www.tidewaterreview.com/features/va-tr-clubs-rotary-0904-20130903,0,5752067.story

tidewaterreview.com

Rotary hears about latest impacts on investment strategies

Advertisement

WEST POINT — Rotary uses a classification system to establish and maintain a vibrant cross-section or representation of the community's business, vocational, and professional interests among members and to develop a pool of resources and expertise to successfully implement service projects. This system is based on the founders' paradigm of choosing cross-representation of each business, profession, and institution within a community. A classification describes either the principal business or the professional service of the organization that the Rotarian works for or the Rotarian's own activity within the organization. Several times each year a member from the Rotary Club of West Point speaks at a club meeting about his or her business or profession. Eric Nost-President, C&F Bank Investment Services -spoke to the club recently about his area of expertise, the latest impacts on investment strategies.

According to Nost, the 2008 financial crisis and the September 11th terrorist attack not only caused immediate political and financial impacts, but caused fundamental changes in investment strategies with implications for the future for the thoughtful investor. One such change is in interest rates for borrowers. Thirty years ago a 30-year fixed rate home mortgage was around 18%. The rate has steadily fallen since then to the current 3.35%. This has been good news for home buyers as well as investment portfolios because as interest rate fall, bond values rise stated Nost. This bull (upward) market has kept retirement accounts stable since most 401k portfolios are heavily invested in bonds. However, according to many economists reported Nost, bonds are headed toward a bear (downward) market. "Bonds will not be as safe (in the future)," stated Nost. "When it comes to using bonds as a safe haven, you will need to be more careful in the future."

Another area of change noted by Nost was in the allocation of investment funds. Traditionally, a solid investment portfolio held stocks, bonds, and cash. Now, the smart investor will need to look for "alternative investments," said Nost. Things like commercial real estate, gold, carbon credits, hedge funds, venture capital, and private equity will matter more and more in the future.

Finally, according to Nost, investors need to re-evaluate their expectation of return on their investments. In the past an annual 7.2% rate of return on one's investment portfolio resulted in a doubling of investment in ten years. This long standing "Rule of 72" may no longer prove to be a realistic expectation. We all know about the economic slowdown in the U.S., but stated Nost. "Even the new markets in China, Russia, and Brazil are slowing. This is a tricky time, especially for retirees."

In summation, Nost noted that only about 20% of Americans have pensions and this number will probably go down in the future. Also, Social Security will play a smaller income role in the future. Therefore, "the onus will put on the individual to make up the difference (in investment income)," according to Nost. "Thinking out of the box will become more important in investment strategies. How well you approach (these strategies) will determine how well you will come out in the end."