Prudent Portfolio: Investors Can Take Advantage of the Market’s Roller Coaster Ride
By Kevin Peters
In little more than a month, Rye Playland will re-open for the season, complete with its nationally recognized 80-year-old roller coaster and breathtaking 128-foot drop.
Riding that roller coaster can be exhilarating. An adrenaline rush. You are filled with excited anticipation on the way up the steep climb. At the top, there is inevitable hesitation. Fear of impending danger. Then the plunge. If you are a true roller coaster fan, though, at the end of the ride there is an eagerness to jump on again.
I think that many investors, in recent months, feel they have been riding a roller coaster, with the stock market’s single-day 100-point jumps and declines.
Now, however, is not the time to leave the park. Rather, it is a good time to take advantage of market dips because it seems to me that an upward trajectory remains a good bet for the year ahead.
The increased volatility in the stock market in recent weeks does not mean the end of recovery. Rather, it does provide opportunities to invest new capital at better prices. One investment firm lists the following industries as likely being the fastest growing in 2014: biotechnology, Internet, airlines, transportation infrastructure, life sciences and real estate management and development.
Many investors still seem hesitant, as if they see themselves at the top of the roller coaster and are awaiting the next plunge. There are, however, still great opportunities for those willing to do a bit of homework to identify companies likely to increase dividend payouts.
Payout ratios now are about 32 percent compared to the long-term average of nearly 55 percent. To me, that means there is still considerable room for dividend growth.
Of course, there are never any guarantees when it comes to future performance. A particular ongoing negative risk to global markets is the economy in China, a country that is quickly moving from being export driven to consumer demand driven. While that certainly means massive economic transition, and inevitable associated risk, it seems reasonable to expect that nation to maintain a growth rate in excess of 6.5 percent.
As well, it is a good time to consider alternatives to more traditional investments, alternatives that might help reduce portfolio volatility while simultaneously providing better returns than fixed income securities. Choices worth consideration include hedge funds, commodities and real estate, perhaps through real estate investment trusts (REITs).
Hedge funds are restricted to a low and limited number of accredited investors and are primarily organized as limited partnerships. As a result, the vast majority of hedge funds target institutions and very high net worth individuals. Hedge funds can also be illiquid with greater speculative risk than other types of investments.
Watching the roller coaster from the ground will ensure your safety–unless you are stung by a bee or hit in the head by a rider’s falling shoe. In other words, you can’t really ever guarantee your safety either at the amusement park or in the stock market. On the other hand, the only way to experience the exhilaration of the ride is to strap yourself in and go.
Kevin Peters is a managing director and financial adviser with Morgan Stanley Wealth Management in Purchase. He can be reached at 914-225-8451.
The information contained in this column is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates Morgan Stanley Smith Barney, LLC, Member SIPC.
Adam has worked in the local news industry for the past two decades in Westchester County and the broader Hudson Valley. Read more from Adam’s author bio here.
