Please note that this is a Guest Post
So here we are at the end of the year again, it seems to come around so quickly. These are financially uncertain times and this means that many investors have not reaped the rewards they hoped to from their investment portfolios.
Globally, we have seen governments implement quantitative easing programmes to varying effect. However, things are looking up, and the big question is what will happen when governments start to taper (reduce) their QE programmes?
How can you realise a return on your investments in 2014? Try following our five suggestions below:
Mortgage-backed securities, particularly on the commercial side (CMBSs) look like a good bet for 2014. At some point next year, the FED will start tapering, leading to a rise in long-term interest rates. CMBSs can be complex and you will need to do your research if you don’t have access to specialised risk management software such as that provided by Sungard.com/APT.
CMBS spreads are higher than residential mortgage-backed securities and also higher than the high-yield market. You may have to look at the riskier end of the market to reap the best rewards rather than AAA-rated securities. Even higher risk investments have a place in a well-diversified portfolio, so CMBSs are worth a look.
Make retirement contributions as early as possible in the new year
You have up until April 15th 2014 to make contributions in the 2013 tax year. Make the most of your tax-advantaged growth by paying into your retirement account as soon as possible. You can contribute up to $5,500, plus an extra $1,000 if you are over 50 as a “catch-up” contribution.
Invest in Europe or the U.K.
We all know that Europe has had its share of financial woes recently. Countries are weighed down with debt, consumers have record borrowing, and banks across the continent have struggled to stay afloat.
You might think this is reason enough to steer clear of European investments but you could be missing out. Many European investments are priced at a fraction of what they were five years ago and are cheap when their earning potential is taken into consideration.
Reputable European companies are also offering unusually high dividend payments at the moment. This is partly because share prices are low which means the dividend is high when compared to the initial outlay required to purchase the share. Do yourself a favour and check out what’s available.
Take another look at bond investments
Due to the recent practice of quantitative easing by many governments around the world, we have seen a huge number of investors abandoning bonds. This is because yields have been low, forcing investors to seek riskier assets to realise a decent return on their capital.
Investors shouldn’t return to heavy investment in long-term government bonds. However, mutual funds made up of high-yield bonds can do well in a stronger economy. With rates still uncertain, most commentators advise staying in short to medium-term bond funds.
Be picky with emerging markets
Emerging markets have generally not faired well over the last couple of years. However, instead of ruling out an emerging market investment, the key is to be selective. We should hopefully see an improvement across the board in 2014 but there are still many economic factors that could lead to setbacks for emerging market economies. Seek out countries with strong balance sheets, such as Mexico.
How will you allocate your investment capital in 2014?