The nation’s new political landscape is having a profound impact on financial matters ranging from stocks and bonds to credit cards and home mortgages. Bottom Line Personal asked seven top financial experts for the shrewdest moves that you can make in 2017 to take advantage of—or defend yourself against—the new developments…
WHAT TO DO WITH STOCKS
Under President Donald Trump, it’s likely that massive government spending on infrastructure projects, lower corporate and personal income taxes and reduced federal regulations for businesses will stimulate US economic growth. That should help many companies improve their earnings and propel the stock market, especially certain types of stocks and stock funds.
Consider investing in the following…
• Dividend-paying stocks of big drug companies. Conservative investors who want both steady income and capital appreciation have turned away from utility stocks, which became overvalued and are less attractive as rates rise. Some drug companies, on the other hand, have become undervalued amid fears of possible new drug-pricing restrictions. Those fears will recede because there is little chance that Republicans will try to impose severe price limits and because Trump plans to streamline the Food and Drug Administration drug-approval process.
My favorite stock now…
Amgen (AMGN), one of the world’s largest biotech companies, has a new potential blockbuster drug in Repatha, which reduces “bad” cholesterol (recent yield: 2.8%).
Source: John Buckingham is CEO and chief investment officer at Al Frank Asset Management, which manages $1.5 billion in assets, Aliso Viejo, California, and editor of The Prudent Speculator newsletter. ThePrudentSpeculator.com
• The financial sector. Even after recent gains, financial stocks are bargains after years of being out of favor. Rising interest rates will improve profit margins at banks. And the Republican Congress is likely to loosen federal regulations on financial-services companies.
My favorite way to get exposure now…
Financial Select Sector SPDR ETF (XLF), an exchange-traded fund that tracks the performance of the 64 financial stocks in the Standard & Poor’s 500 stock index. Consider putting 5% to 10% of your stock allocation in this ETF (10-year annualized performance: –0.05%).
Source: Neena Mishra, CFA, is ETF research director at Zacks Investment Research, Chicago. Zacks.com
• Mutual funds that focus on value-oriented stocks of large companies. This type of stock, which lagged behind growth-oriented stocks over the past several years, tends to do best when the economy is picking up steam.
My favorite value funds now…
Vanguard US Value Fund (VUVLX) recently had about one-quarter of its assets in financial stocks. This fund also provides exposure to defense stocks, which are getting a lift from Trump’s plans to increase military spending…and US steel companies, which should benefit from increased demand and a reduction of competition from Chinese steel imports under Trump’s policies (10-year annualized performance: 6.6%).
Fidelity Large Cap Stock Fund (FLCSX) is more volatile than the Vanguard fund because it takes more risks, but it has produced higher long-term returns. It recently had about one-quarter of assets in financial stocks and currently has about 13% in energy companies, which under Trump should face fewer restrictions on oil and natural gas production and should benefit from more stable energy prices (10-year annualized performance: 8.3%).
Source: Mark Salzinger is chief investment officer of Salzinger Sheaff Brock LLC, a money-management firm in Indianapolis, and publisher of The No-Load Fund Investor newsletter. NoLoadFundInvestor.com
WHAT TO DO WITH SAVINGS, CREDIT CARDS AND BONDS
Even though stronger economic growth has great benefits, it likely also would result in higher inflation and higher interest rates, which could either help you or hurt you. Consider the following…
• Online savings or money-market accounts. Yields for these tend to rise at the same pace as short-term interest rates—unlike accounts at traditional banks, which tend to lag behind. The best savings and money-market accounts recently offered rates similar to, or even higher than, rates on one- and two-year certificates of deposit (CDs) without locking up your money. Attractive accounts now: All America Bank Mega Money Market, recent APY 1.25% (AllAmerica.bank)…Popular Direct Savings, recent APY 1.15%, $5,000 minimum to open an account (PopularDirect.com).
Source: Ken Tumin is founder of DepositAccounts.com, which monitors interest rates and various developments at 14,000 banks and credit unions.
• Credit card that offers a 0% balance-transfer rate—even if you don’t have a great credit score. Many consumers assume that they need to have excellent credit (a score of 750 or higher) to qualify for credit cards that offer 0% introductory rates on balance transfers. But with average credit (a score of at least 640), you can qualify for the QuicksilverOne card from Capital One, which offers nine months of 0% interest on purchases and balance transfers. There is a $39 annual fee. CapitalOne.com
Source: Bill Hardekopf is CEO of LowCards.com, Birmingham, Alabama, and coauthor of The Credit Card Guidebook: Understanding the Complex World of Credit Cards.
• Corporate bond funds that benefit from rising interest rates. Share prices of most investment-grade corporate bond funds fall as prevailing rates go up. Instead, use funds that invest in “floaters,” nontraditional, high credit-quality bonds issued by well-known corporations. They have a variable rate that typically resets every 30 to 90 days, which helps boost their total returns (yield plus capital appreciation) in rising-rate environments.
My favorite now…
iShares Floating Rate Bond ETF (FLOT) invests in about 400 floaters from corporations such as Citigroup, Morgan Stanley and Verizon (recent yield: 1.05%, five-year annualized performance: 1.4%).
Source: Pam Krueger is CEO of WealthRamp.com, an online service that matches investors with registered financial advisers, and executive producer of MoneyTrack: Money for Life, which airs on PBS stations. PamKrueger.com
WHAT TO DO WITH A HOME
Expect the average interest rate on 30-year fixed-rate mortgages to hit a high of 4.5% sometime in 2017 (compared with 4.13% in December 2016) and perhaps 5% or above in 2018–2019. The average rate on 15-year mortgages likely will reach 3.625% in 2017 (compared with 3.34% in December 2016) and perhaps 4% in 2018.
• If you want to refinance your mortgage, do so immediately.
• If you are selling your home, home prices likely will rise over the next year because the supply is limited—a good thing for sellers. But once 30-year mortgage rates approach 5%, the pool of potential buyers will shrink and home prices may flatten or decline.
Source: Keith Gumbinger is a vice president at HSH Associates, which publishes mortgage and consumer loan information, Riverdale, New Jersey. HSH.com