The best investment ideas for 2014 are few and far between, with no single best investment in sight. The worst ideas for the average investor could be found in BOTH stock funds and bond funds. Has the bond bubble created a stock bubble for 2014?
Sometimes the best investment ideas reward you with high returns; while other times they simply help you avoid heavy losses. In 2014 it's time to play defense, because even the best stock funds and best bond funds could be losers. After all, stock funds have returned about 150% recently in a little over 4 years, and bond funds have had 30 good years. There IS a bond bubble, and possibly another stock bubble. Chasing the stock market by loading up on stock funds is not the best idea; nor is being heavily invested in bond funds.
With interest rates at unbelievably low levels big investors have been heavy stock buyers, sending prices up, because there appears to be no better alternative. Obviously, even the big investors find that the best investment ideas are indeed in short supply. If this continues, it could create a new stock bubble.
Since stock funds and bond funds are where most investors have their money, what can you do? Let's get down to basics. Falling interest rates have created a bond bubble. As interest rates fell bond prices (values) went up. That's the way the bond market works. That's why bond funds were one of the best investment ideas for 30 years, and that's why people have become emotionally attached to these funds. As interest rates recently hit new record lows bonds started to lose their attractiveness. Why? Because when interest rates turn around and head upward (to more normal levels or beyond) informed investors know that bonds and bond funds will take significant losses.
Is it normal for the stock market to have heavy gains over a 4-year stretch when unemployment is over 6% and economic growth is weak? Is it normal for bank CDs to pay less than 1%, with mortgages going for 3% or 4%? No, and that's why one of the best investment ideas for 2014 is to protect your assets. Rising interest rates will more than likely hurt stock funds and will definitely hit bond funds hard when rates adjust upward to more "normal" levels.
The best mutual funds and one of the best investment ideas when interest rates are rising: money market funds. They have paid investors virtually nothing in this super-low interest rate environment. At the peak in interest rates in 1981 their yearly returns were approaching 20%. As rates go up, money market fund returns follow suite. Keep in mind that this interest rate environment we have lived in since the financial crisis is not normal. Also, take note that our government has pushed rates down to these levels to stimulate the economy while pushing our national debt toward $17 trillion.
As an individual investor you can not afford to ignore the bond bubble and the possibility of a new stock bubble in 2014. Review your investment portfolio, and take some money off the table if you are heavily into either stock funds or bond funds. In times of high uncertainty CASH is king, and "cash" for the average investor is spelled: money market funds.
Sometimes the best investment ideas promise a higher return ON your money. In 2014 and beyond focus more on a safe return OF your money. I know it sounds highly unusual to most people that both stock funds and bond funds could be losers at the same time. After all, for years now bond funds have often offset losses in stock funds in many an investor portfolio. But, it has happened before... in times of rising interest rates.
Cut your risk and take some profits before it's too late. Keep some powder dry awaiting future opportunity. When the dust settles... then it's time to search for the best investment ideas and get more aggressive. mgate
The best investment ideas for 2014 are few and far between, with no single best investment in sight. The worst ideas for the average investor could be found in BOTH stock funds and bond funds. Has the bond bubble created a stock bubble for 2014?
Sometimes the best investment ideas reward you with high returns; while other times they simply help you avoid heavy losses. In 2014 it's time to play defense, because even the best stock funds and best bond funds could be losers. After all, stock funds have returned about 150% recently in a little over 4 years, and bond funds have had 30 good years. There IS a bond bubble, and possibly another stock bubble. Chasing the stock market by loading up on stock funds is not the best idea; nor is being heavily invested in bond funds.
With interest rates at unbelievably low levels big investors have been heavy stock buyers, sending prices up, because there appears to be no better alternative. Obviously, even the big investors find that the best investment ideas are indeed in short supply. If this continues, it could create a new stock bubble.
Since stock funds and bond funds are where most investors have their money, what can you do? Let's get down to basics. Falling interest rates have created a bond bubble. As interest rates fell bond prices (values) went up. That's the way the bond market works. That's why bond funds were one of the best investment ideas for 30 years, and that's why people have become emotionally attached to these funds. As interest rates recently hit new record lows bonds started to lose their attractiveness. Why? Because when interest rates turn around and head upward (to more normal levels or beyond) informed investors know that bonds and bond funds will take significant losses.
Is it normal for the stock market to have heavy gains over a 4-year stretch when unemployment is over 6% and economic growth is weak? Is it normal for bank CDs to pay less than 1%, with mortgages going for 3% or 4%? No, and that's why one of the best investment ideas for 2014 is to protect your assets. Rising interest rates will more than likely hurt stock funds and will definitely hit bond funds hard when rates adjust upward to more "normal" levels.
The best mutual funds and one of the best investment ideas when interest rates are rising: money market funds. They have paid investors virtually nothing in this super-low interest rate environment. At the peak in interest rates in 1981 their yearly returns were approaching 20%. As rates go up, money market fund returns follow suite. Keep in mind that this interest rate environment we have lived in since the financial crisis is not normal. Also, take note that our government has pushed rates down to these levels to stimulate the economy while pushing our national debt toward $17 trillion.
As an individual investor you can not afford to ignore the bond bubble and the possibility of a new stock bubble in 2014. Review your investment portfolio, and take some money off the table if you are heavily into either stock funds or bond funds. In times of high uncertainty CASH is king, and "cash" for the average investor is spelled: money market funds.
Sometimes the best investment ideas promise a higher return ON your money. In 2014 and beyond focus more on a safe return OF your money. I know it sounds highly unusual to most people that both stock funds and bond funds could be losers at the same time. After all, for years now bond funds have often offset losses in stock funds in many an investor portfolio. But, it has happened before... in times of rising interest rates.
Cut your risk and take some profits before it's too late. Keep some powder dry awaiting future opportunity. When the dust settles... then it's time to search for the best investment ideas and get more aggressive. mgate