Where to Invest in 2020
Kiplinger's executive editor Anne Smith joins our hosts Ryan Ermey and Sandy Block to discuss investing trends that will move markets in 2020. The pair also offer ways to thwart package thieves.
Ryan Ermey: Where should you invest in 2020? We don't have an exact answer, of course, but we do have Kiplinger's executive editor Anne Smith, who joins the show to talk about market moving trends for the upcoming year in our main segment. On today's show, Sandy and I discuss strategies to dissuade porch pirates and a new edition of wild pitches covers shopping for car insurance and investing in real estate. That's all ahead on this episode of Your Money's Worth. Stick around.
- Episode Length: 00:29:44
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Sandy Block: I'm great, Ryan. How are you?
Ryan Ermey: I'm doing good. It is shipping season, as we've mentioned before on this show. I'm trying to get gifts together for everyone in my family. There's always a debate as to whether I should ship them directly to the people who are receiving them and text them, "Don't open this," or if I should send them to myself and wrap them and everything at home. Always a dilemma, but no matter where I am shipping them, actually it's not really no matter where, my parents live in a lovely suburb, I do not, and so when things get shipped to my house and they're left on the front stoop, a lot of times, especially if it's a big, nice-looking package, people just go ahead and help themselves to it.
Sandy Block: If it says fragile on it, you're in trouble.
Ryan Ermey: Yeah, exactly...
Sandy Block: Electronics inside.
Ryan Ermey: It must be Italian. We have some strategies to stop so-called porch pirates.
Sandy Block: Right. Even in lovely suburbs, Ryan, this has become a real problem because I think there's some people out there who are just like following the Amazon truck to see where it goes.
Ryan Ermey: Right.
Sandy Block: It's an easy crime. You swipe and off you go. We've got several suggestions of ways to sort of thwart these people. One is just don't have the stuff sent to your house at all.
Ryan Ermey: Right.
Sandy Block: You can have it sent to your job, or several of the big companies such as Amazon will let you set up a locker where you can have your things sent and just go pick it up there so it is automatically locked away and you don't have to worry about that. You just... I mean, you've got a little inconvenience in that you have to go get it, but you have this peace of mind of knowing that your stuff isn't sitting out there for somebody to swipe.
Ryan Ermey: Yeah. UPS and FedEx both have services like these. They have areas or lockers where you can go pick things up. You'll have to register for a UPS My Choice or FedEx Delivery Manager account. Both of those are free to be done online, to register, I mean. You can ask to have purchases delivered to one of their participating retailers. UPS doesn't charge for the service. FedEx may charge up to $15 to deliver to a different address. See who is handling your shipments. Amazon provides lockers in Whole Foods markets and convenience stores, and you can select lockers near your address for delivery when you're checking out at Amazon. Another thing that we've talked about on this show before was the USPS Informed Delivery service. You had covered that at the time, right Sandy?
Sandy Block: Right. We talked about... actually a little caution about this because this can be a useful service when you sign up. The United States Postal Service will email you scanned images of unopened letters and they'll also let you see the delivery status of a package, provide delivery instructions and set up a redelivery. One of the concerns about this is that anybody could sign up as you for this and have all your stuff delivered to them.
Ryan Ermey: Right.
Sandy Block: You might want to go ahead and just sign up for this, it's free, just to prevent someone else from doing it. A kind of less complicated work around that I've used is just whenever you order, sign up for track your package. Amazon, just about anybody you order from will let you track your package. If you actually do that and take the effort to do it, you at least will know if something didn't show up when it should have. It's not going to necessarily thwart these, but it would alert you when to be watching for something and maybe have somebody home or something like that.
Ryan Ermey: Right. If that's the case, if something does end up being declared lost or undelivered, your best bet is to contact the carrier, contact the merchant, figure out who is responsible and then you can figure out your refund. Then the last thing to mention, and there's plenty of commercials going around about this around this time of year, is that there are WiFi video doorbells available. Ring, I believe, tends to be the popular, well-known one. It works with your Echo Show if you have one of those, and just like an Alexa device that has the video screen on it. When placed within the range of your home's WiFi network, one of these video doorbells will monitor the door, detect motion, alert you to visitors. If someone triggers your motion detector up there, you can get a video feed to your smartphone, your tablet, your computer, your aforementioned Echo. Then you say, "Hey Alexa, go ahead and shoot the guy at the door." No. That's not allowed.
