[ad_1]
2023 has been an interesting year for investment markets as US stocks and bonds have finished trading for the year. This was despite the continuing war in Ukraine, Hamas attacks on Israel, the US regional banking crisis, and, oh, the Federal Reserve raising interest rates to the highest level in 22 years. Either way, I’ll take it. The question now is what happens next for investors. Even better, how should an investor allocate his nest egg in 2024?
Here are three examples of how I’m advising my clients for the coming year.
1. Cash is not always king.
According to Reuters, there is a record amount of cash sitting in money market assets, amounting to $6 trillion. If you are in the money market waiting for the right time to invest in the stock market, good luck. In my experience, it never feels like a good time to invest. There’s always something: “The market is too expensive,” “The market is not cheap enough,” “The market is selling,” “Let’s wait a little longer.” Holding cash may be good in the short term, but what is the real yield on your money after inflation and taxes?
apply Kiplinger’s personal finance
Become a smarter, more informed investor.
Up to 74% off
Sign up for Kiplinger’s free e-newsletter
Profit and prosper with the best expert advice on investing, taxes, retirement, personal finance and more straight to your email.
Profit and prosper with the best expert advice straight to your email.
Alternatively, if you’re setting aside money for the long term, 2024 could be a good year to dollar-cost average some of your savings into a diversified portfolio. Dollar-cost averaging is the process of investing a fixed amount every month in a diversified portfolio of mutual funds, stocks, bonds, real estate, commodities, etc. The idea is to spread out your entry points and buy at different prices in the market, rather than making a single investment.
I especially like dollar-cost averaging in 2024, given the economic uncertainty and uncertainty around interest rates. Dollar-cost averaging does not guarantee profits or protect against losses, but rather than utilizing all your funds at once, you want to spread them out evenly and see how the year unfolds. .
2. Think twice before giving up on someone who doesn’t love you.
Sometimes I see investors wanting to sell stocks that are underperforming and buy only those that are performing well. For example, pile on a few high-flying tech stocks to bail out everything else. However, be careful with this approach. That’s because sectors that were once unpopular in the stock market could start to attract investor attention again.
Take utility stocks, for example, which had a tough year last year. The S&P Utilities Sector Index ended 2023 down 10.9% (Bloomberg). However, the situation could change if we see an economic slowdown in 2024. Utility stocks can be considered a defensive sector, meaning that households will continue to need energy and water even during economic downturns.
The key is to be careful not to extrapolate too much from last year’s earnings. As we often say in the industry, “the past is no guarantee of future results.” (For more on this, see Callan’s Periodic Table of Investing, a great article about how no investment style is consistently successful over the long term.)
3. Be aware of megatrends.
Megatrends are large, overarching themes that can drive growth across industries over the next decade. For example, artificial intelligence and sustainability could be the next megatrends.
Megatrends can (or may not) create tremendous value for investors. There may be a few high-flying stocks that attract attention on these themes, but only time will tell whether the returns are real or temporary. My advice here is twofold.
- Own the forest, not the trees. If it makes sense for your investment portfolio, owning a basket of securities that benefit from these megatrends may be a better option than trying to find a needle in a haystack.
- Don’t bet on farms. Have a well-diversified core portfolio and consider adding satellites or smaller allocations as needed.
It will be interesting to see how things play out this year, especially around the Federal Reserve and the presidential election. You can make a case to be bullish or bearish. But for most investors, I think it’s best to avoid short-term noise and focus on building a portfolio for long-term gains.
While these three tips are a good start, we recommend a thorough and comprehensive portfolio review by an experienced professional to help assess your risk tolerance, time horizon, tax situation, goals, and spending patterns.
To schedule a free review of your 2024 investment portfolio with the author, make a promise to him here.
Michael Aloi, CFP, is an independent financial advisor with 22 years of experience helping clients achieve their financial goals. He works with clients across the United States. Learn more about. www.michaelaloi.com.
Investment advisory and financial planning services are provided through Summit Financial LLC, an SEC registered investment adviser, 4 Campus Drive, Parsippany, NJ 07054. 973-285-3600 Fax. 973-285-3666.
This material is for information and guidance purposes only and is not intended as legal or tax advice. You should make all decisions regarding the tax and legal implications of your investments and plans after consulting your independent tax or legal advisors. An individual investor’s portfolio should be constructed based on their personal financial resources, investment objectives, risk tolerance, investment horizon, tax situation, and other relevant factors. Past performance does not guarantee future results.
The views and opinions expressed in this article are solely those of the author and are not attributable to Summit Financial LLC. Links to third party websites are provided for your convenience and information only. Summit is not responsible for information contained in third party websites. Summit’s financial plan design team has authorized attorneys and/or certified public accountants to act only in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to customers. The tax statements contained herein are not intended to be used, and may not be used, for the purpose of avoiding U.S. federal, state, or local taxes.
relevant content
This article was written by and represents the views of our contributing advisors and not of Kiplinger’s editorial staff. To check your advisor’s records, SEC or together finra.
[ad_2]
Source link
