- As we have recommended for years at 24/7 Wall St., a position in gold helps to mitigate the downside. If things get rocky, the precious metal could trade back to all-time highs.
- Make sure that all the dividend-paying stock and mutual funds in personal and retirement portfolios are coded to reinvest all capital gains and dividends. This allows you to buy more shares when prices are hit hard. The first quarter is halfway over, and many stocks and funds pay dividends on a calendar quarterly basis.
- If you have the good fortune to come into a windfall, like an inheritance or something similar, think about real estate. While mortgage rates have increased over the past year, the 30-year fixed rate had risen as high as 7.25% but has fallen back to 6.18% for a 30-year FHA mortgage. While still reasonable on a historic basis, it is the highest since 2008. Owning cash-generating rental property is an idea that makes sense now.
- If you do indeed need to look for stock ideas, look at extremely conservative ones, those that are not affected as badly by even the worst-case scenarios. In other words, companies that provide goods and services that are needed all the time, like utilities, telecommunications companies, consumer staples, and real estate investment trusts.
- Sell high-volatility stocks and look at the short end of the Treasury market. The two-year note, like all Treasury debt, is guaranteed by the full faith and credit of the United States and yields a stunning 4.65%. One-year certificates of deposit yield as high as 4.60% as well, and money market savings accounts, which are FDIC insured up to $250,000 yield anywhere from 3.4% to 4.0% with daily liquidity.
The 13-year bull market was a blessing that may end up being a curse. There were numerous drops and corrections along the way. The fourth quarter of 2018 was a good example, when over a three-month period the S&P 500 declined 18% on an intraday trading basis. Last year was the worst one for the stock market since 2008, and while 2023 may not be that bad, a precipitous drop is becoming increasingly possible.
Remember that even the most difficult events in human history and investing have been overcome eventually. Whether it be health-care-related, war-related, foreign geopolitical or domestic troubles, or any other issues that have combined to cause market sell-offs, time tends to heal most wounds.
With COVID-19 largely in the rearview mirror, the economy in reasonably good shape at least for now, and the Federal Reserve finally doing what it should have done when it started raising rates in 2018, at least some of the carnage is closer to an end. However, the rally to start this year was likely of the bear market variety, and some feel we could be headed for a 20% or greater drop. So, it makes sense for investors to take advantage of the recent increase in stock prices and shift to higher and safer ground.
Originally published at 24/7 Wall St.
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