Securities:
For conservative investors:
• High-quality dividend-
• Municipal bonds
For aggressive investors:
• Small- and mid-cap stocks
• International stocks
• Oil stocks
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