With Europe's debt crisis dominating the news and putting a drag on the stock market over the past few weeks, some advisers fear that investors will lose opportunities to preserve and grow their wealth by avoiding all risk and seeking safety in cash.
Europe's troubles and a potential economic slowdown in China have many investors running for a safe port, but one adviser maintains that the "new normal" for portfolio growth involves a greater appetite for risk than in past years.
Investment News covered the annual Morningstar conference in Chicago, where Franklin Templeton's co-director of the international bond department, Michael Hasenstab, cautioned that various central banks are responding to prolonged economic slumps by printing huge amounts of money, to the detriment of investors. Pumping more cash into the system is devaluing it as an investment. "Never in the history of central banks have we had such significant printing of money," he told the audience.
Although Greece, Spain and Italy are experiencing economic troubles, Hasenstab believes only Greece will need significant debt restructuring to recover. "Europe is messy but it's not Armageddon," he said, adding that China's economy will slow, but not result in what he called "a hard landing."
Most portfolios have to contain some risk in order to show greater rates of return. Hasenstab said ultimately, investors should look beyond the daily news headlines and not allow panic to guide their investing approach. Adding a little risk can kick-start growth, but you don't want to go all in either, because risk generally involves volatility. One asset class Hasenstab likes is emerging markets, because the debt-to-GDP ratio there is 40 percent, versus 100 percent in developed countries.
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