Where to Invest Your Money in 2018

The year 2016 was filled with interesting twists and turns on the world stage that greatly affected the financial markets. There was the United Kingdom’s vote to leave the European Union, also known as Brexit. As a result, Scotland began the push for another referendum to leave the United Kingdom, which is still in process.

European countries such as of France, Germany, and the Netherlands witnessed a continuation of the migrant crisis from Northern Africa and the Middle East. Each of these countries has seen a recent rise in opposition parties to challenge the status quo.  In 2017 all three will also elect new leaders. Setting the stage for uncertainty, both politically and financially, across Europe in 2017.

In 2016 South Korea unceremoniously dismissed its long-standing prime minister, Hwang Kyo-ahn. Then, to the surprise of many, including American pollsters, 2016 saw the election of Donald Trump as President of the United States. An event that initially threw markets into turmoil, and almost as quickly into an upward spin [1]. Now, it is a presidency poised to throw curves at the financial market all year long.

Where Does This Leave Us?

These events, especially in the aggregate, mean 2017 is not an average year for market predictions. More than ever before, what happens politically and socially around the world is certain to affect what happens on Wall Street. There is much investors and the average Joe do not know about Trump’s intended policies, the stability of the European Union, and where the Middle East will settle when 2018 rolls around.

That being said, investors are incredibly optimistic going into 2017. The market experts have found a few solid bets for the New Year, and Wall Street experts and its biggest players have identified some of the better places to put your money. Plus, the markets have been bullish for a while now, with the DOW nearly at 20,000, and riding this high is a great time to consider where to invest your money in 2017 [2].

Looking Outside the United States

One of the most consistent recommendations for 2017 is to invest in emerging markets. By the end of 2016, emerging markets were up over 17%, and investors see much more room for growth in the upcoming year [3]. There is nearly unanimous consent among experts that in 2017 emerging markets will have better risk tolerance in the upcoming year. This will lead to more capital entering and invested in these foreign countries.

Savvy investors have targets a number of markets in developing countries for growth in 2017. Take a closer look at opportunities in Brazil, South Korea, Mexico, and India. Brazil had an uptick in 2016 and more expected to come, while South Korea’s improved political situation and anti-corruption efforts mean a likely up lift for its stagnant market [4]. Mexico and India both have economic-minded leaders at the helm and the workforce for continued growth. Other indexes recommend avoiding the bigger markets, such as Brazil and India in favor of quickly expanding economies such as the Philippines, Mexico, Columbia, and Malaysia [3].

The euphoria for emerging markets is not universal. Certain markets are experiencing slower growth, most noticeably China, with the country’s GDP growth expected to be 6.2% after a 6.6% increase in 2016 [3]. As China is the largest economy among emerging markets, this does present some room for pause.

Medical Stocks on the Radar

Many of Wall Street’s stock pickers are optimistic about the U.S. market in 2017. However, with less returns expected than at the closing bell for the previous year, it is time to be smarter about some specific industries.

It would seem a risky year for healthcare, as the Affordable Care Act is on the proverbial chopping block and Republican lawmakers have yet announce a replacement plan. Yet, certain healthcare companies are repeatedly making the best bet lists. Envision Healthcare is one [2]. Another medical company with 2017 potential is Medpace, a company that handles clinical trials within the biotech industry [5].

Donald Trump and Defense Spending

If there is one industry that received a serious boost from the election of Donald Trump it is military production and defense. There is an assumption that his campaign promises and Republican Congress will lead to an uptick in United States military spending [5]. Therefore, Wall Street’s top stock pickers are looking at several defense contractors and military production companies to be big winners on the market in 2017.

Lockheed Martin is the contractor of choice for a number of United States fighter jets, unmanned vehicles and aircraft, and even spare parts [6]. The diversification of its planes, parts, and services mean it is in a prime position if military rebuilding and defense spending do increase.

Another company with a plum spot among U.S. military contractors is Raytheon [5]. From missiles to a range of electronic equipment, hardware, and systems Raytheon supplies the United States military with part of its essential arsenal.

Getting Busy with Banking

Since the market downturn in 2008 the general public with skepticism has regarded banks and financial institutions, and with good reason. There were years of government bailouts and then immense regulation of financial institutions under new federal law. However, when it comes to diversification of investment portfolios, it is difficult to imagine ignoring the potential of some banks and other financial institutions in 2017.

