Making Money Alert: Where in the World to Invest

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The early results are in for 2014. After a couple of weeks of trading, things haven’t been as smooth for the equity markets as they were last year. Now, I guess that situation should come as little surprise for market observers, as 2013’s big run higher was an anomaly historically. So, how do some of the bigger markets stack up after nearly 10 full trading days?

In the United States, the S&P 500 Index has started out quite volatile, with several big sell-off days, as well as several big winning sessions. Year to date, however, the benchmark measure of large-cap domestic stocks is literally flat, trading right where it began in 2014.

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The action so far in 2014 in other developed markets around the world basically has been the same. For example, the iShares MSCI EAFE Index (EFA) is a broad measure of the international developed markets. Similar to SPX, EFA basically is flat so far in 2014 (-0.2%).

Now, this muted start not withstanding, I think that EFA represents an area of opportunity for investors in 2014 when compared to domestic equities. One reason why is that the Federal Reserve likely will continue to taper its bond-buying program, while other countries such as Japan, and countries in the European Union, are stepping up efforts to stimulate their respective economies (and stock markets) by keeping the monetary spigots going full blast.

In the case of Japan, that nation’s central bank, The Bank of Japan, continues to implement its form of quantitative easing that’s about four times as large as the Federal Reserve’s program here at home.

One key sector I’m watching to tell me if the developed markets will have some legs in 2014 is commodities. The chart to watch here is the DB Commodities Tracking Index Fund (DBC). For the past 10 trading sessions, we’ve seen DBC fall about 2.8%, so there hasn’t been a sign of commodity price inflation just yet. If there is a reversal in this market segment, it likely will be a leading indicator telling us that global growth is making its way into the commodity market.

Finally, interest rates always are a big deal to watch, as they are a great indicator of what’s ahead for bonds and other income securities. As you can see by the chart here of the benchmark 10-year Treasury note yield, 2013 was a big year for rising interest rates. That rise kept a lid on bond prices. So far in 2014, there has been a relatively significant decline in interest rates, as the yield on the 10-year has fallen to 2.89%. Recall that it finished the year above 3%.

So far, the jury still is out on where in the world to invest in 2014. But based on last year’s unusual gains in domestic stocks, I think the value play with much more relative upside is in international equities, particularly developed markets and Japan. I also think commodity prices will provide confirmation of a global trend higher. Meanwhile yields will tell us if the economy here at home continues to improve, and how Wall Street feels about the Fed’s taper plans.

I know there’s a lot to keep track of and analyze this year, but that’s what we’re here to help you do each week -- so be sure to come along for the ride in 2014.

Get Fiscally Fit in 2014, Part II

Last week, we began a special series on how to get fiscally fit in 2014. The first installment was all about taking an inventory of all of your assets. Here we took a page from corporate CFOs, as they regularly are tasked with determining the precise value of their company’s assets. The result of that inventory should be that you now know how much money you actually have, and in what type of asset class that money resides (equities, bonds, real estate, gold or silver coins, checking account, CDs, etc.).

Today, we are going into Part II of the series, and that involves doing an asset allocation review. This is the time to dig down deep into precisely where your assets are, and by that I mean knowing specifically which stocks, bonds, exchange-traded funds (ETFs), mutual funds, variable annuities, etc., you currently own.

You also need to know how much you own of each security. Your goal this week is to take an inventory of all of your securities holdings so that you can see if there are any glaring weaknesses and/or omissions in your asset allocation.

Once you know, in percentage terms, how much of your total investment portfolio is committed to stocks, how much to bonds, commodities, cash, etc., you can make the necessary adjustments to get the desired mix of assets where you want them.

I am of the opinion that equities are going to see a lot more volatility in 2014 than they have in the past, and that means both opportunity and risk for your money in the months ahead. But before you can make intelligent decisions to reallocate your capital, you first need to know where that capital is, and where you need to make alterations.

Next week, we’ll do an inventory of all of the income streams your money is generating. If your primary goal is to capture high yield and dividend income from your existing assets, next week’s lesson is aimed directly at you.

Disraeli Hates Mediocrity

“Mediocrity can talk, but it is for genius to observe.”
--Benjamin Disraeli

The great British statesmen and writer had a disdain for all things mediocre, and especially for those who talked too much without first taking the time to know. In this quote, Disraeli reminds us that before we say anything, it’s probably best to do as genius does and take the time to observe first.

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. Ask Doug.

In case you missed it, read my e-letter from last week’s Eagle Daily Investor about why 2014 is beginning slowly for emerging markets. I also invite you to comment about my column in the space provided below my Eagle Daily Investor commentary.

Doug Fabian

Doug Fabian has continued to uphold the reputation of the Successful Investing newsletter as the #1 risk-adjusted market timer as ranked by Hulbert’s Investment Digest.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , ETFs , Investing Ideas , US Markets

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