If you’re an investor, you probably had a good year in 2014. But what’s in store for 2015?
It’s impossible to make precise predictions about the financial markets — but it’s possible to identify economic conditions and market forces that help shape the outcomes in the investment world for 2015. Paying close attention to these conditions and forces, you can gain some insights as to what investment moves make sense for you.
Here’s a few moves to consider:
• Consider adding stocks. Stock prices have climbed higher and higher for more than five years, you might wonder if it’s time to scale back on your ownership of equities. No “bull” market lasts forever. Some factors point to continued strength for stocks over the long term. We’re seeing signs of improving economic growth; employment gains and low oil prices are giving consumers more confidence, leading to a boost in spending. Corporate earnings —a key driver of stock prices — were strong in the second half of 2014, and companies appear to show more good results in 2015. 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 these stocks can help meet your needs for a balanced portfolio. Be aware that favorable conditions can’t assure a continued run-up in stock prices.
• Prepare for rising interest rates. Interest rates have been at, or near, historical lows. Given the strengthening economy and decreased need for stimulus, the Federal Reserve may raise short-term interest rates in 2015, perhaps as early as this summer. Long-term rates may start rising before then, so you’ll want to take a close look at your bonds and other fixed-rate investments. 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 initiated policies to spur economic growth. These actions can create opportunities for international equity investments. The world of global investing can be complex, so before taking action, you want to consult with a financial professional.
There are no guarantees, but by following these 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.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.