If you want to look towards some of the big names on Wall Street, there is no better example than Warren Buffett of Berkshire Hathaway. The financial institution he is betting on for 2017 is Bank of New York Mellon. Other investors seem to agree with the financial giant. The feeling is Bank of New York Mellon is currently trading under its value, and therefore the stock price is right to rise in the coming year [1].

Sometimes there is a time to buy stocks for their potential growth and rise in price into the New Year, and then there is dividend potential. One financial institution that is set to distribute a dividend back to shareholders is Prudential [6]. The prediction is this will be a significant distribution of corporate funds to investors, and there are recommendations all over Wall Street to scoop up some stocks now.

 

References:

[1] http://www.forbes.com/sites/investor/2016/12/28/best-investing-ideas-for-2017/#56a3fa874b18

[2] http://money.cnn.com/2016/12/28/investing/stocks-to-buy-2017/

[3] http://time.com/money/4586531/emerging-markets-growth-china-2017/

[4] http://www.cnbc.com/2017/01/06/9-investment-ideas-for-2017-commentary.html

[5] http://www.kiplinger.com/slideshow/investing/T052-S003-8-stocks-to-buy-now-for-2017/index.html

[6]  http://www.msn.com/en-us/money/savingandinvesting/the-10-best-stocks-to-buy-for-2017/ss-AAlw7bi#image=1

The 5 Best Ways to Save for Retirement

It is possible to save a substantial amount for your retirement, even if you do not earn a lot annually. Many Americans are able to retirement fund out of $40,000 or less a year, yet others report having less than $25,000 in retirement savings [1]. What causes this divide?

A lot of growing your nest egg is about smart and consistent saving, not putting away fast money. Based on the advice of financial experts, here is the list of the 5 best ways to save for retirement.

Get and Stay Out of Bad Debt

Individuals who carry debt face a massive impediment to retirement saving [2]. The longer it takes to pay off debt, the more interest accumulates on the principle amount. Even a small amount of credit card debt or loan repayment can divert money from a retirement fund to these interest payments.

Therefore, it is pertinent to pay down debt quickly. Financial planners recommend that you pay down high-interest debt first [3]. This makes sense to efficiently make your liabilities less than your income. However, many debtors find it is easier to tackle this task card by card. Start with the balance on a card and pay it off entirely, then move to the balance on the next card [1]. Eventually, you will find yourself free of credit card debt and surprised by the extra funds available for retirement savings.

True, not all debt is created equal, but getting out of debt applies to all non-mortgage debt. This recommendation includes any and all student debt [4]. Many people have college loans that were necessary to complete higher education. This debt has a tendency to hang over your head for a long time, and eventually it will cut into the amount you put away for retirement.

Think About Your Paycheck’s Potential

Planning for retirement is a constant struggle between immediate gratification and future benefits. This is most obvious when you consider where and how your paycheck is distributed. You are already sacrificing to taxes and Social Security, and sometimes it is difficult to imagine other chips from that regular payment when you first start in the workforce.

Yet, the smartest savers begin at an early age. In fact, the first years of your career are the best time to begin retirement saving. At this time employees are likely to have fewer expenses and responsibilities. People can also take more risks on investments. Experts say people should be putting away retirement money by age 25 [5].

As well, the longer your money sits in a retirement fund, the more interest it can build and the greater returns you will see from investments. If your money has been building since the young ages of 22 or 23, it can exponentially increase the amount of money you have at 90,

Plan, Budget, Execute

 Saving starts begins with less spending, and a man with a plan is much more likely to succeed. Of course, the same goes for a woman. This is why a planned out and written budget will lead to more substantial retirement savings. As well, a budget will help you meet immediate financial goals, which is great training for the bigger task of putting away enough money for retirement [3].

The goal of this careful budgeting is to spend less than you earn, which even means on yearly vacations and other major expenses [2].

A budget gives you something tangible to achieve, and it is a great way to stay accountable. Be sure to share this budget with your partner, and keep one another in check if certain spending habits throw it off course. As well, if a major expense arises, determine where that fits in the budget. It should be something that can become part of your plan instead of a budget buster.

