Andy Ortiz

The Local Expert

Financial Planning

IQ Portfolios

13790 Bridgewater Crossings Blvd., Suite 1080




Q: What is the Economic Cycle and why should I care?

A: Our economy is subject to cycles of ebb and flow like the tides of the ocean. When the tide is low, water recedes, and you can go look for shells. When the tide is high, water comes in and if you’re not careful, you’ll get wet.

We refer to those periods in the economy as expansion and contraction. Expansion is when businesses steadily grow their production and profits, unemployment remains low, and the stock market performs well. Consumers are buying and investing. This is the most desirable state of the economy. The “tide is in” and everything is humming along nicely.

Then we reach the “peak.” It always happens. (Remember, this is a cycle.) After a while, numbers begin to look inflated beyond what is healthy. The economy starts growing out of control. Companies may have been overly optimistic and, banking on a continuation of the fast-flowing economy, expanded more than they should have. Same with investors; they might become overconfident, aggressively snapping up assets right and left and driving prices up.

Everything, for everyone, starts to cost too much. When that happens, when you can’t expand anymore, there’s only one way to go…

Contraction (think recession) is the next phase of the cycle. The tide has turned. The bulls on the stock market start to pull in their horns and change into bears. Economic activity slows. Unemployment typically spikes. GDP (gross domestic product) growth falls as a result of business cutbacks and slowing. Caution becomes the watchword for the day, and you can almost hear the gears of the big machine grinding down.

IQ Portfolios (IQP) is an independent State Registered Investment Adviser Firm located in Windermere, FL. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. A copy of IQP’s current written disclosure statement discussing IQP’s business operation, services, and fees is available upon request.

If the economy’s high point is a “peak,” in a recession, its low point is a “trough.” Recession spans the time between peak and trough.

The silver lining is, when the contraction phase of the cycle bottoms out, when we reach that trough, the only way ahead is up, and the economy is in for a rebound. Expansion starts up and the cycle continues all over again.

Sounds good on paper. But none of this, neither the ups nor the downs, follows a straight line. It all takes time. None of it is quick, and there are many factors that cause hiccups and fits and starts along the way.

Oftentimes people refer to the economy and “the market” interchangeably. Though they are integrally related, they are quite different. Investors and the buying and selling of stocks are what determine the state of “the market.” In a contraction phase—which, by the way, I believe we are in right now—investors sell their holdings and depress the price of stocks. We end up smack in a bear market. In an expansion, investors go on a buying spree and stock prices rise. We get the opposite, a bull market.
So what does all this mean in the real world?

In broad strokes, in today’s “contraction,” finding work often becomes more difficult. Individuals may opt for less-than-ideal jobs, waiting for wages to turn upward. Spending may tail off, especially when it comes to decisions on high-ticket items like a new car or home. Consumers tend to be wary of using their savings because they fear they might need them later. Purchasing power erodes as inflation grows and the cost of money (interest rates) skyrockets with no end in sight.

Whew. Living in a recession can be tough, and people often feel helpless in the face of rising costs for everything from food to gas, mortgages to rent, with no corresponding rise in income to combat it all.
But everything is not doom and gloom. If there is anything to take away from today’s small economic lesson it is this: what goes up, must come down again, and vice versa. Remember? The economy is cyclical. After a recession, we will eventually move on to rebound in the next phase of the cycle and a natural recovery should follow.

The point is, take heart and take charge. Meet with a financial professional now that you are armed with a new appreciation for the ebb and flow of our economy. Ask pointed questions, learn even more, and see what solutions they might be able to recommend for you and your family. If you do, I am confident that knowing you are taking an active role in harnessing the ups and downs of our economy for your own financial wellbeing will help you sleep much better at night.

Q: What is goal-based investing?

A: Simply, goal-based investing is a planning strategy for investments that is aimed at a specific goal. That goal will be different for every person. It could be retirement, a new house, college for the kids, building up an estate to leave your children, anything that is important to you that you will want to use your money for.  

Note that earlier I said specific goal. It is not enough to have a general goal: “I want to make lots of money.” … “I want enough money to be able to travel when I retire.” … “I just want to be comfortable and worry-free.” The problem with general goals is that they have a nasty way of not coming to fruition—because we are human. Sometimes life gets in the way, time runs out, we forget, or circumstances change—and we feel compelled to make a move that may not be in our best interests again, because we are human.

For example, it is not unusual to feel a little anxious about your investment portfolio when pressed by events not in your control. Times of high market volatility, global unrest, and domestic inflationary pressures can challenge even the savviest of investors. In recent weeks, even the “R word” recession has begun creeping into business news and financial markets coverage. Should we be alarmed? Or, is it all just the media cobbling together more attention-grabbing headlines to boost their sales?
Maybe. But that is not really the question to be asking, is it? The real question is: what are we prepared to do about it?

Because we are human first and investment machines second (there’s that human word again), we are emotional beings. Emotions could tempt us to react today and hamper our ability to make informed decisions about our money for tomorrow. We forget that investments in financial markets will cause our investment portfolios to rise or fall in value over time. And the level of fluctuation will depend on how our money is invested. For example, we can expect a portfolio that invests primarily in growth stocks to have wider short-term swings than a portfolio that invests mostly in money market securities.

For many investors, the intricacies of creating a savings plan smart enough and flexible enough to weather what life may have in store for them can prove a bit daunting and the simple answer—“Just get me the highest potential returns possible”—becomes their “strategy.” While this approach can help build wealth over time, it lacks one of the most fundamental aspects of goal setting—the ability to measure investment progress.

How are your investments really doing? What might you do to improve their performance? Will you reach your goals? Wouldn’t it be good to know that before you make a move?

Of course, and that’s why we at IQ Portfolios are huge fans of Goal-Based Investing. One of the most important steps we take with all our clients is sit with them and take a hard look at where they’re at today and the goals they want to achieve tomorrow. Then we chart those specific goals and create an individualized practical investment plan to reach them.

Goals and priorities are a function of each person’s age and personal circumstances. It also varies with a person’s ability to tolerate risk. Are you completely risk averse? Can you tolerate some risk with the chance for a greater reward? Do you fancy yourself a bit of a gambler? The answers—like goals—differ for everyone. What remains a constant for everyone, however, is the very real desire to attain those goals. Goal Based Investing is one of the most reliable strategies we utilize at IQ Portfolios for that very reason.

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