Edit ModuleShow Tags

Smart investment strategies for 2014


Stock market investors certainly received a surprisingly large dose of good cheer in 2013. The S&P 500 produced the best calendar year return since 1997, when the stock market was up 33 percent. However, with corporate earnings and revenue growth mediocre at best, the gains in the S&P were driven by the low-interest policy of the Federal Reserve, an improving economy, and the simple fact that investors had nowhere else to earn income.

Of course, there’s no way to know for certain whether this positive trend will continue in 2014. However, data from Schaeffer’s Investment Research supports continued upward momentum. Since 1975, reports Schaeffer’s, whenever the S&P was up at least 20 percent at the end of the year, the following year the stock market was up an average of 12.84 percent and posted positive returns 82 percent of the time.

Another potential positive for market performance in 2014 is how well investors reacted to the news that the Federal Reserve Board will being tapering its massive bond purchasing program in January. While some speculated that tapering would lead to a sell-off, the stock market rallied instead, likely because the Fed’s move indicates that the economy is finally in recovery mode.

Given the recent economic and market trends, here are a few strategies for investors to consider adopting in 2014:

  • Overweight equities. Unfortunately, there is still too much risk for the amount of income to be had in the bond market. It is likely that bond prices will go down and yields will rise now that the Fed has announced that tapering will start this month, which makes stocks even more attractive. At Northstar, we look for equities that pay a meaningful dividend and companies that increase their dividends every year.
  • Shorten the maturity of your bond portfolio.  If you own individual bonds in your portfolio for diversification, then examine the maturities of the bonds that you hold. Holding longer-maturity bonds in a rising rate environment means that your interest income from those bonds will be less than prevailing rates.   If you happen to own a fixed-income bond mutual fund, this is even more important. As interest rates rise, the Net Asset Value or NAV will drop in value and you could be subject to losses. We saw this in May and June of 2013 when interest rates spiked 130 basis points.
  • Consider the credit risk of your tax-free bonds. You may not know it, but the single state municipal bond fund you’re invested in might include some potentially risky holdings, including Puerto Rico bonds, which are facing another downgrade. Don’t be afraid to ask your broker for a list of bonds held in your single-state bond mutual fund, so you can assess your comfort level with the holdings. It’s also important to evaluate the underlying credit quality of your bonds and make sure you understand what the repayment sources of those bonds are. Essential service bonds for water and sewer for example, might be safer than general obligation debt.
Edit Module
Fred Taylor

Fred Taylor is president and co-founder of Northstar Investment Advisors, LLC. The firm specializes in managing personalized investment portfolios for individuals, families, and retirees with a focus on income generation. He is a member of the Colorado Forum and also served as an economic advisor to Colorado Governor Bill Ritter from 2008 to 2010.

Get more of our current issue | Subscribe to the magazine | Get our Free e-newsletter

Edit ModuleShow Tags

Archive »Related Articles

What leaders need to know about emotional intelligence

It’s not good enough to be smart. That may get you into a leadership role, but it is emotional intelligence (often abbreviated “EQ” or “EI”) that will allow you to succeed. As an executive, there are some things that you should know about emotional intelligence.

Should you invest in Denver's hot real estate market?

The potential rewards may make Denver real estate difficult to resist – but be cautious. At some point, supply may catch up to demand, sales may slow and values may stabilize or potentially decline. And without careful financial planning, an investor can be put into a complicated cash crunch.

Best of Colorado Business Choice 2016 lifestyle winners

Here are the Best of Colorado Business Choice 2016 winners and finalists in the lifestyle category.
Edit ModuleShow Tags

Thanks for contributing to our community-- please keep your comments in good taste and appropriate for our business professional readers.

Add your comment: