2016 has started off as one of the worst years ever for investing. The S&P 500 is down over 6.5% since the beginning of the year, and only 18 of the 500 stocks in the index have been able to post gains this year.
For many individual investors, that's scary. And two questions usually come up every time the market appears to be correcting: 1) Should I Sell? or 2) Where Should I Invest?
We reached out to four investment professionals and several common trends were found:
- Revisit Your Asset Allocation: Almost all of our experts wanted to remind investors that importance of asset allocation and diversification. Allocations can get skewed in bull and bear markets, so it's important to revisit your asset allocation and make sure it still makes sense. This can help one area of your portfolio from negatively impacting you more than it should.
- Don't Sell In A Panic: The market will go down at certain points in time. On average it declines every 5 years. Just because it's having a rough January doesn't mean you should sell everything and panic. Revisit your asset allocation and focus on your long term plan.
- Look At Your Fixed Income Investments: Several of our experts shared the importance of bonds or other yield-focused investments. If the economy is slowing down, it could be prudent to have these assets as part of your portfolio.
Here's what our experts had to say about where to invest in 2016.
The start of a new year is a good time to review the various components in your financial plan. Three important questions to ask yourself are:
1. Am I saving 15% of my income, including any company match, in my retirement account? If so, great. If not, consider contributing at least enough to receive any company match and increase contributions by 2% each year.
2. Does my asset allocation reflect my goals and risk tolerance? Checking in on your investment allocations annually helps maintain a level of market risk that fits your personal situation and goals.
3. Am I reacting to market events and headlines? Market volatility is likely here to stay in 2016, and unfortunately, some individuals react to sudden volatility by cashing out their investments. Selling your stocks at the first sign of volatility is a huge mistake. Investors need to commit to a long-term view. This won’t prevent losses—in fact, it ensures that you will experience them. What it does mean is that you also benefit from the gains, instead of just experiencing the loss, locking it in, and missing out on the gain.
You can learn more about Stuart Ritter, CFP here.
Out of the gate, 2016 is already setting itself up to be an extremely volatile and unpredictable year as far as the markets go. There are a lot of things attributing to this: the election year, China growth concerns, increased terror activities, possible Fed interest rate hikes, oil speculation, etc.
For an investor, these global "issues" can surely cause confusion as to where to allocate your investments for the coming year. While I am the last person to suggest that we panic and convert all of our savings into cash, and try to time the market, I do believe that having a prudent approach to investing should remain the focus. Since the market rollercoaster makes selling at the top and buying at the bottom nearly impossible, a sound investment strategy should make the ride a bit smoother. Since nobody knows for certain where the winners and losers are going to come from, and since we are in a global economy, we have always built our clients a globally diversified portfolio which takes advantage of all asset classes.
Most investors think a well diversified portfolio consists of US stocks, US bonds and some sector funds. What about exposure to foreign equities, foreign fixed income instruments, commodities and metals, hybrids like convertible debt and preferred stock, emerging markets, etc? What's interesting, if you look at the Callan Periodic Table of Investments, which illustrates the annual returns of various asset classes over the last 10 years, you can see that timing the market - let alone the global asset classes - is nearly impossible and spreading your wealth across all assets classes is a better long-term approach.
Nowadays, taking part in a globally diversified portfolio is easier than ever before. Certainly you may want to sit down with a financial advisor and calculate the right mix based on your time horizons, risk tolerance and objectives, but Exchange Traded Funds (ETF's) may be a great cost-effective way to start. A globally diversified portfolio should improve overall investment returns over time while helping to manage and reduce portfolio risk.
You can learn more about Richard Zeitz here.
2016 is a year where cautious investors will be rewarded. The 6 to 7 year bull market is likely over, marking the end of the easy days of investing. Global growth is stalling, the U.S. stock market is still rather expensive, and we have a U.S. monetary policy that is tightening. I find it difficult to be bullish in this environment. I have positioned my portfolios to be highly defensive by allocating more assets into high quality bonds and less into riskier assets such as stocks and junk bonds. I do not believe the Fed will be able to raise interest rates 4-5 times this year, as widely speculated.
U.S. corporate earnings growth will likely lag and and inflation levels will be very low. Under this scenario, U.S. Treasuries and other investment grade bonds will outperform and riskier assets, such as stocks and high yield bonds will underperform.
You can learn more about Ryan Hughes here.
I'm still US-centric favoring, with a tilt more to healthcare for both opportunity and historically defensive nature. Consumer stocks also look attractive to us. Look for income plays, but do not reach for yield. Short-duration, high yield may be attractive to provide income opportunities, while potentially avoiding some of the lower rated issues, but there are no guarantees. They may offer a reasonable risk/reward tradeoff at this time. MLP’s may become attractive options again at some point this year. International small cap stocks could be a good place if stimulus overseas works as it did in the US.
You can learn more about Elliot Herman here.
What are your thoughts about where to invest in 2016?
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