Wall Street Smart – Riding the Bull Market

Wall Street Smart – Riding the Bull Market

With the U.S. stock market showing good performance this year, it is naturally enticing to invest and ride the bull market. If anything, common sense indicates that it will be a smart move to put your money and contributions into actively managed U.S. large stock funds. According to Wasik(2013), an employer group(known as Plan Sponsor Council of America) surveyed 90 percent of all retirement plans and recommended investment in actively managed domestic stock funds. Hence it is not surprising that most IRAs and 401(k)s hold these funds.

I will like to note here that stock fund, unlike an index fund, may not track the market close enough. Besides, there are other asset classes that will worth your time to scrutinize. Hence, instead of focusing exclusively on U.S. large company stocks, it would make sense to cover a broad range of global options, especially if you are jumping into the market with a bit of cash that goes beyond what you have already set up – say, $15,000.

A natural question to ask at this point is this: if you are a moderate-risk individual already invested in large U.S. stocks, what kinds of funds should you consider? Here’s a few of them.

A Collection of U.S. Stock (Invest as Much as 60 percent here)

You are going to have natural bias toward  blue chips in the S &P 500 index(which has climbed  some 9 percent this year(dividends included) if you are a U.S. based investor. But the happy truth is that certain industrial sectors had done better than the blue chips in the S &P 500 index: Consumer staples have risen nearly 14 percent, consumer discretionary stocks(stocks consisting of companies selling nonessential goods and services such as retailers, media companies, etc) are higher by 11 percent, and healthcare is up 16 percent. Broadly speaking, you could be missing future gains if your actively managed fund covers  just a slice of U.S. market. Thus looking for a “total market” index fund that includes  large, mid-size and small companies (such as Fidelity Spartan Total Market Index Fund, which is up 12 percent this year) is very important: it put extra money into your pocket.

Developed Market Stock(20 percent of your portfolio should consist of this stock)

A clutch of financial  newspapers, mainly based on U.S. and European statistics, shows that while U.S. stocks are outpacing Chinese and European stocks this year, independent studies suggests that that is not the case with other countries. The prime example is the Japanese stocks: These stocks are showing a robust rebound. For instance, the iShares MSCI Japan Index Fund is up 11 percent this year. Note that the iShares MSCI Japan Index Fund tracks the Japanese market. A more broader choice is to invest in an index fund  that covers some 98 percent of the world’s public market capitalization, such as the Vanguard Total World Stock Index ETF, which is up about 10 percent for the year.

Emerging Market Stocks(10 percent of your portfolio)

Emerging market stocks represents potential economic growth even though  they are still trailing U.S. stocks. The stakes are equally high here: Brazil, India and China are growing in terms of population and economic activity. The bottom line here thus becomes that their citizens will be buying more goods, foods and energy as their standards of living rise. A good example of the emerging markets stocks of interest is the iShares MSCI Emerging Markets Index ETF. Even though this fund is down 1.5 percent over the past year, it is still a good investment  because it offers a good opportunity for growth  and focuses on the leading stocks  from South America, Asia and other developing regions.

Commercial Real Estate(5 percent of your portfolio)

Generally speaking, while other sectors are awash with investments,  companies that buy and hold retail, office, multiunit residential, industrial, health care and storage properties and mortgages are often ignored. But the recent performance of the FTSE NAREIT All-REIT index is a good reminder that this form of investment is profitable: The FTSE NAREIT All-REIT index climbed 9 percent after rising 20 percent last year(Wasik, 2013). You should also consider global funds that hold real estate investment trusts(called REITS in short form). A classical example of how profitable REITS can be is afforded by the performance of the SPDR DJ Global Real Estate exchange-traded fund – a fund that holds REITS  and emerging markets. SPDR DJ Global is up over the past year.

Global Bonds(5 percent of your portfolio)

If you are a U.S.-based investor, there’s a strong possibility  that you will be tempted to keep all of your money in U.S.  corporate or government bonds. The oddity is that you may find higher yields and returns in international bonds. The implication of this is clear: you have to invest in bonds from emerging and developed markets. The iShares  S &P Citigroup International Treasury ETF  is now ranked in the financial market as a classic example of a global fund that holds government bonds from countries across the world for one key reason:  it has gained almost  3 percent in the annual period(Wasik, 2013).

Concluding Remark

It is best to contact your investment adviser, financial planner or broker and have them properly diversify your portfolio with low cost index funds, especially if you are making an investment in the $10,000 to $100,000 range. You can equally do it yourself  by using the guidelines I described in this article.

Sources

Wasik J.(2013): A Five-Point Strategy for Riding the Bull Market. The Baltimore Sun(Business & Jobs Section).