Sandy Block: Well, actually another thing you might want to consider is just putting up, even if you don't have this, is putting up a sign that says you do, "Under video surveillance."
Ryan Ermey: Right.
Sandy Block: When I was researching this, I saw that you can actually buy fake cameras to put in front of your house.
Ryan Ermey: Yeah, why not?
Sandy Block: Because one of the downsides to some of these technologies is you might see somebody grab the package and run away, but you're not home. What are you going to do about it?
Ryan Ermey: Right.
Sandy Block: But maybe you want to sort of alert the potential porch pirates that they are being watched and-
Ryan Ermey: You could talk to them too through the thing.
Sandy Block: Yeah, say, "Get out of here."
Ryan Ermey: "Hey, scram." Yeah, you can't actually set the dogs on them or have them shot or anything, but you can see, maybe get a good look at their face or whatever, give a little help to the police.
Sandy Block: That's right.
Ryan Ermey: But either way, really the best practice is just try to make sure that you can get it sent someplace where you can get your hands on it quickly. We actually do have some coverage of this on Kiplinger.com, so we will be putting all of that up in the show notes for you. Happy holidays to everyone tracking down all of their packages. Coming up, Anne Smith gives her investing outlook for 2020. Don't go anywhere.
Ryan Ermey: Alright, we are back and we're here with Anne Smith. She is the executive editor of Kiplinger's Personal Finance and also my boss in the investing section. Anne, thank you so much for coming on.
Anne Smith: It's my pleasure, Ryan.
Ryan Ermey: We're talking about the cover story for the January issue. It is the investing outlook for 2020. The current bull market for stocks is now in its 11th year, but you say in this story that it's been less like a charging bull and more like our friend Ferdinand the bull from the children's books. What do you mean by that?
Anne Smith: Well, I didn't... I wasn't talking about the entire bull market, just the most recent year or two.
Ryan Ermey: Right. Yeah, fair enough.
Anne Smith: What I meant was that, ironically, the market has advanced incredibly strongly in a super cautious environment. Money has flowed out of stock funds and into bond funds all year. The parts of the market that did best were the ones that we call defensive. That's think utilities, for example, the kinds of stocks that do best in downturns instead of raging bull markets. Others in that group, big U.S. blue chips, low volatility stocks have been huge performers for the last couple of years. Those are almost bear market investments. It's been this incredible bull market led by bears, so a little timid like Ferdinand.
Ryan Ermey: Fair enough.
Sandy Block: Given that, what are our expectations for the market in 2020? I think a lot of people are still nervous because we have such a prolonged bull market. How should people be positioning their portfolios, especially if they're worried about risk?
Anne Smith: Well, we think that the market gets a little breath of new life in 2020. I think last year, recession fears dominated, and for the time being, not forever, they seem to have blown over for a little bit, at least. The dreaded inverted yield curve that such a recession harbinger is inverted again. That means that longterm rates are again yielding more than short term rates. The Federal Reserve has gone from tightening to cutting rates, and we think there's at least one more rate cut ahead in 2020. There's a huge amount of fiscal and monetary stimulus working itself through the economy, and not just here but overseas as well. U.S. corporate earnings, which are the most important thing, totally flat-lined in 2019 and are picking up again in 2020, not as much as Wall Street analysts expect. We think about half as much as they expect, but still picking up from kind of a trough. That's kind of a mini reset for the market.
Ryan Ermey: I mean, the big thing that's impossible to ignore when you're looking out and thinking about forecasting for 2020 is the inquiries over impeachment and of course the upcoming elections. What should investors make of what's going on in Washington?
Anne Smith: Well, before we get into that, let me just say what our forecast for 2020 is.
Ryan Ermey: Well, yeah, just in case.
Anne Smith: We think the market can... when I say the market, I mean the S&P 500, which is a broad market barometer, but also I'll caution you, it's a big stock barometer.
