‘Sequester’ shouldn't deter investors
The much-publicized "sequestration," while problematic in some areas, should not deter people from participating in the financial markets, says Deanne Bilsborough, financial advisor of Edward Jones.
The sequester, a result of a failure between Congressional leaders and the Obama Administration to reach agreement on budgetary issues, will result in $85 billion in across-the-board government spending cuts this year. Bilsborough noted that the $85 billion in cuts, while not insignificant, amount to less than 2.5 percent of all government spending.
"We're disappointed because many people will be hurt by these cuts. But things will not grind to a halt in this country," Bilsborough said. "The markets tend not to like uncertainty, so investors should be prepared for some possible volatility in the weeks ahead, especially since sequestration was just one fight in the long-term battle over how to reduce the federal deficit. But there are still some very good reasons for people to continue investing for their long-term financial needs."
Bilsborough said the near-term investment environment might well be positive, due to a number of factors, including:
- Healthy corporate earnings
- A rebounding U.S. housing market
- Expected improvements in Europe and China, two regions that have caused concern for investors
Furthermore, Bilsborough said, stocks are still reasonably priced, despite the big gains achieved in the current bull market, now almost four years old.
Stocks in the S & P 500 index are trading at about 13.5 times their expected earnings, below the historical average of 15 times. (Keep in mind that past performance is not a guarantee of future results. An investment in stocks will fluctuate with changes in market conditions and may be worth more or less than the original investment when sold.)
"These numbers are reasonable, based on historical ratios," Bilsborough said. "They show stocks are attractively valued, making this an opportunity for investors."
Deanne Bilsborough, AAMS, an Edward Jones financial advisor in Edmonds, says she is not altering the overall advice she usually provides to clients.
"I still tell investors to look for quality investments, hold them for the long term, avoid excessive trading and know their own risk tolerance," Bilsborough says. "Of course, it's a good idea for everyone to rebalance their portfolios periodically to make sure their investments are still helping them make progress toward their goals. But I would tell anyone that, as far as the sequestration goes, there is certainly no reason to panic or drastically change their investment strategy."
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