Image by: Michael Aston
By Michael Sterling
Investors have a lot of worries for the new year, but the smart ones know that it lies in good old common sense. With new legislation in Washington and TV commentators screaming at the top of their lungs about stocks, it’s easy to get distracted. If you really want to get bang for your buck this year, all it takes is a bit of planning.
If you want to see raw supply and demand speculation in action, you can’t get any better than commodities. By investing in things that we all use (or wish to hoard away), you can beat inflation and watch the worth of your commodity rise well above the original price you paid. In the last few years, we’ve seen such progress.
Since 2003, gold, lead, copper, and silver have tripled their value. Some experts believe we’re in the middle of a commodity super cycle. The demand and growth rate from emerging economies today has been compared to the industrial revolution and the American turn of the century boom. Don’t underestimate the power of gold.
*Tip: According to Yahoo!, the dollar has potential at becoming weaker in 2014 due to a sluggish economy and still-low interest rates. This will make commodities all the more valuable since it doesn’t depend on the up/down track of Wall Street.
#2) Bank-Loan Funds
Many mutual funds and ETFs are now higher than 3.5%. They contain loans made by banks to highly leveraged companies, most of them with below-investment-grade ratings. The payout rates are floating, so as long as the economy doesn’t weaken too much they should be in fine shape.
Compared to bonds, bank-loan funds offer stable, superior returns in a rising-interest-rate environment. Despite the minor risks that arise from low ratings of the loans in the fund, they’re generally secured. In fact, the loans are among the first to be paid if the companies go under, plus they’re also backed by collateral.
*Tip: If you’re going to buy a fund, buy an open-end mutual fund over an ETF. They have more liquidity, which means they’re easier to cash in for money.
#3) High-Quality Growth Stocks
Since the sluggish economy has the potential of making the dollar weaker next year, 2014 is going to be all about economic growth. U.S stocks and European stocks will continue to rise slowly but surely and if the growth accelerates, it can boost emerging markets stocks which are highly dependent on the global economy.
According to the International Monetary Fund, global economic growth totaled 2.9% last year, but this year it might reach 3.6%. Currently, small-cap, economically sensitive and high-risk names are leading the market. Here are just a few to look out for:
- Trinity Industries (TRN): This company makes rail cars, and should profit favorably from a recovering economy and from growing interest in railroad transportation. It’s also a major wind tower maker in the alternative energy arena and in its third quarter, it posted record earnings, up 58% from year-ago levels.
- Bank of America (BAC): Before you start scratching your head, just know that many people think Bank of America is going to make a comeback. Trading at $11.15 around September, it leaped to $15.69 in December. This year it’s believed it will be the strongest financial stocks. Keep an eye out.
#4) Angel Investing
This year we’re expected to see an incredible rise in entrepreneurship. With this comes many more opportunities to become an angel investor. By offering up a convertible loan, you will be able to share in the upside which is always a plus. Sites like Angel.co make it easy to network with not only startups, but other small-time investors.
Because we’re in the digital age, starting up a business takes little to no effort. There are countless of startup companies just begging to trade in stock and ownership in return for the slightest bit of funding. Better to find them before someone else does.
#5) Fund Your Roth IRA!
If you’re eligible, 2014 is THE time to start funding a Roth IRA account. Workers with slightly higher incomes will qualify for retirement-savings tax deductions and credits. You can now earn $2,000 ($3,000 for couples) more this year and still be eligible to contribute to a Roth IRA.
Even if you are phased out by income from making a contribution, you can contribute to a traditional IRA that is nondeductible and then convert that to a Roth, but be aware the conversion might be taxed. However, once in a Roth the money grows tax free and even in an emergency, you can take your contribution back without penalty.