If you’re an investor, you probably had a pretty good year in 2014. But what’s in store for 2015?
It’s essentially impossible to make precise predictions about the performance of the financial markets — but it is possible to identify those economic conditions and market forces that may help shape the outcomes in the investment world for 2015. And by paying close attention to these conditions and forces, you can gain some valuable insights as to what investment moves might make sense for you.
Here are a few of these moves to consider:
•Consider adding stocks. With stock prices having climbed higher and higher for more than five years, you might be wondering if it’s time to scale back on your ownership of equities. After all, no “bull” market lasts forever. Still, some factors point to continued strength for stocks over the long term. First, we are seeing signs of improving economic growth; employment gains and low oil prices are giving consumers more confidence, leading to a boost in spending. Second, corporate earnings —a key driver of stock prices — were quite strong in the second half of 2014, and companies appear poised to show more good results in 2015. And third, stocks — at least, large-company stocks — are still reasonably valued, as measured by their price-to-earnings ratios (P/E). Given these factors, you might want to think about adding quality stocks to your holdings — assuming, of course, that these stocks can help meet your needs for a balanced portfolio. And be aware that even the most favorable conditions can’t assure a continued run-up in stock prices.
•Prepare for rising interest rates. For several years, interest rates have been at, or near, historical lows. Given the strengthening economy, and the decreased need for stimulus, the Federal Reserve may well raise short-term interest rates in 2015, perhaps as early as this summer. But long-term rates may start rising even before then, so you may want to take a close look at your bonds and other fixed-rate investments. As you probably know, when interest rates rise, the value of existing bonds typically falls, because investors won’t pay full price for your bonds when they can get newly issued ones that pay higher rates. One way to combat the effects of rising rates is to build a “ladder” consisting of short-, intermediate- and long-term bonds.
•Look for investment opportunities abroad. Although economic growth has been slow in parts of the world, especially China, many countries have now initiated policies to spur economic growth. These actions can create opportunities for international equity investments. The world of global investing can be complex, though, so before taking action, you may want to consult with a financial professional.
There are no guarantees, but by following the above suggestions, you may be able to take advantage of what looks to be a fairly favorable investment environment for 2015. While you should make most of your investment decisions based on long-term considerations, it’s always a good idea to be attuned to what’s happening in the world around you — and to respond appropriately.
Investing in stocks involves risks. The value of your shares will fluctuate and you may lose money. Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.
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