A Realistic Look at Investing in Today's Economy

Source: Accounting Today

In this article, Richard Stolz questions whether CPAs can continue to depend on past investment performance to predict the financial future — keeping in mind the recent 2008 crash and overall changes in the global economy.

Stolz gathers insights from several professionals around the country about moving forward in the current market:

• Past performance is important because the past is now fact; however, an appropriate length of history (as far back as 1925) should be considered and Monte Carlo analyses should be applied to consider the future.
• Expect less from investments, taking into consideration a lower return from bonds and the Federal Reserve's pattern of setting low rates.
• Expect less from U.S. stocks in light of the country's debt level.
• Remember to consider the client's preferences (from more conservative to aggressive) using current long-term assumptions and Monte Carlo analysis to assess the risk of investments.
• Diversify across a wider selection of assets to reduce risk and increase stability of investments.
• Consider how to communicate realistic expectations to clients, and maybe offer conservative saving and investing advice at the same time.

For the complete article, read “Sobering Advice.”

From Accounting Today, January 1, 2011, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 800-221-1809.