The markets continue to trade painfully higher. I say painfully, because I can’t remember a time when so many traders have been so unhappy with the fact that stocks are trading at 52-week highs. I think everyone, including me, is expecting the market to make a substantive correction of at least 5%, and possibly even much more, during the next couple of months. Unfortunately, sellers don’t seem to have received the memo.
The bottom line here is that nobody wants to call a top to this market, as nobody wants to miss out on the potential short-term alpha in stocks. I think this situation is akin to playing with fire. Sure, you might get away with it for awhile, but eventually, you are going to get burned. The way I see it, it is a lot easier to recover from lost opportunity than it is to recover from a third-degree portfolio burn.
If you aren’t in the market right now, then I advise you to wait for the aforementioned pullback. I think that sometime during the next couple of months, you’ll get a great opportunity to buy stocks a lot cheaper than they are now. And, if you have a lot of equity exposure here, you most likely have some good unrealized gains in your portfolio. If this applies to you, then I strongly suggest you place stop-loss orders on all of your winning positions.
The worst thing to experience as an investor, shy of actual lost money, is the wiping away of a sizeable gain. Make sure you protect those gains going forward with a simple stop loss on your winners.
Now, just to give you an idea about how well stocks have done of late, take a look at the chart here of the S&P 500 Index.
As you can see, it’s been a race to the top so far in 2013. Though the pace of the gains certainly has slowed in February, the market continues to trade at levels it hasn’t seen since 2007. How long can this situation continue without a substantive pullback? Nobody knows for certain, but history -- as well as common sense -- tells us that the answer is most likely not much longer.
So, make sure you act in defense of your own money, because where stocks are heading next could turn that bullish smile into a bearish frown.
Fiscally Fit for the New Year, Part VI
For the past five weeks, we’ve outlined how you can get on the right path to becoming fiscally fit for 2013. This week, we have the sixth and final installment in our series. To wrap things up, I want you to conduct an overview of two of the most important elements in your overall financial picture -- insurance and annuities.
Insurance can take many forms, and the need for insurance is a very personal one. The most common reason to have a good life insurance policy in place is to replace lost income due to the death of a spouse and to provide survivors with the financial stability necessary to not worry about fiscal issues.
For high-net-worth individuals, life insurance can be used to defer capital for retirement and to help protect and grow that wealth for their dependents. As for annuities, they also can be very good financial instruments -- if they fit your overall financial goals.
The final personal finance exercise that I want you to conduct here is to do a complete review of all of your insurance products, including any annuities you may own. Ask yourself the following questions:
1) What policies do I have, and what’s the benefit amount in each policy?
2) Where are my policies, and am I dealing with more than two companies? If so, you may want to consolidate these.
3) Do I have sufficient insurance to take care of my dependents? Many people bought policies when they first were married. Now, you may have children, you may be making a lot more money than you used to and you may have significant assets such as a home to protect.
4) What kind of premiums are you paying for your policies, and how much are you paying in annuity fees? The latter can be substantial, so if you are paying hefty annuity fees, it’s time to see if those fees can be reduced.
Performing an insurance and annuity review will give you a good idea of what you have and where you stand. It also allows you to address any flaws in your overall financial plan.
At Fabian Wealth Strategies, my investment advisory firm, we’ve set up a webpage to help you address some of the common questions involved when assessing your life insurance picture. I invite you to pay a visit to this page before you conduct your own insurance review.
NOTE: Fabian Wealth Strategies is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Publishing.
ETF Talk: Ride Resurgent Real Estate
This week, we unveil an easy way to invest in real estate to ride the recovery in the housing market. After all, to build a house, you need to put it on land. This ETF Talk dovetails nicely with the ones from the previous two weeks that focused on industrials and housing, two industries set to profit from this year’s projected housing boom. The exchange-traded fund (ETF) that I like for tapping the real estate sector’s rebound is the SPDR Dow Jones REIT (RWR).
The initials REIT stand for real estate investment trust. This non-diversified fund seeks investment results which, before fees and expenses, correspond generally to the total return performance of the Dow Jones U.S. Select REIT Index.
Following an 11.03% rise last year, RWR is up 3.21% so far in 2013. With quarterly dividends producing a yield of 2.95%, this fund offers solid income alongside capital appreciation. Housing should continue to do well, as long as the Fed continues its easy-money policies. For that reason, RWR should perform well, as the following chart shows.
Explicitly a trust which invests in real estate, this REIT has 100% of its holdings in the real estate sector. Its top ten holdings make up almost half of those assets at 49.1%. The largest chunk of this portfolio belongs to Simon Property Group as of the close of trading on Feb. 12, with 11.60% of the fund’s holdings. The next four companies, in terms of assets held in the fund on Feb. 12, are Public Storage, 5.21%; HCP, Inc., 4.90%; Ventas, Inc., 4.64%; and Equity Residential, 4.26%.
As the improving labor market and low mortgage rates contribute to the housing recovery, real estate and funds such as RWR should benefit. Include the aforementioned Fed policies, and you have a recipe for real estate success. Even if the housing rebound does not quite reach expected levels, companies in related sectors such as real estate still should show improved share-price performance, earnings and revenues.
If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.
A Spooner Full of Wisdom
“The only security men can have for their political liberty consists in keeping their money in their own pockets.”
The brilliant libertarian philosopher with the funny name knew that private property and protection from excessive taxation were the only ways to make sure citizens remained free. Now, don’t you wish the current crew in power in Washington knew this, too?
To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below my Eagle Daily Investor commentary.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.