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Stay safe, not risky, says CEO

By Sheyna Steiner · Bankrate.com
Friday, May 6, 2011
Posted: 2 pm ET

With today's employment numbers more people may be feeling a slight lift, but only time will tell if that feeling can be sustained. Payrolls increased by 244,000 in April, a larger than expected increase, but the unemployment rate bounced back up to 9 percent from 8.8 percent.

In his economic indicators newsletter, High Frequency Economic's chief U.S. economist, Ian Shepherdson attributed the unemployment increase to the drop in the household employment measure to 190,000 and called it "noise."

According to a blog post on Barrons.com, "Is the increase in the unemployment rate a good thing?" by Avi Salzman, the household employment numbers can be volatile, and one month's move may not indicate much, though it could signal that unemployed workers who had given up trying to find work are now actively looking again.

Though unemployment is one of the biggest wrenches jamming the economic gears, there are other issues that economists and financial-types are worried about. This week, Steve Forbes spoke alongside the CEO and chairman of Northwestern Mutual, John Schlifske, about the hurdles facing the economy and individuals.

I was able to interview Schlifske about how investors can manage risk in today's economic climate and the outlook for the economy.

How can individual investors manage risk in today's economic environment?

Schlifske:

What we would say is that you need to have a financial plan. You wouldn't build a house without a plan and you wouldn't play a baseball game without a game plan. People need to start with a plan so they know where they are and they know where they want to go.

The second thing is that you need to have a diversified set of assets. We don't believe that you can invest in one thing and somehow avoid all the pitfalls that are out there.

For instance, at Northwestern Mutual we have about a $170 billion investment portfolio, and it's fully diversified across dozens of asset classes, because we don't really think we're smart enough to know what is going to go up and what is going to go down. So if we diversify across all of these asset classes, over time it generates a good rate of return.

Then the third thing is that you need to save money. There is sometimes a notion that you can invest your way to prosperity and really you need to save money and put it in assets that have some stability over time.

Net-net right now, I'm not sure there is any asset class that is particularly attractive I grew up on the investment side and there were times I thought bonds were a great buy or stocks but right now I don't see anything that is a screaming buy. So right now we're really keeping close to our benchmark weights and just investing across asset classes.

What would you say is the outlook for the economy for the next few years and what should individuals be considering going forward?

Schlifske:

Our personal view at the firm is that the most likely outcome is one of low, slow, steady growth over the next year or two.

But, as we always remind people: if you remember your statistics class, the most likely outcome is not the average; it's just the one that you think is going to happen.

When we look at the risks versus the upside potential in the economy right now we see a lot more downside risk than upside, given the nature of what is going on in the European debt markets, the Middle East, our own federal deficit and money problems.

We're really cautioning people that they should probably hunker down a little bit, orient themselves towards safety rather than risk-taking and really not bet on a robust economy, because I'm not really sure we believe there is a high likelihood of that happening.

Are you erring on the side of caution these days when it comes to your investments?

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