Investment Strategies to Help You Rest Easy
December 23, 2011 | By Steven DiGregorio
Markets keeping you awake? Here’s some ideas we’d like to share.
Recent years have had no shortage of drama: the debt-ceiling debate, a ratings downgrade of the U.S., questions about European banks and sovereign debt, China slowdown and resulting wild swings in the stock market. It all makes for a lot of sleepless nights.
Given all the confusion & uncertainty, how can we possibly rest easy knowing our future financial security is at stake? Ultimately, a smart, long-term investment strategy should enable us to weather — and even take advantage — of these kinds of storms.
So, how to get there? Many times, sitting tight is the best strategy, as long as your portfolio is properly adjusted for risk you can withstand. Trying to react or time the enormous swings usually leaves many worse off. Yet doing nothing does not always make us feel more secure either. So here are five strategies that might give you more peace of mind without completely revamping your entire portfolio.
Cash
Examine the amount of cash in your portfolio. Having a secure rainy-day fund when
the world is a little crazy helps soothe the nerves. A good rule of thumb is to have enough cash on hand to handle about four to six months of your living expenses in case you lose your job. That may sound like a lot of money, but with so much economic uncertainty in the air, having that cushion makes more sense than ever. If you are light on cash, there are a couple of things to consider.
- You can sell into market rallies to improve your cash position. Big moves up along with several nasty moves lower provide great opportunity. We always expect times of volatility in the future, so take advantage of upward swings to ensure you have a sufficient but not overweighted cash position.
- You might have some large losses that aren’t bouncing back with the broader market when it does rally. You can sell those shares at a loss, and use those losses to offset capital gains when you sell your winners.
Utilities
These companies aren’t sexy, but they have often times proven to be somewhat steadier than the general markets. Ensuring that you have exposure to this sector will reduce the ups and downs in your investment holdings. The Dow Jones Utility Average tends to gyrate along with the rest of the market, but its moves have been smaller. More importantly, utilities generally provide strong dividend yields, and unlike the yields of non-utility companies, they are historically very dependable. So, even if the utility stocks fall in value with the broader market, you still have the dividend income, which can smooth out the ride and provide more consistency in performance.
Other dividend-payers
While riskier than utilities, investing in very large companies with solid track records that are paying consistent dividends is prudent. In the “old days”, didn’t we call these companies “Blue Chip”? In a low yield environment, these 3-6% dividends are higher than treasury yields and you have the added value of future appreciation of the stock as well! If you’re not sure of which of these stocks to pick, go with Exchange Traded Funds or ETFs to provide a broad diversification to those dividend paying companies. Again, not terribly sexy, but as with utilities, you get a little income that helps make the pain more bearable.
Gold
Gold, which usually jumps when stocks waiver, can generally provide somewhat of a hedge for the rest of your portfolio. Volatility in the precious metals markets has shown that this is not an area to time or toy with. Still, many elements that support gold remain in place.
- Difficult fiscal challenges in Europe, China and emerging markets.
- A weak dollar.
- Uncertainty about the US economy.
Gold, like stocks and bonds, will continue to bounce around, so don’t overplay your gold hand. Look to enter that market when there are larger pull-backs and position your portfolio for the longer term.
Vices
If the crazy market and the related economic and political mayhem has some thinking about a drink or grabbing a smoke. As a result, vice oriented stocks do fairly well when everything else is going haywire. More importantly, stocks of companies in the tobacco and alcohol industries can sport yields approximating 4-6%. Moral perspective aside, these stocks have proven their value.
Once you feel like you’ve positioned your portfolio adequately, including your cash position, you can then start to think more clearly about other opportunities that might present themselves. When panic moves occur, as we’ve seen on a number of occasions during the past several weeks, values can emerge. Some stocks with strong balance sheets and growing earnings or market share can become a lot cheaper in uncertain markets and present great investment opportunities for the long-term. Stick to companies you feel confident will endure the test of time. In the end, patience & prudence will pay off.
For more information contact us at 845.563.0537 or Contact@CompassAMG.com
The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.
Tags: blue chip, cash flow, dividends, dollar, economy, ETF, ETFs, Gold, investing, investment strategies, investments, portfolio, precious metals, stocks, utilities, vices, yield
