Posts tagged forex traders

The following is a guest post from Forex Traders.

The 2008 Global Credit Crisis has changed things. The world we live in is different. In the spring of 2008 it became apparent the economy was slowing down and the housing sector was going to lead the economy into a recession. But it definitely was not clear how bad it was about to get. During the spring of ’08, the talking heads on financial news networks, and even economists at the height of power at the Federal Reserve, were beginning to agree that America was about to hit a small economic road bump, but most of them assured the public that economic growth would rebound toward the latter part of 2008, and the economy would, of course, continue in its ascent to higher ground. Oh, how wrong we were. That small economic road bump ending up being a pothole the size of Texas. When the bottom fell out in September of 2008, the entire global financial system nearly failed. And, as a result, a “reset” button has been hit.

This “reset” button that was hit during the global economic recession of the last two years has changed the global financial landscape forever. A great shift in the balance of economic power is currently transpiring, and it will continue to transpire over the next 2 decades. In March of 2009, equity markets in the U.S. hit a low of 6,000 points. At this point, many Americans had suffered drawdowns of 30%-60% of their retirement accounts. Then, suddenly in March of 2009 the economy appeared to begin growing again. The equity markets rebounded and began rising. Unemployment slowly began to peak out and economic reports started to show improvement in the U.S. economy. So, from March to November of 2009, it looked as though the worst of our economic problems in America were now behind us, and growth was again before us. But then things got bad again. Really bad.

Currently, the Federal Reserve is once again raising the possibility of implementing further quantitative easing measures, which basically means they foresee very difficult times in the very near future for the U.S. economy. The Fed recently downgraded U.S. growth prospects for 2010, and they have communicated to the American public that they believe it may take 4-6 years to fully recover from the current recession. That means that economic growth will continue, but it will be very sluggish, unemployment will be stubbornly high, and general economic conditions will be less than optimal. So how has this changed the way Americans may have to plan for retirement?

For several generations in America, people were able to graduate from college, get a good paying job, and begin saving for retirement by investing in U.S. equity markets. Then, after 30-40 years of faithful service in the work force and careful retirement planning, a middle income American was able to retire with quite a bit of money. In fact, most Americans who held average paying jobs over the last 30 years and saved properly could have built a nest egg of $300,000 or more. Not bad. And a good paying job made it possible to save over $1 million. But the ability to grow a retirement account is dependent on the stock market increasing. What if the stock market doesn’t increase over the next 30 years as it has over the previous 30 years? That would make it very difficult to build a retirement nest egg, and this very possibility is why the old method of retirement planning may be dead.

Let’s break down the global economic recovery a bit more. Currently, the United States, England, and the EuroZone are all struggling significantly. Growth is expected to be very slow and general economic conditions in all three regions will be less than optimal for an extended period of time. So, these guys are running very slowly.

Then, you have China, India, Brazil, and other emerging market economies (China is a bit past emerging market at this point. They are a bona fide world power.) These economies are growing at blazing fast speeds. So, over the next decade, if the U.S. and Europe move forward at a very slow pace, and these emerging market economies move forward at a blistering hot pace, what’s going to happen to the economic balance of power in the world? It’s going to shift.

And this is why retirement planning may have to change. If the real growth over the next 20 years is going to be in China and India, then the average U.S. worker may have to be much more proactive about investing in those regions. In fact, only time will tell for sure, but investing in China and India may be one of the best decisions to make over the next 20 years.

So, how can the average investor position himself or herself to take advantage of this global economic power shift? It has been common practice in retirement planning over the last few decades to expose a small amount of one’s investment capital to overseas markets. One practical measure a person could take would be to sit down with a registered financial advisor and allocate a higher percentage of one’s portfolio to overseas exposure. For example, if the average aggressive model currently allocates 5% of capital to overseas markets, an investor may want to possibly increase that percentage to 10%, 15% or even 20%.

Another practical step an investor can take to take advantage of this global shift is to invest in an investment fund managed by a Commodity Trading Advisor that specializes in trading foreign markets. This type of investment vehicle can be thought of as a hedge fund for smaller investors. More information can be found at www.barclayshedge.com or at the National Futures Association website, which is www.nfa.gov.

There are numerous other ways to profit from this potential shift in global economic power, but these are two very practical ways to begin investigating possible investment opportunities. Before making any major financial investments, especially with retirement capital, make sure to always consult a registered financial advisor for additional perspective and guidance.