Investment forecast focuses on the three Fs

Ross McDonald
Ross McDonald

Phil Castle, The Business Times

Ross McDonald bases his outlook for investment markets in 2015 in part on what he terms the three Fs: whether or not stock markets are priced fairly; the prospects for various investments to generate fixed income; and fallow ground — that is, areas of potential opportunities.

McDonald, a regional vice president with the American Funds investment management group, covered each of the Fs during a presentation in Grand Junction. The Oakley, Wanebo, Love, Mendenhall and Keller Wealth Management Group of Wells Fargo Advisors hosted the event.

Stock markets have more than doubled over the past six years, leading some to wonder whether the markets have reached their peaks. “Is it about to get bad?” McDonald asked.

McDonald said he believes stock markets are valued fairly — neither cheap nor expensive. But markets are likely to exhibit more volatility and provide lower rates of return. “I think things are going to be better, but it’s not as robust as it has been.”

Meanwhile, it’s been more difficult to find investments that generate fixed incomes, McDonald said. Rates have been low on certificates of deposit and bonds. “It’s not that exciting, is it?”

While rates could move a little higher, he doesn’t expect significant changes.

Some potential investment alternatives include municipal bonds that pay a little higher interest rate and also offer the additional advantage of tax-free earnings, McDonald said. Another option might be conservative stocks that pay consistent dividends.

As for fallow ground, McDonald  said investors should look for opportunities  overseas in international and emerging markets. International markets are coming out of recession, and their stocks are generally less expensive than the U.S. market. While emerging markets face recessions, there’s opportunity for subsequent growth, he said.

McDonald also encouraged a long-term approach to investments. “It’s easy for us all to get trapped in what’s happening right now.”