Ryan Ermey: Right.
Anne Smith: I see a little more opportunity for small stocks and foreign stocks and some other benchmarks this year that you might want to measure yourself against.
Ryan Ermey: Corners of the market, yeah.
Anne Smith: But we think the S&P can reach 3,200 to 3,300. That's a range of 5% to 7%, and then you add in two percentage points of dividends and you're up to a total return of 7% to 9%.
Ryan Ermey: Alright. Back to my brilliant politics question, now that we've gotten that out of the way.
Anne Smith: It's only the most important question this year. In fact, I feel like saying our forecast is good to mid year or late summer, early fall, longest, and then it's an unknown.
Ryan Ermey: Right.
Anne Smith: Especially now. You asked about impeachment.
Ryan Ermey: That's the most immediate thing on people's minds, I would say.
Anne Smith: That's the most immediate thing, but it doesn't seem to be a worry to anybody on Wall Street, at least right now.
Ryan Ermey: Well, that's good.
Anne Smith: That's because they don't believe the president is going to be removed. The impeachment seems to be kind of more political theater and a sort of market neutral event as it stands now.
Sandy Block: Impeachment may be a nonevent for the markets, but we've got a big election coming up in 2020. What does Wall Street think about that?
Anne Smith: Elections are huge. We just don't know...
Sandy Block: Who's going to win?
Anne Smith: Yeah, we don't know who's going to win, and therefore what the impact will be. It's a huge amount of uncertainty. That's why, even though we're talking about this mini reset and new life for the market, it's still going to be lots of uncertainty, which equals lots of volatility. It's a late stage bull market anyway, notoriously volatile, and the election could throw everything into a tizzy. A lot depends on who the democratic nominee will be. We just don't know what that'll be.
Sandy Block: Right.
Anne Smith: We learned in the last election that projections are notoriously difficult, but there's a couple of things that you can bear in mind. For instance, healthcare stocks are perennial under-performers in election years. That's doubly so this year because our entire insurance, our medical insurance system and drug pricing, those companies are under the microscope. Other things that you want to keep an eye on as the election unfolds and we know more about who the democratic nominee will be, financials, energy stocks, big tech...
Ryan Ermey: Yeah, all industries that have come under some amount of scrutiny depending on who the candidate is.
Anne Smith: Correct. Those you want to keep an eye on.
Ryan Ermey: Getting back towards some meat and potatoes stock talk here, value-oriented stocks have trailed so-called growth stocks, faster growing stocks, for really a long time until very recently, when it appears that value might be getting off the mat a little bit here. Do we think that things are looking up for value stocks in 2020?
Anne Smith: We do, although you know better than anybody else, having written about value stocks a year ago...
Ryan Ermey: For a couple years now, yeah.
Anne Smith: ...that sometimes they get off the mat and then fall right back down.
Ryan Ermey: Right.
Anne Smith: But the thing about value stocks in 2020 is that they overlap with so-called cyclical stocks.
Ryan Ermey: Right.
Anne Smith: A lot of people are very high on cyclical stocks on Wall Street. These are stocks that are sensitive to the economy. Think industrial stocks, financial stocks and stocks that make consumer goods that are non-necessities.
Ryan Ermey: Sure.
Anne Smith: Those stocks have been strong all along because the consumer has been super strong and remains so because unemployment is at decades-long lows.
Ryan Ermey: Right.
Anne Smith: If the economy bulls are right and the manufacturing sector is troughing now and picking up a little bit from a lot of its trade-related malaise and earnings pick up and we get this little economic reset, then the cyclical sectors should do well. They overlap with value sectors a lot, with value stocks.
Ryan Ermey: Gotcha.
Sandy Block: What's even harder than writing about value stocks is writing about overseas stocks, because they've been so volatile and down for a long time, but we know that we are not the center of the universe. Should investors be dipping their toes in international waters this year?
Anne Smith: I think yes. Emerging markets have done pretty well of late. They've had a little bounce. A lot of people, as I reported this story, recommended not only emerging market stocks, but emerging market debt. Again, if the global economy is picking up, then we'll see that the most in emerging markets and also in Europe. Another way to think about it is we've been in this huge, long bull market in the U.S., and chances are your portfolio might be a little tilted maybe a little too much toward the US. You need to rebalance a little bit and keep some international in there.
