Its Always Something

Editor's Notes

• #2: Good [morning/afternoon/evening]. My name is [Name] and I’m a [title] for [The Hartford]. While our nation faces serious issues right now, there are compelling reasons to consider investing today. As the nation recovers from the Great Recession, something’s happening that should give investors hope. We’ve all heard the reasons not to invest today. I’d like to help you put those concerns into perspective, and show you some things happening today that may be good for investors.
• #3: Every day, it seems there’s something going on in the economy that may lead you to believe it’s just not the right time to invest. Today’s worries are easy to identify—and we’re all thinking about them: High unemployment High government spending leading to record budget deficits A lost decade for stocks and limited access to credit Fears that high levels of foreign debt could sink the global economy The worst recession since the Great Depression and a weak recovery Deflation or inflation But are these worries really unprecedented? And what could you miss if you focus only on the negative news of the day? Are there not-so-obvious opportunities out there, beyond our backyard? The surprising truth is that when it comes to reasons not to invest: It’s always something . But when it comes to reasons to get excited about investing: It’s always something .
• #4: While today’s economic difficulties may seem “unprecedented,” past generations have faced similar difficulties. Those who expected the difficulties of the moment to last forever missed out on larger trends that would eventually help drive the economy and stock market to new heights. Let’s take a look at a few of them, starting with 1975. [Review slide.] By focusing on high unemployment, you may have missed the many advances in technology throughout the 1970s that laid the groundwork for the next three decades. Breakthroughs included the invention of the microprocessor, floppy disks, and gene splicing. Looking at the economy, inflation dropped from more than 12% in 1974 to less than 5% by the end of 1976, and unemployment dropped from 8.5% in 1975 to 5.8% in 1979.
• #5: [Review slide.] The U.S. economy was about to enter a period of unusually strong growth, averaging 5.2% growth from 1983 to 1986 (growth above 3% is considered strong). This pushed concerns about high levels of foreign debt to the sidelines. Meanwhile, large American companies were beginning to sell more of their products and services overseas, laying the groundwork for today’s multinational companies.
• #6: [Review slide.] In 1984, large deficits were due in part to large increases in defense spending during the Cold War—a war that would soon be over. Meanwhile, personal computers, the Windows operating system, and digital cell phones were about to increase productivity in businesses across the world, and the first artificial heart transplant would bring major advances to medicine.
• #7: [Review slide.] In this 10-year period, the Internet was becoming available to the general public, and it would revolutionize everything. The resulting technology boom created millions of new, high-paying jobs, and greatly increased productivity. The combination of low inflation, low interest rates, and moderate-to-strong economic growth led to the “Goldilocks” economy that created one of the longest periods of economic growth in the nation’s history.
• #8: Trends are usually obvious in hindsight, but not always so obvious at the time they’re occurring. Sometimes they’re slow and steady, and other times they start with a boom. Let’s take a closer look at a variety of trends that may help shape the global economy over the coming decade—and may represent an opportunity for investors. We’ll start with emerging market trends. What’s happening in nations such as India, China, Brazil, Russia, Turkey, and Indonesia? In developing nations, 70 million people joined the middle class in 2009—an average of 191,780 people per day 1 —and their spending power will have a major impact on the global economy. The rapidly growing ranks of middle-class consumers span a dozen emerging nations, and they include almost 2 billion people who spend a total of $6.9 trillion annually. A recent research study from McKinsey suggests that this figure will rise to $20 trillion during the next decade—nearly double the current consumption in the U.S. 2 Companies in the S&P 500 Index reported that 46.6% of their sales came from overseas 3 —a trend that will likely continue as emerging market nations continue to grow more prosperous. [Click] Technology will continue to touch every area of our lives. Growing demand in automobile and information technology in particular may give rise to widespread innovation in the technology sector. The U.S. government has challenged auto makers to design and sell one million plug-in hybrids capable of 150 miles per gallon by 2015, and proposed a $7,000 tax concession for Americans who purchase them. 4 As developed nations like ours go wireless, bandwidth to manage the flow of information is becoming increasingly scarce and valuable. As the trend continues, “wireless carriers could use the scarcity to profit.” 5 The shift to Internet-based computer applications, email, and data storage, known as “cloud computing,” is becoming more popular. This trend lowers costs for businesses and consumers, allows people to access information anywhere and anytime, and enables more efficient, secure communication—improving how we live and work. 6 Developing nations are becoming tech-savvy and tech-hungry, too. By 2030, people in developing nations, led by India and China, will own more than 90% of all mobile phones worldwide. 1 1 “The Scary New Rich,” Newsweek , March 6, 2010. 2 “Capturing The World’s Emerging Middle Class,” McKinsey Quarterly , July 22, 2010. 3 Standard & Poor’s Research & Design Report, August 2010. 4 “Crisis Bodes Well For Electric Cars,” Forbes , February 10, 2009. 5 “Bandwidth Is the New Black Gold,” TIME magazine, March 11, 2010. 6 “Cloud Computing’s Great Promise,” Forbes , June 30, 2010.
