Ring in the new year with a portfolio refresh.
No sooner do Christmas and the holidays disappear that you realize it's time to make another list and check it twice: investment resolutions for 2015. If winter put you in a deep freeze for ideas to perk up your portfolio, rest assured there’s plenty of good advice out there. But before refreshing your portfolio, experts advise a reality check. “This is also a good time to freshen your money management skills and review your level of fiscal discipline,” says Bob Stammers, director of investor education at the nonprofit CFA Institute.
Tweak your tax efficiency.
Be wary of highly active funds that trigger high capital gains and annual tax burdens, says Anthony Criscuolo, a certified financial planner and client service manager based in the Fort Lauderdale, Florida, office of Palisades Hudson Financial Group. “You may also want to move certain tax-inefficient assets into [individual retirement accounts] or other tax-deferred accounts,” he says.
Show unloved sectors some love.
Pay special attention to unappreciated sectors when you rebalance your portfolio. “Move year-end gains into different areas of the market that have greatly underperformed,” says Taylor Winn, president and founder of Atlanta-based Buckhead Wealth Management. “For instance, there are great bargains in mining companies, materials and natural resources. These unloved sectors provide a great deal of opportunity to rebalance.”
Rebalance your bonds.
Make sure you don't neglect the fixed-income portion of your portfolio when you're rebalancing. “This is a good time to move out of open- and closed-end bond funds and into individual bonds with shorter maturities – eight years or fewer – in preparation for a potential inching up of interest rates in the third quarter of 2015,” Wynn notes. “As the saying goes, ‘Pigs get fat. Hogs get slaughtered.’”
Look for solid returns.
The places to look include private credit or securities with predictable and consistent payments, says Jeff Sica, founder, president and chief investment officer of Circle Squared Alternative Investments in Morristown, New Jersey. “The element of surprise is eliminated. When investors know what to expect, they can plan better for their future,” he says.
Trust the law of averages.
Need ideas for what to bump from your portfolio? "Investments that have appreciated above historical averages should be first on the list to be identified for selling,” says Bob Ballsrud, executive vice president and executive managing director of Busey Wealth Management. “As markets appreciate, future returns are lowered and risk rises.”
Swap out a soaring asset class for one that’s undervalued.
Assets that skyrocket one year are prone to sinking, while undervalued assets stand to gain, Ballsrud adds. “These asset classes are generally sold and rebalanced into classes that are out of favor. Investors who practice this are selling high and buying low,” he says.
Bank on regional banks.
Within the banking sector, look beyond the big players. “Shares of regional banks are particularly leveraged to rising interest rates,” says Jane Edmondson, founder and CEO of EQM Capital, a wealth management firm in San Diego. She’s also portfolio manager of the EQM Capital Mid Cap Quant on Covestor, an online investing marketplace. “The ongoing housing recovery has improved the quality of their balance sheets, positioning them for growth,” she says.
Make a call on smartphone suppliers.
Considering investing in technology companies? “You don’t have to care [which smartphone] wins in the retail marketplace, because your company is already supplying the eventual winner,” says Barry Randall, founder and chief investment officer of Crabtree Asset Management in St. Paul, Minnesota. He’s also the portfolio manager of Crabtree Technology on Covestor. “In fact, the longer the battle, the better your competitive position,” Randall says.
Falling timber means prices will rise.
Within the commodities sector, investors should knock on wood. “We’re currently seeing a systemic, long-term trend toward increasing pricing pressure on timber, in part due to a global demand for green energy,” says Joel Shapiro, CEO of Timbervest in Atlanta. “Demand from foreign investors on top of ongoing domestic demand is beginning to outstrip what the U.S. can actually produce.”
Turn to spinoffs.
Consider the offspring of well-known companies. A December 2014 report by The Edge Consulting Group and Deloitte concludes that “a spinoff of a division or subsidiary turns out to be a great strategy for unlocking value.” Globally, spinoffs could hit $664 billion in 2014, up five-fold from 2010, the report states. Spinoffs for 2015 are already slated to hit $775 billion. More than 40 percent of companies achieved returns in excess of 20 percent a year after separating from their parents.
Take a shine to precious metals.
The best hedge against inflation, which may come if interest rates rise as anticipated in 2015, is to allocate 5 to 10 percent of your portfolio to precious metals, says Terry Hanlon, President of Dillon Gage Metals in Dallas. “When the overall market is down, precious metals tend to increase in value, thus providing a good balance for anticipated earnings,” Hanlon says.
Long term is a good term.
Colton Dillion, chief innovation officer at Acorns, an online investment site, notes that time is money, and investors need to think in terms of keeping their investments tucked away patiently. “The longer your money remains invested, the more potential it has to compound and grow while minimizing the impact of down markets. This also means putting as much as you can afford into your investments, early as possible and frequently as possible. One dollar at the end of each day is almost always better than $7 at the end of each week,” Dillon says.
Diversify with ETFs and index funds.
Exchange-traded funds and index funds can help investors take the road less traveled. “Investors often choose a big company they've known their whole life, like Apple, Disney or McDonalds,” Dillion says. “Most would be better served by investing in a broadly diversified index fund like a Standard & Poor's 500 index exchange-traded fund. Investors can buy a share of the whole market and rely on all the companies together doing better than the year before.”
Look at senior living properties.
Baby boomers are aging, but they’re still by and large wealthy, and many will need to move, says Terrell Gates, founder and CEO of Virtus Real Estate Capital, a real estate private equity firm in Austin, Texas. “They control 65 percent of all the personal net worth in the U.S. In 2010, the oldest boomers began turning 65 and one will turn 65 every three seconds for the subsequent 19 years,” Gates says. He favors companies that cater to baby boomers' new needs, such as gated retirement communities or resorts.
As oil slips, fuel up to invest.
Don't forget to consider oil prices as you seek investing opportunities. "With oil prices on a steep decline, it’s not yet time to pony up money," says David Twibell, president of Denver-based Custom Portfolio Group. “The old adage ‘don’t try to catch a falling knife’ applies. But like most falling knives, oil will eventually hit rock bottom and provide a great buying opportunity. But I’d caution investors to either scale in to this area as oil prices continue to sink, or wait until there is a clear bottom in place.”
By Lou Carlozo Dec. 17, 2014 | 2:05 p.m. EST
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor.
Investment advice offered through Gerber Kawasaki Inc, a registered investment advisor. Please consult your investment professional before acting on any advice.