Invaluable Tips for Investing in 2014
The year 2014 is likely to bring along with it a challenging global investment environment. The global investment environment has enough of uncertainty that makes it impossible to predict the outcome of a certain investment. However, in spite of all this uncertainty, an important factor to remember for investors is that the performance of investments depends largely on their investing strategies, rather than the market behavior. With this factor in mind, this article discusses a few effective tips for investing in the coming year.
Rebalancing is Important:
A balanced portfolio is important for investors planning for the long-term. Such investors should lay stress on the strategic allocation of assets. Their portfolio should have cash, fixed income, alternative investments, international stocks and domestic stocks. Avacade reviews show that alternative investments should be made a part of every investment portfolio.
At times, an asset class may appear cheap, and hence, you may find it sensible to deviate from the allocation. However, market movements often alter the allocation themselves. As an example, a portfolio that consisted of 50% bonds and 50% stocks at the beginning of 2012 will now be having 41% bonds and 59% stocks.
This type of allocation reflects an overweight to stocks as compared to a normal portfolio. From this type of allocation, a reasonable question that arises is that, is this kind of shift in the allocation of assets justified, when the world is seen with a different view from the way it was seen two years ago. In case it is not justified, the portfolio needs to be rebalanced back, and this should be done in a way that is tax efficient.
Income has Greater Importance than Yield:
In the present era, investors look at stocks and bonds as a way of getting a portfolio that supplies an income stream without the need for selling any securities. However, this strategy suffers from a problem. The Federal Reserve has pushed the yields down throughout the bond market, and the investors looking for yields have pushed the prices of equity securities up. Moreover, no logic or law in finance states that an investor is not allowed to sell principal.
A logical investing approach for 2014 is to consider an appropriate distribution of income from a portfolio. An investor can achieve an appropriate income distribution by withdrawing systematically from his/her portfolio. If that needs the investor to sell growth stocks as the stocks go up, he/she can do so. This can turn out to be quite tax efficient. In any case, investors should always try to separate the problems associated with portfolio construction. This should be done having the perspective of expected return and risk. The problem of generating an income from a portfolio should be solved.
Selling low and Buying high should be avoided:
Mutual fund investors have been found to buy when the market is at its peak and sell when the market crashes. This leaves them with low returns. They can avoid this by buying and holding. Investors should consider holding their investments until the market rises again. This strategy can significantly help investors to get good retunes.
Conclusion:
In the year 2014, investors should invest quite thoughtfully. In the coming year, investors should consider rebalancing their portfolios. They should invest based on logic, and not on emotions.
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Category: Investing