Ryan Ermey: Just given what we're looking at for the year and we'll let you get back to work, we know that you're very busy, what is the sort of broad advice if someone were to take one thing away from the conversation that we've had? Where should people be? How should people be situating their portfolios now?
Anne Smith: Well, Ryan, that's really hard because everybody is an individual with an individual circumstance. If you're in or close to retirement, I think you stay cautious. When we say consider these cyclical sectors, these are often what people put in the offense category versus the defensive stocks that we talked about earlier.
Ryan Ermey: Off the bat, yeah.
Anne Smith: We do think that people ought to get a little offensive here, but that's because they've been so defensive. Again, it's a matter of balance.
Ryan Ermey: Yes.
Anne Smith: You probably have to shift back a little bit, but that doesn't mean sell all of your defensive holdings. It means cut back a little bit and shift into things, financials, industrials, consumer discretionary stocks that maybe you were underweight last year.
Ryan Ermey: Alright, well there you have it. Anne, we want to thank you again for coming on. Be sure to check out the entire 2020 outlook cover package in the January issue of Kiplinger's Personal Finance. We have Anne's eight trends to be on the lookout for in 2020. We also have the 10 best stocks of the last decade, the 10 stocks for the next decade, which we will be discussing very soon on this show, so be sure to check it out on newsstands very soon. Anne, thank you again for coming on.
Anne Smith: My pleasure.
Ryan Ermey: When some survey respondents are opting to slam their hands in a car door, you know it's time for wild pitches. Stay tuned.
Ryan Ermey: We are back. Before we go, it's Sandy and mine's favorite segment, wild pitches. Sandy, what is your wild pitch this week?
Sandy Block: You know, I don't know if it's the holidays or what, Ryan, but it seems like the wild pitches have become fast and furious lately, but this one really rises above the rest. It falls into a category you've created called surveys of dubious provenance.
Ryan Ermey: Yes, indeed.
Sandy Block: Alright. This one doesn't even fall into the dubious category. I just don't believe it. It says a study reveals one in five consumers... I get this out. One in five consumers prefer to slam their hand in a car door than shop...
Ryan Ermey: Rather than...
Sandy Block: Rather than shop... one in five...
Ryan Ermey: We should leave it in.
Sandy Block: No. I've got to get this out. One in five consumers prefer to slam their hand in a car door than shop for car insurance.
Ryan Ermey: Right.
Sandy Block: Now, have you ever slammed your hand in a car door?
Ryan Ermey: Yeah. It's miserable.
Sandy Block: It's horrible. Not only is that a ridiculous question, I'd love to know how they phrased it.
Ryan Ermey: Right.
Sandy Block: It's not that hard to shop for car insurance. We will put some things in the show notes because we've written a fair amount about this. The great thing about shopping for car insurance is you very well could save some money, which is a whole lot nicer than slamming your hand in a car door. You'll feel good. You won't feel bad. Some of our tips are look at what you have now and if your situation has changed, maybe you're not driving as much, you have a college kid who's-
Ryan Ermey: I was going to say, kid went off to college is a classic one.
Sandy Block: There's all kinds of discounts. The car insurance business is very competitive. You can go online and get quotes, which is not painful. You can hire an insurance agent to help you find a good deal, which is not painful. Yeah, it might take a little bit of time and maybe there's something else that you'd rather do, but I'm pretty sure that slamming your fingers in a car door is not something that you would rather do than shop for car insurance. I don't know. Like I said, I'd love to know how they phrased this question, but I'm just... I am not buying it.
Ryan Ermey: Yeah. I got my fingers in the sliding door of a '96 Toyota Sienna, I believe.
Sandy Block: Ugh, no.
Ryan Ermey: Yeah. I mean, hurts for a long, long-time.
Sandy Block: Yeah, exactly. Exactly. Sorry, people. I know there must be a PR manual out there that says, "This is how you get clicks," but this ... just jump the shark on this, folks. What do you got Ryan?
