5 Investing Themes To Focus On

Munis, real estate, and more

By + More
TRL suit.jpg
Tim Lee

So, Philly doesn't quite have it all, but it does have some pretty cool things, for sure. In addition to the Liberty Bell and Independence Hall, you can get your hands on a pretty awesome cheesesteak sandwich. Oh, and of course it has the Wharton School, arguably the best business school in the world, and often cited as the best for finance. I was fortunate enough to attend a conference at Wharton a week or so ago and to spend a couple of days hearing from some of the brightest minds in the academic side of the world of finance.

That's all great, but what does it mean for you, my Smarter Investor friends? Well, I thought I'd share the five key themes that I collected from the various panels and presentations I attended, all of which were focused on giving me and roughly 50 other successful financial advisers to high-net worth clients actionable investment strategies and, perhaps as importantly as those, the places to avoid in the markets today and over the next several years. The themes are:

Sell U.S. government securities. The bottom line is fear and panic are driving the short-term capital flows into bonds, and these rates and prices are not sustainable. The action here is to opportunistically accept credit risk, though not “duration” or interest rate risk. While longer-term bonds are giving higher yields, owning short-term bonds now will allow you to “roll up the curve,” or buy higher-yielding, longer-term bonds in the future, as rates rise. This strategy could also set you up to be cash rich as long-term bonds are beaten up if interest rates rise. There are also other options in the fixed-income market, such as floating-rate loans, which can provide a hedge against interest rate increases and generally allow you take advantage of the incremental value of additional credit risk, as referenced above.

Municipal bonds. Munis remain attractive relative to taxable bonds. The default rate picture remains quiet, and despite some well-publicized fears over the past couple of years, munis may still offer investors who face taxes (possibly increasing taxes at that) a solid value. Keep the same focus on credit risk over interest rate or “duration” risk in these markets, as well.

Dividend yields. As the economy continues to expand at relatively low rates of Gross Domestic Product (GDP) growth (generally expected to be between 1-2 percent), much of the total return investors derive from equity or stock investments will be dependent upon the dividend yield of the stocks. We believe that contrary to popular opinion, this does not mean that investors should simply buy value stocks. In fact, we have built an effective screen for high dividend companies, which can provide diversity amongst sectors, as well as strong potential income.

Real estate. Buying direct exposure or actual property, as opposed to public REITs, remains attractive now and has historically been a great hedge against inflation or rising prices. While real estate has typically shown higher short-term volatility than bonds, the longer-term return profile and low relative correlation to both the bond and stock markets make this idea even more compelling in the low-interest rate and low-growth environment we expect over the next several years.

Other income-oriented strategies. Pensions or other purely income-focused investment strategies can offer an attractive alternative to offset the right income need. Generally, these types of strategies are most appropriate for investors who have a relatively high need for income distribution from their portfolio.

The last message that was consistently reiterated by the group of speakers and professors I listened to was: Don't panic!!! Have a plan, think it through beforehand, and don’t allow the fear and greed to get to you.

Timothy R. Lee, CFP®, is a managing director and cofounder of Monument Wealth Management in Alexandria, Va., a full-service investment and wealth management firm. Monument Wealth Management is backed by LPL Financial, an independent broker-dealer and Registered Investment Advisor, member FINRA/SIPC. Monument Wealth Management has been featured in several national media sources over the past several years. Follow Tim and Monument Wealth Management on their blog Off The Wall, on Twitter at @MonumentWealth, and on their Facebook page.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for individuals. To determine which investment is appropriate, please consult your financial advisor prior to investing. All performance references are historical and are not a guarantee of future results. Stock investing involves risks, including loss of principal.