The rally in the markets this week probably has a lot of people checking their 401(k) balances to see what kind of bump they may have gotten in their portfolios. Mary Mullin, a financial advisor with Merrill Lynch Wealth Management here in Boston, says that there are some pretty solid reasons to be optimistic about a rebound in growth, not just in the U.S., but worldwide this year.
“The macroeconomic challenges still exist, but we’re talking to individuals about re-evaluating their portfolios because there are a lot of good companies out there doing good things,” Mullin said in an interview.
Mullin said research published by her firm examines the “great rotation,” referring to a move in the markets from cash and bonds into areas of potential growth, including housing, and back into equities.
If you look at individual companies, you’ll find several with strong balance sheets and profitability, she said. “A lot of companies have cash on their balance sheets and are paying strong dividends or are increasing their dividends,” Mullin said. “We’re also seeing signs of life in the housing market, which brings consumption that goes around that.”
So what are some investment themes that Mullin is looking at as she advises her clients?
First, Mullin said she’s having conversations around investments in fixed income and bonds. Mullin believes that the markets are probably at the end of a 30-year bull market in bonds, and while fixed income is an important part of any portfolio, she is evaluating her clients’ level of exposure. Mullin said she’s looking at equity-dividend strategies instead of those that are overweight in bonds.
Second, Mullin advises clients take a second look at Europe. “There are big multinational companies domiciled in Europe and doing well,” she said. “The majority of their sales are global and not based in Europe. The stocks have been beaten down, and there may be some good opportunities.”
Mullin also suggests looking at emerging markets. Consumers there are looking to open up their wallets to enjoy more goods and services. “If you look at the demographic, that is where the growth will come from: Emerging market consumers, as they move up to middle class, want all the things that Americans have. They’re an untapped market,” she said.
Investors may still be cautious about jumping back into the markets after several years of volatility. Mullin said that as investors start to dip their toes back in the investing waters, she’s suggesting that they consider a strategy known as “dollar cost averaging” into their portfolios.
Dollar Cost Averaging (DCA), or a “constant dollar plan,” is a technique in which an investor purchases a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are bought when prices are low, and fewer when prices are high. The goal of the strategy is to reduce the risk of investing a large amount in a single investment at the wrong time since eventually, the average cost per share of the security will become smaller and smaller.
“There is a long-term plan opportunity to incorporate dollar cost averaging in our strategies,” Mullin said. “We’re optimistic and see improving growth.”
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