The Dow Jones Industrial Average closed more than 400 points away from where it opened for the fourth time in a row on last Thursday, a first-ever event that shows just how crazy this market has become. Given high unemployment and the U.S. government's huge deficit—operating with less than perfect credit, under two parties that can't seem to play nice—it's no wonder the market is falling. This doesn't include the problems in Europe and its surrounding neighbors.
But with all these issues, there are still some great opportunities for the proactive investor:
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High-yield bonds. They have lost more than 185 basis points (18.5 percent) in the last two weeks due to market fears and a flight to the safety of treasuries. They looked very good prior to this mini-meltdown, but they now look even better. With attractive yields, strong corporate balance sheets, and low default rates, this asset class could give you the best of all worlds. It's likely to do very well if the expectations for the economy begin to improve and interest rates move higher over the next few months, which we expect. This is a great way to participate in that upswing with less risk.
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Agricultural commodities. They are positioned to do well. There are several reasons this asset class will perform not just for the short term, but for the foreseeable future. With the growing population across the globe, there is an increasing need for food. With this increasing need, there is a supply/demand gap. The question is how the supply will keep up with the demand.
For the consumer, this could be a problem, but for the investor, it will provide opportunities. Interestingly, with the dietary shift going from man-made unhealthy foods to more natural healthy foods, agricultural commodities will prove to be a great investment.
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Japan. After the earthquake and tsunami, production nearly stopped. That has put a crimp not only on Japan, but on the many countries and companies that receive materials and components from the island. Obviously, the economic activity in the region has slowed, but that will not last forever. Production is starting to pick up, and there is significant opportunity there. Getting in on the early stages of Japan's rise will provide favorable returns for some time.
This market is not for the weak, nor for the timid investor. But it does provide opportunity to work with some asset classes that have lost and have lots to gain—even for those whose yields are high.
Good luck and happy investing.
Kelly Campbell , CFP® and Accredited Investment Fiduciary, is founder of Campbell Wealth Management, a Registered Investment Advisor in Alexandria, Va. Campbell is also the author of Fire Your Broker , a controversial look at the broker industry written as an empathetic response to the trials and tribulations many investors have faced as the stock market cratered and their advisers abandoned their responsibilities to help them weather the storm.
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Connor of CA 1:02PM January 07, 2013
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