Last year was a tremendous year for stocks around the world but not so great for conservative bond investors and simply awful for the “gold bugs” out there.
Will 2014 hold a similar path?
As a financial planner, I can’t predict the market returns but I can make intelligent choices in building a portfolio as part of an overall financial plan.
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First, the “tax tail can’t wag the dog, but all happy dogs wag their tail.”
An investor should make decisions that take new tax changes into account. Tax rates have gone up on those with higher incomes, i.e. mostly on single filers with taxable incomes above $400,000 and married filers above $450,000.
In addition, the new health care surtax starts at gross incomes of $200,000 and $250,000 respectively. Taxes must play a role in your investment decisions, but investing purely for tax purposes is not the best economic idea unless you have a tax problem.
Second, over the long run, the stock markets have risen. Stocks have had positive returns over 70 percent of the time since 1926. As such, make account contributions of all sorts as early in the new year as possible so you can start taking advantage of any growth.
Very importantly, don’t forget investments outside of the United States when you ponder your stock allocations.
The United States makes up slightly more than 50 percent of the global stock markets but most investors have limited exposure in stocks based outside of the United States.
Given the U.S. stock market’s outperformance in 2013, this may be the time to add more exposure to your international holdings.
In addition, use the New Year as a time to review your portfolio and rebalance your allocations to stocks and other assets.
With the surge in stocks in 2013, you might have more risk than you desire. For example, an investor who desires to have 60 percent of her money in stocks with 40 percent in other asset classes may have far more in stocks now.
Lastly, don’t forget about investments other than stocks.
You want to own stocks when they rise, but unless you have tomorrow’s newspaper, you can’t guarantee anything.
Keep a good balance of different investments. If stocks do fall in 2014, you will appreciate those asset classes that disappointed last year but may be now rising.