6/24/2014 8:15 PM ET|
3 ways to protect your great returns
It's easy -- but dangerous -- to be complacent after a stellar stock market run. Here are three moves you can make today to rebalance your portfolio.
It's a truism of human psychology that is particularly relevant to investing: Most of us take action after negative events (often we shouldn't), but many of us don't adjust after positive events -- and often we should.
And so it is that, six months into 2014, many investors are still reveling in their gains from 2013 -- the best year for stocks since 1997 -- and maintaining allocations of U.S. stocks that have now swollen far beyond their original targets. Add in a tax that was implemented at the beginning of 2013 -- an extra 3.8 percent levy on investment gains of wealthier people -- and many investors have just held onto their gains.
Selling some shares and rebalancing is painful. But U.S. stocks have enjoyed a gaudy run, and they're due for at least a pause. So now's the moment to be prudent, lock in a few gains, and reallocate some assets.
"We recommend trimming back markets that are more expensive, like U.S. small-caps," says Russ Koesterich, BlackRock's chief investment strategist, who expects U.S. equity markets to tick up in the low single digits this year. He recommends tempering "home country bias" -- investors' tendency to keep too much invested in their own country. Koesterich suggests that international stocks should represent about 50 percent of a typical equity portfolio.
These days he sees promise in Japan (really!), whose stocks remain reasonably priced despite a roaring 2013: The U.S. market now trades at about 2.5 times the estimated 2014 book value for stocks vs. 1.4 for Japan.
One ETF option is the WisdomTree Japan Hedged Equity Fund (DXJ) (the "hedge" refers to positions taken to offset currency fluctuations). It owns stakes in marquee Japanese companies such as Canon (CAJ), Mitsubishi and Toyota (TM), and has averaged 10.2 percent annualized returns over the past five years.
European equities are also undervalued, with average price-to-book valuation of 1.5. Some of this discount is warranted. The EU's recovery remains fragile. And Ukraine's turmoil has raised the danger that Russia might withhold natural gas from Europe. That, Koesterich says, "would have a significant impact on European GDP." (That's putting it mildly.)
Absent such a calamity, Richard Bernstein, who runs an eponymous firm, says he's "very bullish." The recovery has dragged a bit because the European Central Bank has been "asleep," he says, but "we ultimately think they are going to wake up."
Bernstein likes European small-caps, which can be bought through the WisdomTree Europe Small Cap Dividend Fund (DFE), which has delivered 27.4 percent annualized returns over five years.
And if you're looking for yield, municipal bonds are relatively attractive in a period of depressed yields. Bernstein suggests slightly riskier higher-yielding munis because an improving economy bolsters tax revenues for local governments.
The Market Vectors High-Yield Municipal Index ETF (HYD), which has returned almost 9 percent annually for five years, holds assets such as bonds that are financing the development of a convention center in Overland Park, Kan. And, of course, it offers the added benefit of being tax-free.
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VIDEO ON MSN MONEY
Trade something, PLEEEEASE, TRADE SOMETHING, anything to help a poor stock broker out.
I suggest, and that's just me, invest in Milkbones.
Or clip lots of coupons and send to me....
In the end there will be people with a lot of money that isn't worth anything and people with no money.
Well unfortunately that not all you need to do. There is no such thing as Hold forever when Global Debt has Soared 40% since the Great Recession and Corporate Borrowing is at Record Levels. We don't know what Dominoes will fall concerning the ability of ANY company to continue paying out Dividends. We certainly don't know the eventually fallout for Central Banks bloating their Balance Sheets to the tune of over $10Trillion and counting.
Iconic Products, Really? Sony was once an Iconic Brand as was Nokia. The Script can literally Flip overnight. Beating farce Experts isn't the Problem, Locking in Gains however is. We are literally facing the Biggest Debt Global Crisis of Modern Times and Folks are still telling anyone and everyone to Party Like's is 1999. 'We never fixed the problems which caused the Great Recession and that Bill is still coming Due. It won't be pretty when this House of Cards Folds, it never is.
You're an idiot.
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[BRIEFING.COM] The stock market ended the Tuesday session on a lower note after generally upbeat earnings took the back seat to geopolitical concerns. The S&P 500 (-0.5%) and Nasdaq Composite (-0.1%) ended on their lows, while the Russell 2000 (+0.3%) displayed relative strength.
Once again, market participants were focused on quarterly reports in the early going, but geopolitical worries overshadowed the impact of mostly better than expected earnings. Specifically, equities ... More
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