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March 12, 2024 at 02:11 PM
Take it from someone who’s been managing or advising on financial risk for 50 years:
“Oh my God, I don’t think I’ve lived through a time when there were more risks” to the stock market.
So says Larry Swedroe, principal and head of financial and economic research at Buckingham Strategic Wealth, in an interview with ThinkAdvisor.
He quickly identifies 10 big risks, from “geopolitical tensions” to “a … federal deficit [with] no end in sight.”
What to do? Diversify, he insists.
In his new book, “Enrich Your Future: The Keys to Successful Investing,” Swedroe argues that active investing is “the loser’s game.”
Swedroe, who was vice chair of Prudential Home Mortgage before joining Buckingham 28 years ago, says his aim is to “help prevent the wolves of Wall Street from shearing … investors as if they were sheep.”
In the interview, he reveals what’s in his own portfolio, more than 40% of which is alternative investments.
Here are highlights of our conversation:
THINKADVISOR: What’s the difference between risk and uncertainty?
LARRY SWEDROE: You can measure risk, as life insurance companies do. But with the stock market, you don’t know the odds of a bear market occurring tomorrow. Stocks are always about uncertainty of risk.
The best we can do is estimate the odds; nobody knows what the odds are exactly.
What are the biggest risks in the market right now?
Oh my God, I don’t think I’ve lived through a time when there were more risks.
The only way I can address the future intelligently is to diversify [as usual].
Exactly what are the risks?
The geopolitical tensions are at extremely high levels around the globe.
The risk of nationalism is increasing: If [Donald] Trump wins the [presidential] election, almost certainly you’ll see higher tariffs, which could lead to trade wars. U.S. manufacturers will raise prices, and inflation will go up.
There are huge problems on the budget side. We’ve got a 6% federal deficit, and there’s no end in sight. That’s inflationary.
The U.S. has a huge shortage of housing. I don’t see how you can keep home prices from rising more and rent from going way up.
Inflation will be higher than people think.
What other risks?
We have the threat of a partial or even a much bigger shutdown of the U.S. government, let alone the risk of a default on our debt if Congress screws that up.
We’ve got a huge Social Security problem: [The S.S. Administration] will be able to pay only 80% or less [of scheduled benefits] in eight or nine years [when the S.S. trust fund is exhausted].
There’s also the risk from the work-from-home environment. That means commercial real estate is in deep trouble; banks lending to them is a problem.
There’s the problem of municipal finances that are under major pressure because of their policies on immigration and the decline in property values of offices.
There’s the big risk of the Magnificent Seven and other tech stocks that antitrust legislation could be a big problem to some of their stock prices.
How will all that affect the market and economy, broadly?
