W.We speak to Ed Cofrancesco, CEO of International Asset Advisory (IAA), about why financial literacy is more important than ever and what topics and trends investors should be watching this year. Cofrancesco also explains why stock investing is a marathon, not a sprint.
April is Financial Literacy Month, can you tell us why financial literacy is important, especially today?
America is a financially illiterate country at a time when financial literacy is more important than ever. Everyone has to file an annual income tax return with her IRS, but most people are scared of it. And since pensions for all practical purposes no longer exist, how we fund our retirement is up to us. Payments alone are not enough for most people to live, even if Social Security keeps them solvent.
Credit is easy to come by and because too many people don’t understand finances, Americans are drowning in debt. That number could be driven up by rising college costs and young people graduating with tens of thousands of dollars in debt and loans that take decades to pay off.
We have our kids study algebra in high school, and 99% of them will never use it again, but they’ll learn how to make money, how compound interest works, and how money makes more money. I’m not telling you how to make money. It’s been a problem in America for years and has gotten worse in recent years.
The world of finance has become much more complex while technology has made it easier than ever for people to participate.
At the moment, only 15 states require high school students to take personal finance courses in order to graduate, which is really scary. We were always talking about her 3Rs. I think we need to refocus on that and make sure that personal finances are included in the ‘calculus’.
What topics and trends do you think investors should pay more attention to this year?
At this point, I think investors should continue to worry about inflation and the possibility of a recession. March saw turmoil in the banking industry. And whatever happens, we still think there are some opportunities in the banking sector.
Energy is still a good bet. With the current friendly relationship between Russia and Saudi Arabia and OPEC’s decision to cut production, prices will undoubtedly rise. This should help Putin continue to fund the war with Ukraine.
As always, we view equities as a long-term proposition. We expect to see at least one significant drop this year, perhaps as much as 25%.
How do you assess the current macro situation?
International Asset Advisory (IAA) believes that the Beatles song Helter Skelter best describes the US stock market. Climbing up and down Helter Skelter’s slide can be a lot of fun for small children and aggressive day traders, but it’s no strawberry field for the individual investor. We are all looking to the market for answers, and unfortunately this whipsaw seems likely to continue for some time.
I couldn’t account for all the risks there, but I expected some kind of shoes to start dropping. Please fasten your seat belt. A very bumpy ride follows.
What should investors keep in mind during this time?
Markets like they are today usually do not do well as future indicators of market direction. The IAA’s experience in this type of market advises caution. With so many uncertainties around inflation, rising interest rates, rising budget deficits, the likelihood of a recession, geopolitical risks, etc., looking for a safe harbor seems like the best course of action. I can see it.
Where are the investment opportunities today?
Like energy stocks such as Exxon and Chevron, we prefer medium-term bonds (3-5 years) that look attractive. We tell our clients that investing in stocks is a marathon, not a sprint, and that if we see another big drop this year, it will be a big buying opportunity.
This interview was originally published in the TradeTalks newsletter. Sign up here to get access to exclusive market analysis from new industry experts every week. We also spotlight must-see TradeTalks videos from the past week.
The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.
