It has been a whipsawed first quarter for investors looking to make their money work harder for them. Stocks were on the up trend in January before it fell hard, having the S&P 500 losing 10 percent in February. With the US stock market turning flat for the year, how can investors put their money to work harder for them to improve their financial well beings?
By locking in profit and taking out the money to sit in cash will not be able to beat inflation as it is bound to rise. Investors can move into emerging markets, look for sustainable dividend income, materials and energy. Before the investor starts to invest, he must look into his overall financial status to understand the present balance sheet and question himself on how to improve them. Whether your emergency fund is sufficient? Is your percentage of stock, cash and other investments in the right proportion? Do you need to re-balance them?
1) Income Stock
Investors should seek companies which are capable to sustaining their revenue and issue dividend safely. This will involve checking the financial health and dividend payout ratio of the company. If possible, try to look for companies with low or net debt. In a down trend market, getting some dividend income will make the wait for market upturn more bearable.
Investors can look into the global telecommunication industry. The telecommunication industry provides generous dividend. The larger ones have economies of scale and cost advantages. For example, Singtel is giving close to 5% dividend yield which in my opinion consider as sustainable in the near future. As 5G fifth generation wireless systems become commercially viable, consumers will demand more data, it will increase telecommunication companies’ revenue.
2) Emerging Markets
The US market is getting expensive and most of the companies are no longer attractive investments. In addition, volatility is making the US market a more challenging place to invest in and it is certainly not for the faint hearted. Most emerging markets countries are cheap. They are trading at 27 percent discount to developed markets indexes.
If inflation increases, materials, energy and industrial sectors will be in the play. If interest rates increase, banks will benefit. Defensive stocks such as utilities, telecoms and consumer staples can keep the portfolio afloat if the market continues to decline. Small cap stocks will outpace in periods of rising inflation and higher yields. Investors can consider diversifying small portion of money into commodities via ETF.
4) Hedge Fund
With most of the bull market over, it will become harder to get decent return. This is when a proven hedge fund manager will get extraordinary return. I will introduce my mentor who will start his own hedge fund in 2019. Stay tune for the launch of his fund.