Key Contributions Through Company Plans

Most people will incur hundreds of thousands of dollars in basic expenses during retirement, and the savings in a 401(k), Roth IRA, or other savings plan needs to cover all of these costs. To ensure you do not come up short it is essential to put aside as much money as possible through your company’s retirement plan.

As well, income that is put into a retirement savings account is not taxed when deposited, only when distributed [3]. Therefore, take advantage of the tax shelters for retirement funds, and maximize the amount you can save for later in life.

At the onset, paying in the maximum annual contribution to a 401(k) or other company plan can feel like a huge sacrifice of spending money. Experts recommend paying in 2% of your paycheck to begin [1]. Individuals and families quickly forget about money that is never deposited into a bank account, so have this taken directly from your paycheck [4]. Lifestyle and spending decisions will follow suit.

Therefore, after a short amount of time it is easy to increase the amount paid into a retirement plan. Eventually, the goal is to pay the maximum contribution amount into your 401(k) or Roth IRA. The same goal can be set for payment into a health savings account (otherwise known as a HSA).

Hand in hand with maximum contributions through you savings plan is ensuring you take full advantage of a company’s matching contribution from your employer [3]. There are a number of companies that offer matching programs, and will even match up to the maximum contribution allowed under federal law. These matching benefits from an employer result in free money for you [2].

Diversify Your Investment Portfolio Early On

Learning how to account for losses is incredibly important for a smart and successful investor. If you plan to build you retirement on the stock market and a 401K-investment portfolio, then it must be well managed and diversified. A financial planner or investment account manager will be able to offer advice on how and where to put your money in the market, but in general the recommendation is to invest in stocks over bonds [4].

Although diversification, even in your 20’s is important, when you are younger is also a great time to take more risks in your portfolio [2]. The ramifications of losses are not as dire or immediate (as you have plenty of time to recoup the funds), but a big return means the time to build interest and other investments with that money.

 

References:

[1] http://www.marketwatch.com/story/the-4-best-ways-to-jump-start-your-retirement-savings-2014-06-12

[2] http://money.usnews.com/money/blogs/on-retirement/2013/08/19/10-smart-retirement-moves-to-make-in-your-20s

[3] https://www.fidelity.com/viewpoints/personal-finance/tax-smart-savings-tips

[4]http://www.usatoday.com/story/money/personalfinance/2015/01/26/retirements-savings-at-every-age/21771099/

[5] http://money.usnews.com/money/retirement/articles/2012/07/30/7-ways-to-retire-with-1-million

5 Warnings Signs the Market is About to Crash

History has a lot of tell us about the cyclical nature of the stock market. There are upturns and downturns, bullish and bearish markets, and, it does seem, what goes around comes around. Therefore, history should also teach us a considerable amount about what indicates a stock market crash.

There certainly appear to be some events and signs that indicate a market downturn. Yet, the difficult and exciting thing about the stock market is that these indicators and signs the market is about to crash are not always accurate. Nor are they always apparent to everyday investors and event savvy hedge funds before it is too late. In the past, market crashes have taken most people by surprise [1].

 Defining a Crash

The definition of a stock market crash is a market index dropping 50% or more from a previous high [2]. This is an extremely rare event in the history of the stock market, but it has happened. More than likely, it will happen again.

Most famously the stock market crashed in 1929, leading to the Great Depression. The Great Depression began with the crash of the stock market on October 29, 1929. Between that day and December 31, 1929, investors in the stock market lost over $40 billion dollars [3]. What followed was a period of decreased consumer spending and bank failures that precipitate the poverty and unemployment of many Americans.

In 1987 Black Monday brought the markets down in a single day. It is still the largest one-day crash in the history of the United States markets, and it was characterized by fearful sell orders from investors around the world. Again the market crashed by just over 50% in 1999, the start of another recession for the United States.

Here are five important signs of a market crash that we have learned from these important historical events and the crash of stock markets around the world.

Stocks in a Bubble

 The stock markets are normally in a bubble before a crash. This is the opinion of many Wall Street analysts, historians, and, essentially, the words of Donald Trump in regards to why he would not recommend increasing or purchasing new shares in the stock market during the year 2016 [4].

