Sponsored

Investor’s Outlook 2018: Is It Time to Look Beyond U.S. Stocks?

Craig Birk, Executive Vice President, Portfolio ManagementFor the better part of a decade, both stocks and bonds have enjoyed the most favorable conditions in modern memory.

Craig Birk, Executive Vice President, Portfolio Management

For the better part of a decade, both stocks and bonds have enjoyed the most favorable conditions in modern memory. With steady economic growth, slow inflation and low interest rates, both asset classes have posted positive gains for years.

While that’s been a boon for investors’ portfolios, it begs the question: Is the end near?

It’s most likely we’re in the later stages of the bull market, and that tends to make people nervous. But when we look at the market, we don’t see a smoking gun that means the party must end soon.

The trailing price-to-earnings ratio of the Standard & Poor’s 500 is above historical averages but significantly below the peak reached in the dot.com days. And recently passed tax reform offers additional good news for shareholders, as significant cuts for corporations will increase profitability.

Asset allocation is more important than ever

Still, all this good news doesn’t necessarily mean that today’s market is a bargain. The days of double-digit stock returns are most likely behind us, and this is not the time to become greedy or complacent. Chasing performance now has tangible risks because the probability of a market drop is much higher today than it was last year.

And taking a hands-off approach also has its risks. Given the run-up in stocks recently, investors may inadvertently be overweight in equities and could be exposed to greater volatility than they may realize.

Against this backdrop, I urge investors to pay renewed attention to asset allocation.

Overseas markets look good

Though valuations in the U.S. look a bit rich, by comparison international markets look more attractive. After hitting a rough patch in 2016, for example, the European economy seems to finally be getting the wind in its sails. As we now know, a handful of recent elections with populist underpinnings aren’t likely to lead to the demise of the eurozone.

Tech sector expands its reach

Technology has been the best-performing sector for several years now, driven largely by a handful of mega companies (read Facebook, Apple, Amazon, Microsoft, Google and Netflix). Do they deserve valuations approaching $1 trillion? Only time will tell, of course.

Technology should remain an important sector for most portfolios, but I see some headwinds ahead. These firms are starting to branch out from their core products. Some examples of this are Google entering the self-driving car market and Microsoft hoping to transform health care. So far, they’ve executed in these new areas masterfully. But there’s risk to their public image if they get it wrong and consumers might start to resent how big a role these companies are playing in our economy.

Put your faith in diversification

We believe the solution for all these uncertainties is diversification. We’ve been in a long period of growth stock outperformance and it’s time to balance the scales again. Look to sectors such as materials, utilities and consumer staples to even out a growth-heavy portfolio.

Personal Capital offers free online financial software, mobile apps and personal wealth management services. Learn more at www.personalcapital.com.

This content was provided by Personal Capital. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.

Most Popular

Dying Careers You May Want to Steer Clear Of
careers

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
5 Top Dividend Aristocrats to Beef Up Your Portfolio
dividend stocks

5 Top Dividend Aristocrats to Beef Up Your Portfolio

The 65-member Dividend Aristocrats are among the market's best sources of reliable, predictable income. But these five stand out as truly elite.
September 14, 2021
7 Best Commodity Stocks to Play the Coming Boom
commodities

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021

Recommended

ETFs and Mutual Funds with Todd Rosenbluth
Index Funds

ETFs and Mutual Funds with Todd Rosenbluth

Which is better: ETFs or mutual funds? And how do you decide where to put your investments? CFRA fund expert Todd Rosenbluth has some answers. Also, h…
September 22, 2021
These 2 Emotional Biases Could Kill Your Retirement
Investor Psychology

These 2 Emotional Biases Could Kill Your Retirement

Are your emotions sabotaging your retirement plans? Some basic knowledge and careful introspection can go a long way toward avoiding major pitfalls.
September 20, 2021
Investment Strategies for the 4 Stages of the Economic Cycle
Markets

Investment Strategies for the 4 Stages of the Economic Cycle

The U.S. economy is cyclical in nature, surging ahead and pulling back in waves over time. Investors’ portfolios need to change with the rise and the …
September 19, 2021
Is a Target Date Fund Right for You?
investing

Is a Target Date Fund Right for You?

You're busy, and poring over investments is a pain. Wouldn't a target date fund be easier? Take a look at their pros and cons to see if incorporating …
September 14, 2021