Insider Tips From the Pros packages
in the February 2014 and May 2014 issues, Kiplinger's spoke with
dozens of experts in fields ranging from college aid to travel to
glean insights they apply to their own financial lives and share
with their own family and friends. Here we offer six smart moves
suggested by investment advisers and strategists:
How to prepare for rising interest rates
William Bernstein, investment adviser and author of Deep Risk:
How History Informs Portfolio Design
In terms of Treasuries, I'm sticking with six-month Treasury
bills and rolling them over when they mature. With bank CDs, I
might go out as long as two years, because CDs give you an
early-withdrawal option [generally for a slight penalty]. And with
municipal bonds, I'm buying portfolios that have an average
duration [a measure of interest-rate sensitivity] of two to three
I'm also avoiding things such as high-yield or floating-rate
bonds because they have an equity component. Your fixed-income
portfolio is supposed to help you sleep at night. It's also meant
to give you liquidity, which you may need if you lose your job or
the neighbor with the corner lot that you've been eyeing decides to
sell. Junk will lose you money at the worst possible times. It's
why Warren Buffett owns T-bills in the fixed-income portion of his
How to spot the end of the bull market
Liz Ann Sonders, chief investment strategist for
If there were any one thing, we'd all be very wealthy. There's
no bell that rings. But there are warning signs of a pullback,
things we've seen in the past that suggest an elevated risk. One is
that interest rates, after adjusting for inflation, are rising.
This is the only sign that you could argue is in place right now,
and the reason why it's happening now is that inflation has been
falling--you could even argue that inflation-adjusted rates are
going up for a good reason, not a bad reason.
Also, you tend to see a significant pickup in initial public
offerings and a real surge in mergers and acquisitions. We've seen
a pickup in those two things, but nothing like what we've seen at
market tops. You often see an inverted yield curve, which is when
short-term rates are higher than longer-term yields. And you
typically see excessive enthusiasm among individual investors. We
saw a pickup of money flowing into stock funds in 2013, but the new
cash has barely made a dent in net outflows of $600 billion since
2008. As for the stock market being overvalued, Standard &
Poor's 500-stock index is trading at a little more than 15 times
estimated corporate earnings for 2014. The long-term median is 16.5
times year-ahead earnings.
The best investment to earn decent income in 2014
Lew Altfest, chief executive and principal adviser at Altfest, a
New York City-based investment firm
Stocks. I think of capital appreciation as income. Of course,
there's no guarantee you're going to get that every year. But how
about stocks that have good dividend yields and significant
earnings growth potential? A good yield would be about 4%; a
not-bad yield would be 3%.
Marilyn Cohen, fixed-income specialist and founder of Envision
If they can tolerate some risk (and that is a big if),
AdvisorShares Peritus High Yield (symbol
), an actively traded exchange-traded fund, should be a portion of
their portfolio. Not the whole portfolio, but maybe a 10% to 15%
allocation. The fund has held up enormously well over the past
year. It has a short duration [a measure of interest-rate
sensitivity] and a yield of about 7.7%. The managers are really
smart, and because it's an ETF, you can point, click and get out of
the fund if you need to.
Of course, when you're in an environment with 2% interest rates
and someone offers you 7%, you're taking some kind of risk. If we
have a big stock market correction, this fund will go down, too.
This is not for widows and orphans. But the fund will tweak up the
rest of your portfolio if there's room for some risk.
How to spot the next superfund
Russel Kinnel, director of mutual fund research at
You look for a promising manager with a solid track record of at
least five years, a sound strategy, and a willingness to close the
fund before assets get too big. Primecap Odyssey Aggressive Growth
) is a fund that fits the bill. Its management team excels at
finding good growth names with long-term potential.
How to invest in muni bonds
Marilyn Cohen, fixed-income specialist and founder of Envision
As investors have learned lately, there are a lot of sinkholes
in muni land, and you want to avoid them all. You don't take any
aggressive positions--for example, Puerto Rico or Chicago bonds.
You keep it plain vanilla and own bonds that finance essential
services, such as the revenue bonds of large, important airports,
or water and sewer revenue bonds in areas with expensive homes. We
need these services, and people will pay for them.
Here's the caveat: If you can get the yield you're looking for
after taxes in a corporate bond, then you don't belong in munis.
Investors have been fickle, and there will be blood in the streets
if money continues to pour out of muni funds. You should be in
munis only if you're in a high federal income tax bracket, or if
you have state income tax nipping at you. You'll maintain your
principal as long as you're not buying bonds with very long
maturities. And munis aren't nabbed by the new 3.8% Medicare tax on
investment income [which, as of 2013, applies to singles with
modified adjusted gross income of more than $200,000, and couples
filing jointly with MAGI of more than $250,000].
How to overcome market volatility
Greg Davies, head of Behavioral Investment Philosophy at
It helps to write an investment policy statement, so you don't
have to make every decision from scratch in the heat of the moment.
For example, "I will rebalance my portfolio holdings once a year; I
will look at my portfolio once a month (or once a quarter) but not
more often; if the market collapses, I will stick to my plan."
Then, you've already thought through many investment decisions in a
period of calm reflection, and you'll be making fewer decisions
based on emotional responses to immediate events.
I never make investment decisions for my portfolio during the
week. I work in a bank, and I'm surrounded by screens. There's
always a danger I'll have an emotional response to what's going on
in the market. So I make decisions for my investments only over the
weekend. Yes, I may miss out on a few opportunities. But those few
opportunities are worth losing out on in order to make sure I have
a systematic process.