Sell stocks now: Here’s where your money belongs

 

On Tuesday, hints of an economic slowdown began to turn into something else. At the very least, the hints are now too obvious to ignore. Interest rates are rising, and as they rise, global wealth will begin to flow out of stocks. News that China’s economy is slowing comes at a bad time, given that the Chinese are now quite a bit less likely to agree to trade concessions. There is also extreme tension in the Middle-East, of the sort that has preceded major terrorist attacks in the past.

I don’t expect anyone to sell all their stock and move to cash because of these risks, nor do I advocate that, but it is important to acknowledge that there now exists the risk of a significant and possibly lasting stock market downturn. In light of that, it makes sense that investors, excluding only those who know they will not need invested funds for at least 20 years, should lighten their exposure to stocks. Since you probably don’t care to leave large sums sitting in your checking account, I hereby offer a few ways you might intelligently invest your funds, outside the stock market.

Remember to treat these ideas as just that, ideas, and do your own research before making any investment decision.

Mortgage

Erasing your own debt has always been the way to get the best possible return on your money risk-free. It would be a good time to look at your mortgages and see if you can prepay without penalty. Even if there is a serious penalty for pre-payment, you may have the option of increasing the amount you are paying monthly. This is an investment, so it is an entirely reasonable thing to do with investable dollars. If you don’t have a mortgage, or don’t have the option of paying down, you might try some home improvements. Turn that fenced-in porch into a breakfast room, or that garage into a library. This is the best sort of investment as it not only adds to the value of your home, but also allows you to enjoy it more in the meantime.

Gold

With the government taking on so much debt, and with President Trump so eager to close the trade deficit with China, there are very serious inflationary pressures moving into place. If inflation becomes a real problem, a lot of money is going to flow into gold—quite a bit more, perhaps, than did so during the era of quantitative easing. You can always buy SPDR Gold Shares (GLD), but there are ways to invest in gold that could be a lot more fun. For example, you could buy VelocityShares 3x Long Gold ETN (UGLD) and receive three times the percentage movement as is seen in GLD. Or you could buy Krugerrands, which are South African coins containing exactly one ounce of gold that trade for the bouillon value of the gold, since they have no face value.

Chart courtesy of www.stockcharts.com

Bitcoin

Bitcoin is down but nowhere near out. The unpredictable blockchain value place-holder will surely go through surges again in the future. It may even rise beyond the nineteen-thousand and change mark that it hit back in December of last year. Risk, in any cryptocurrency, should be considered very high, as there is some probability that the value of Bitcoin will fall to zero, and a somewhat larger probability that it will leave your money “dead” for quite a long time before it pays off. If you understand all that, this could be a very good time to buy. Just don’t expect Bitcoin to provide much utility as a “currency.”

MUNI Bonds

Don’t like paying taxes on your investment returns? No one can blame you, as taxes change the entire investing equation. It is especially important to avoid high rates if you are investing in an income vehicle such as Bonds. Municipal bonds are a great way to avoid the pinch, as the income they produce is not taxed by the federal government. To further sweeten the pot, I’m identifying a MUNI ETF today that is also exempt from the alternative minimum tax. This is the VanEck Vectors AMT-Free Long Municipal Index ETF (MLN). The fund’s current yield is 3.2%, which may not sound too great, but that’s the equivalent of a 5.3% return if it were a taxable investment.

Chart courtesy of www.stockcharts.com

Corporate Bonds

When I was a stockbroker, back in the mid-nineties, I was told that for every dollar a wealthy investor had in stock, he likely had three in bonds. That may have been true then, and it may even be true for people who have been rich since back then, but today’s nouveau-riche have never had any particular reason to develop an interest in bonds. That’s going to be changing as stocks slide and interest rates rise. One corporate bond fund that I like a lot is iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), which has managed a five-year return of 3.57%, despite the historically low rates of the past five years. Also, this fund favors debt issued by defensive companies such as financials and consumer staples, so it isn’t likely to be dramatically affected if the economy slows down.

One final word, for those of you who are concerned about taxes. Remember that you can slide up to $4,500 each year into a Roth IRA, even if you are already contributing the maximum amount to a traditional IRA. Once your money is in a Roth IRA, every penny it generates is yours to keep. Grow it by 10,000% over the course of your life and you still won’t pay a dime in capital gains taxes when you sell your assets and withdraw your money. To pass up this incredible opportunity is like voluntarily taking a punch in the nose.

Chart courtesy of www.stockcharts.com

Symbols: GLD LQD MLN UGLD
Julian Close

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

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