Some people might argue that this is the worst time to go into annuities because the market has already suffered most of its downside. But if you're a retail investor sitting on sidelines, paralyzed between your logical and emotional inclinations, for an extra fee an annuity can offer peace of mind without having to sacrifice higher returns from riskier bets, he says.
Many insurance firms that offer these structures are starting to recognize they should be charging more, given the losses they're taking in the current market environment. Marshall doubts that the insurance companies will make annuities so prohibitively expensive as to kill demand for them, but they may eliminate some of the riskier mutual fund options and require investors to invest in some sort of balanced portfolio, he adds.
Emerging Markets
Most economists believe the recession will be less severe for the U.S. than for other developed economies, especially those in Europe. The sharp drop in values for assets in emerging markets in 2008 has scared off many investors, but Peirce at State Street sees the decline as more of a correction to the outsized gains made in 2007. "They didn't really underperform that badly relative to past episodes. It reflects that they've come a long way. They've learned to handle their finances more effectively," he says.
Developed international markets may face fundamental challenges that are more daunting than those in emerging markets in the years ahead, he warns. Not only does the population growth and increase in consumer demand in emerging markets bear watching, but many of these economies have an advantage by being much less indebted than most developed countries, says Peirce.
China continues to be very export-oriented and the huge fiscal and monetary stimulus programs it has announced should enable its economy to keep growing at a reasonably fast pace. The process of moving its culture from one based on savings to one geared more toward consumption is a long one but it is happening, he says. As for the rest of Asia, the watershed financial crisis experienced by those countries a decade ago "prevented them from engaging in some of the excesses that we've spent our time doing in the last 10 years," he says.
For the broadest exposure, ETFs that track the MSCI Emerging Markets Index are worth considering.
Geopolitical Risks
One might wish that a global recession of enormous proportion was the only concern over the the next year or so, but unfortunately geopolitical risks continue to simmer. From tensions between Pakistan and India to a looming nuclear threat from Iran and other assorted minefields, the incoming Obama Administration won't have much room to make mistakes, warns Bob Andres, president of Andres Capital Management outside Philadelphia.
Expectations that President-elect Barack Obama will be able to lead the U.S. economy out of its current financial woes are running so high that if he fails to do so it's likely to diminish his international clout to broker geopolitical solutions, says Andres. He cites Vice President-elect Joe Biden's recent comment that the new President is sure to be tested on the diplomatic front.
Anything that damages Obama's ability to handle overseas threats will reduce confidence and would have a negative impact on the stock market, warns Andres. It seems that investors will have to read the international section of the paper as carefully as the business pages in 2009.
Bogoslaw is a reporter for BusinessWeek's Investing channel.
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