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Jan 29, 201412:15 PMFinancial Perspectives

with Michael Dubis, CFP

Potential investment themes for 2014

(page 2 of 2)

6. The student loan bubble is now more than $1 trillion, with a relatively high late-payment rate. I thought this would pop in 2013, but I was wrong. I have learned from my mistake here and don’t want to predict whether or when it may pop because it seems like this could go on for a while, but if it pops or adjusts, it will have an impact on college costs and college funding. Think of student loans like mortgage debt. When the mortgage markets were running out of control through the 2000s, what happened to the housing markets? They bubbled in value. When college costs are allowed to outrun inflation, fueled by easy student-lending credit, it gets to a point where the system may no longer be sustainable. And if the student loan bubble pops, expect to see major changes in how universities and other institutions of higher learning (tech schools included) deal with a potentially major loss of funding.  

7. The housing market in Dane County continues to look reasonable if not good given what my developer and real estate colleagues are telling me about a limited supply of housing coupled with a pretty strong economy and still relatively low interest rates. However, the housing market in parts of the country that experienced bubble-like valuations five years ago (Florida, Arizona, etc.) looks kind of expensive again, with an odd demand landscape. From what I can gather, those markets had huge run-ups on valuation in the past few years, largely due to recycling foreclosures. But we also have a strong return of subprime debt and a large influence of “all cash” investment buyers, while debt-to-income ratios are on the rise again. Of course, this is offset by the now extreme difficulty of getting a mortgage due to Dodd-Frank regulations, along with slightly higher interest rates on traditional mortgages. But the point is, a home has never been an investment; it’s a store of value that if purchased well should allow you to sustain a better quality of life in the future compared to not owning at all. Purchasing well means being conscious of ownership costs relative to income and the amount of time you’ll live there. Given that the purchase of a home could be one of the largest expenses of your life, buying a home should always be done with prudence.

8. My “what keeps me up at night theme” would be some sort of new war or environmental disaster. For example, I’ve been very concerned about the Fukushima Daiichi nuclear plant disaster of 2011 and its ongoing effects on the planet. It gets very little media attention but has global long-term implications on the environment and our quality of life. Perhaps 2014 could be the year the world understands the ongoing devastation Fukushima is causing around the globe. Along the same lines, I think the Japanese/Chinese conflicts are real. Maybe they’ll lead to nothing, but maybe they’ll become disruptive in the long term. I would rather not have to consider the possibility of economic, political, or environmental disruptions, but if you study history at even a cursory level, you know that these types of events actually occur with regularity and can have sizeable impacts on our future plans.

9. Another repeat from last year, because it’s just too easy: There will be another manufactured economic crisis that the media and politicians will exploit, and some folks will overreact to it, making some very bad decisions with their money as a result.

10. Finally, another self-indulgent softball from 2013: Some asset classes will rise, some will fall. Diversification will still be the middle ground, which works for most. (I cut-and-pasted that one.)

As usual, it’s now your turn to opine. 

Michael Dubis is a fee-only certified financial planner and president of Michael A. Dubis Financial Planning, LLC. He is also an adjunct lecturer at the University of Wisconsin Business School James A. Graaskamp Center for Real Estate. Mike can be reached at financialperspectives@gmail.com.

 This article contains the opinions of the author. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products or services described in this website or that of the author’s. Mike Dubis does not guarantee the relevancy, appropriateness, or accuracy of any outside information or links. Mike Dubis does not render or offer to render personalized investment advice or financial planning advice through this medium. All references that might be made to an investment or portfolio's performance are based on historical data and one should not assume that this performance will continue in the future.
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It is an understatement to say the world has experienced a radical shift in capital markets. There are more layers of information and opinions on the direction of the world than we've seen in decades. The internet and the media do not always make it easier, but Michael Dubis' contribution through IB blogs will help you sift through the noise and give you some perspective. You can find his company online.

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