Making Year End Adjustments to Your Investment Portfolio
If you are an investor still contemplating whether to make adjustments to your asset allocations in your investment portfolio, you are running out of time. We have only a few trading days left in 2008. You may be looking to harvest some tax losses. That shouldn’t be hard to do. You could probably randomly throw a dart at a list of your stock and fund holdings and hit a loser.
Moving on to a couple of year end investing thoughts from Mr. ToughMoneyLove …..
This is a scary time for holders of muni bonds. There are several reasons why municipal bond funds lost value in 2008. The outlook for 2009 is not much better. The reason is that so many state governments are operating with budget deficits, some of them frighteningly large. Here is a list of the states with the largest fiscal gaps in their budget. The winner is Arizona, with a 30.8 % budget gap. Maybe the Arizona state government could persuade all of those Sun City retirees to go back to work for the state and then not pay them. They are retired after all. Coming in second with a 30.3% budget gap (representing a $30.6 billion shortfall) is California. No surprise there except that Arnold ran for governor as a fiscal conservative and now look what he has done. I’m thinking that he and George Bush were reading the same guide on how to craft and implement a budget. Unfortunately, I’m also thinking that they bought their how-to budget guide from an infomercial.
OK, back to municipal bond funds. If you own any funds that concentrate in muni bonds from a single state, check the list for how badly that state is positioned budget-wise. Then consider dumping that fund for something more diverse or get out of the muni bond sector entirely. As some commentators have stated in some of my earlier posts on muni funds, the Obama team may be preparing to implement federal backstops for state and local government bond issues. Until we know that for sure, watch out for one or more state government budget crises to emerge, crashing their respective muni bond values.
Stocks in a Deflationary Economy
Based on what happened in 2008, is it possible for any stock sector to do well in 2009, with deflation and maybe even a depression staring us in the face? Mr. ToughMoneyLove thinks it’s possible although I’m not exactly bullish about it.
First, consider companies that will benefit from an increase in government infrastructure spending, e.g., bridge and road construction and repair. A lot of government money is headed their way in 2009.
Also consider businesses that would gain from an anticipated push in retrofitting existing government and commercial buildings with energy-saving equipment. Energy-efficient lighting and lighting control systems come to mind.
Manufacturers of health care products should also do OK, particularly if they sell stuff that baby boomers will be needing in increasing numbers, including pharmaceuticals and replacement parts for our aging joints. (Yes, that was a serious recommendation.)
I would consider stocks and funds focused on discount retailers a safe play. I’m speaking about Wal-Mart of course but also discount grocery chains. They have become quite popular with food shoppers at all income levels.
Lots of people choose education over unemployment in a down economy. This means that some of the well known for-profit education businesses could see a steady flow of tuition money, even as publicly funded colleges go broke. Catering to older adults with evening and weekend classes seems to be the key there.
Finally, don’t forget about companies that make gaming devices and lottery supplies and equipment. Believe it or not, hope for the big score eternally springs out of despair over a bad economy. The cynical investor would capitalize on this.
Interest rates have fallen again. Treasuries have approached the negative yield zone. Money market funds may soon follow. What is an income investor to do? Call me crazy, but I’m staying with I-bonds. Bonds purchased now will yield 5.6% (tax deferred) through April 2009 before the rate adjusts. I also like the inflation protection for beyond 2009. Granted, I-Bonds are not for very short term cash holdings but there are other places to put those monies. Maybe your mattress?
So those are Mr. ToughMoneyLove’s thoughts on year-end portfolio adjustments. What are yours?