The way many on Wall Street explain this phenomenon is that the market accelerates, but then it surpasses, sometimes widely surpasses, the anticipated growth earnings [5]. The theory is this bubble between the actual growth earnings and stock prices causes a sharp and sudden decline when the natural course of free markets corrects this bubble.

 Warnings from Commodity Costs

A precursor to the stock market trends can be what happens on the commodity markets. As with all indicators of a market crash, there is no certainty behind this bet. However, when it comes to accurate indicators, this is one of the better ones.

For instance, in mid-2015 commodity prices dropped to record lows. Most noticeably, the price of crude oil, the commodity behind daily work and life for humans the world over, fell around $50 a barrel from a high of over $140 per barrel about a year and a half earlier [6].

Just a few days later, news outlets around the world were reporting on the falling stock market prices. The DOW lost nearly 1,000 points over the course of a few days [7]. Most of this activity on the stock market was explained as a correction, but it is hard to deny the similar downward turn of commodity trading days before. Afterwards, more traders and hedge funds keep an eye on the commodities market for a sign of upcoming stock movement.

 Effect of Raising the Fed Interest Rate

 In December 2015 the Federal Reserve raised the benchmark interest rate for the first time in nine years. The initial expectation was a sharp and heavy-hitting reaction by investors in a number of markets, however markets corrected nicely after the initial increase to 0.25%. This surprised investors who expected that the 0% interest rate helped the market maintain growth between 2009 and 2016 [8].

The Federal Reserve is expected to raise the interest rate again. The Fed Chair Janet Yellen has indicated as much since summer 2016, and 2017 is nearly certain to see a jump to at least 0.50%. However, this is a serious question of timing for the United States government.

If this second increase comes too soon, it is likely to leave stock markets in disarray. A hike in the benchmark interest rate trickles down to lending opportunities for companies, possible profits from refinancing, and eventually the price of shares [8]. As well, it leaves investors uncertain of how U.S. currency will rise, where inflation may land, and how consumer spending will react.

Events in Other Markets

A look at the market downturn in August 2015 reveals another important factor of the next market crash. The events of foreign markets will invariably and inevitably affect the United States stock market [6]. The world operates on a global economy, and what happens elsewhere reverberates through our financial sector.

In August 2015 the Chinese economy experienced a period of immense uncertainty and panic. This followed the Chinese government’s announcement to devalue its currency, an unexpected and unprecedented maneuver. The Chinese markets fell 40% [7]. However, the Chinese market no longer operates, rises, or falls in isolation. With the 40% fall by the Chinese, there was a corresponding 10% fall by United States markets.

The larger economies in the world, from Brazil to India, all affect the United States. It is a tenuous system that can tumble or build on a singular event [1]. If a number of these economies begin to suffer, then the American markets will also suffer. Many investors look to the strength and control of central banks in these foreign markets for signs that a downturn is ahead for the world economy [6].

  1. Reflection of Fear and Uncertainty

Alternatively, other purveyors of Wall Street’s cycles feel that the risk built up during a long stretch of bullish markets leads to the crash. A sharp rise in a market, such as the DOW, leads investors to take more risks and move on unlikely stocks.

However, it is a false high. The market is overvalued and eventually that must even out. When it does, there is a natural tendency to swing too far in the other direction. Hence, the relationship between the bubble and a market crash.

 

References:

[1] https://www.nytimes.com/2016/05/01/upshot/listen-carefully-for-signs-of-the-next-global-recession.html?_r=0

[2] http://www.forbes.com/sites/davidmarotta/2016/08/21/beware-of-dire-market-crash-predictions/#1c15c8951ddb

[3] http://americanhistory.about.com/od/greatdepression/tp/greatdepression.htm

[4] http://www.cnbc.com/2016/08/10/the-stock-market-bubble-boys-are-wrong-about-this-market-commentary.html

[5] http://www.businessinsider.com/stock-market-crash-warning-signs-2013-11?op=1

[6] http://business.financialpost.com/investing/global-investor/eight-signs-a-global-market-crash-is-imminent-as-central-banks-lose-control

[7] http://money.cnn.com/2015/08/24/investing/stocks-market-crash-by-the-numbers/

[8] http://money.usnews.com/investing/articles/2016-08-31/will-rising-interest-rates-hurt-stocks