Ryan Ermey: Well, every once in a while a wild pitch comes through the inbox that you know it's going to be good just from the subject line. This one is, "This REIT is recession-proof."
Sandy Block: Ooh, I'm in.
Ryan Ermey: Yeah, right. Perfect. I'll write about it. Sign me up. It's, "Hi, Ryan. Purchasing farmland outright usually costs millions of dollars so it's not realistic for the average investor, but real estate investment trusts," that's what REIT stands for in our subject line there, "are making farmland more affordable than ever. By buying just one REIT share, you can own a piece of one of the lowest risk, high reward assets out there and it's a pretty solid investment too." First recession-proof, but now pretty solid. "It's a pretty solid investment too. Farmland typically outperforms the NASDAQ and S&P 500," I don't know about that, "and it is nearly recession-proof due to its stability (people have to eat.) Are you interested in learning more?"
Sandy Block: No.
Ryan Ermey: No, I'm not. No single REIT, or any single stock really, is recession-proof. Not that I even really know what that means. When we talk about good investments during down markets or accompanying recessions, we typically mean things that will hold up better than the broad market, but these things are still going down. When everything is going down, you're just trying to lose less. Very few things are recession-proof. Some are a little bit more recession-resistant, but I guess it presents a decent opportunity to talk about REITs and what they are. For the uninitiated, real estate investment trusts are companies that invest in all sorts of properties. They don't have to be farmland. It could be shopping malls, office buildings, apartments, data centers. They earn money.
Ryan Ermey: For instance, in the case of shopping malls, they earn money from the rent that stores pay to be in the shopping mall. So far this year, REITs have been just about right in line with the S&P 500. They've done quite well. The most prominent REIT index returned 25.8% through yesterday's close, we're recording here in the middle of the week, pretty much right in line with the S&P 500, which returned 26.3%, but people ordinarily don't invest in REITs to beat the stock market. They invest in them for income. By law, REITs must pay about 90% of their net earnings as dividends. That same FTSE index yields about 3.5% on average, compared with 1.8% for the 10 year treasury note and 2% for the S&P 500. Generally, when the yields of bonds and stocks are low, REITs become more popular with investors because they're a place to get yield, but as with any stock, and this is where this pitch it's kind of crazy, you really shouldn't be touting just one as a way, especially as a way to protect against downside.
Sandy Block: Right. I don't know a whole lot about REITs, but I know a little bit about farming. To suggest that it is a risk or even low risk proposition tells me that they don't know very much about farming. Farmers are having a terrible year this year. Many of them suffered massive flooding through the Midwest. They've been kicked hard by tariffs. They go bankrupt all the time. Interest rates can kill them. There's all kinds of things. Yes, everybody has to eat, but farming is very competitive. Food comes from all around the world.
Ryan Ermey: Right.
Sandy Block: To somehow suggest that because we all have to eat that you can't lose money in farming reminds me of an old joke, how do you make $1 million in farming? You buy a farm for $2 million.
Ryan Ermey: Right. How do you end up with a million?
Sandy Block: That's right. It's dubious on that account, and also just the whole premise of how it works.
Ryan Ermey: Investing in real estate in general is considered a good diversifier because while REITs are still stocks, they don't always move in the same direction as the broad stock market because there are different forces at play when it comes to the real estate market. The above average yield does give you a little bit of ballast when stocks go down, but buying any one stock is always going to come with risk.
Ryan Ermey: If you're interested in getting into REITs, and maybe we'll have someone on here at some point to talk about more specific individual names and why we like them, consider a broadly diversified real estate ETF. Vanguard has a good one. The Vanguard real estate ETF, the symbol is VNQ, low cost way to get broad exposure to the whole sector. If you want to read a little bit about some of our coverage of individual REITs, we do have a story that we'll put in the show notes, 10 REITs to buy for 2020. Be on the lookout for that, but yeah, in general folks, we don't want to be recommending individual farming real estate investment trusts as a way to stave off recession. It's not how we do it around here.
Ryan Ermey: That'll do it for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit Kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at firstname.lastname@example.org. If you liked the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.