• #9: The decoding of the human genome will lead to many new discoveries that will treat and cure a wide range of diseases. 1 Dr. Leroy Hood, who played a key role in decoding the human genome, is working to make “P4 medicine”—which is personalized, predictive, preventive, and participatory—a reality. 1 Using P4 medicine, doctors will examine a patient’s genetic makeup, give a personalized diagnosis, predict which diseases the person will be susceptible to, use preventive medicine, and get patients to participate in staying healthy and avoiding risk factors. Let’s think about developing nations again—for example, China. The average American spends $7,000 per year on healthcare, while the average person in China spends just $150, leaving plenty of room for growth in healthcare spending. As more people enter the middle class around the world, they are likely to spend more money on healthcare products and services. 2 Then there’s the unexpected. [Click] Over the next 10 years, new products and innovations will surprise and delight us, making our lives more productive and our bodies healthier. While we can’t know in advance what they’ll be, we can be confident in this: It’s always something . By investing in a diversified portfolio of domestic and foreign stocks, you can potentially profit from the growth these trends may bring. 1 “A Vision for Personalized Medicine,” TechnologyReview.com, March 9, 2010. 2 “US Reform and the Investment Case for Health Care,” Wellington Management white paper, May 2010.
• #10: Now that you can see some potential areas of opportunity, it’s time to see what we can learn from past investors. When we examine stock market history, a fascinating pattern emerges. This chart shows the returns for the Dow Jones Index over 10-year rolling periods. For example, the bar for 1910 shows a 4.9% return, which means that from 1900-1910, the index returned an average of 4.9% per year. Since 1910, whenever the stock market has had a 10-year period of poor returns (the time periods circled in red in the chart), it has usually rebounded strongly in the following 10-year period. [Review slide]
• #11: Our second lesson from past investors is the concept of global diversification. While you may feel more comfortable owning U.S. stocks than foreign stocks, it may make sense to diversify your portfolio globally. As the chart shows, no single country’s stock market consistently outpaces markets in the rest of the world. Investing in both foreign and domestic stocks may help you reduce the risk in your portfolio through diversification, and may help you capitalize on products and services developed around the world.
• #12: Finally, when you think of the investment future, it may be helpful to take a closer look at innovations and investments of the past. In the long term, how have innovations shaped our lives and our investments? How have certain investments performed compared to others? [Review slide] As we can see, investors in past decades who focused on short-term problems would have missed out on the long-term growth that stocks have historically provided. Owning a diversified portfolio of stocks may help you benefit from innovative products and services that will shape the future, and propel future markets. It’s always something .
• #13: The next time you catch yourself reading negative news and thinking, “It’s always something!,” I would encourage you to try to see beyond the moment. Seeing beyond the moment means learning from the past, putting today’s issues in perspective, and preparing for the future. Remember these three important lessons for long-term investors. [Review slide] Your financial advisor can help review your long-term investment strategy and help position your portfolio to take advantage of future opportunities. Because when it comes to reasons to invest for the long-term, it’s always something. Thank you for your time and participation today.
• #14: Read slide.