Dec. 30--Looking back at 2013 in terms of investments, it's been a strong year for stocks, a bumpier ride for bonds and an opportunity for those willing to pursue alternative investments.
What's in store for 2014?
Some Marion County financial professionals and investors are expressing cautious optimism and saying to expect more of the same, with a few qualifications.
It's been a record-breaking year for the stock market, with the Dow Jones Industrial Average and S&P 500 Index posting record gains. The former was up almost 26 percent year-to-date at Friday's close, while the latter was up more than 29 percent. Meanwhile, tech-focused Nasdaq was up almost 38 percent.
"It was a positive year for folks who stuck with the market and did not make decisions based on the news and short-term events," said Jim Hilty Jr., a financial adviser with Edward Jones in Ocala.
Vinson Willits, a certified financial planner with Willits Wealth Management in Ocala, attributed the advances in stocks to investors' "pent-up frustration with the extremely low interest rate environment."
"People have gotten extremely fed up with half-a-percent CDs," Willits said. "One of the big factors was there really was no other place to put their money to get any returns, so they fueled the stock market."
Linda Norman, a certified financial planner with Raymond James in Ocala, said she would like to see the markets' record gains continue but concedes "that isn't very likely."
"We've gone so far, so fast, and of course, we've been anticipating a big correction for a long time, but I can't predict when it's going to happen or how it's going to happen," Norman said.
All of the financial professionals contacted for this story emphasize they refrain from giving financial advice without considering investors' individual goals.
Generally speaking, Hilty said he doesn't see the stock market as having "reached a ceiling or a stopping point."
"Not all stocks are overvalued right now, but it's time to be selective," Hilty said. "Some stocks that are still undervalued are attractive, and we think there's still plenty of upside in the market because there's still plenty of cash on the sidelines."
Overvalued stocks, according to Hilty, include utilities and some tech-sector stocks. He characterized some "consumer discretionary" stocks like Coca-Cola and PepsiCo as undervalued.
Willits said he keeps a close watch on corporate earnings.
"As long as the earnings are positive and they're increasing, that has always been and probably always will be a good indicator that the market's got room to go further ahead," he said.
Asset allocation is the key, Norman said.
"A well-diversified portfolio can withstand just about anything, even a 2008 scenario," she said. "It didn't seem like it at the time, but if you look back, balanced portfolios actually recovered pretty well."
Bonds have traditionally been a part of a diversified portfolio. The benchmark 10-year U.S. Treasury note's yield was 3.01 percent on Friday, after beginning the year at 1.91 percent.
Bonds "have really taken a beating" in recent years, according to Hilty.
"During the crisis we've had in the markets over the past couple of years, people were fleeing to bonds and bond funds for safety at any price," he said. "They weren't too much focused on the yield they were getting; they just felt it was a safe haven and they would pay premiums for it.
"Now the interest rate environment still hasn't changed and money's pouring back into the market and bond prices have dropped significantly," he added. "Now, U.S. Treasuries is probably one of the biggest danger zones out there."
Willits said the past year was "extremely difficult" for many retirees living off investment income.
"Traditionally, when stocks go up, bonds go down in value and bonds, historically, have had a better penchant for producing income than stocks do," he said. "They seem to have less volatility, but what people have to keep in mind is that when interest rates move, it's going to affect the value of an existing fixed-income product instrument like a bond.
"When interest rates go up, the value of an existing fixed-income product goes down and so when interest rates hit an all-time low, it's a double-edged sword for most people," Willits said. "Number one, the interest their investments was producing was very low, and number two, their share price had a tendency to go down this last year because interest rates have started the move back up. So it's made a lot of those historically conservative investors squirm."
Norman says diversification is the key when it comes to bonds. She said she prefers bond funds, including floating-rate, high-yield and global bond funds and focuses on the duration of a bond, or the length it takes to mature.
"The longer the duration, the greater the risk to the impact of rising rates," Norman said. "So one of the things I've been doing for several years now, is keeping the durations short so there's less exposure to rising rates."
Willits calls alternative investment classes "the buzzword" in the financial world right now. Some examples, he said, include commodities, oil partnerships and real estate investment trusts.
Popular commodities in recent years include metals such as gold and silver. However, a Dec. 19 report in the Wall Street Journal indicated gold is poised for its first annual decline in 13 years and is down some 29 percent year-to-date. Spot gold closed at $1,214.00 per ounce on Friday and spot silver was at $20.03 per ounce.
Larry Stone, president of Silver City Stamp and Coin Co. in Ocala, said while gold and silver prices are not what they were two or three years ago, sales volume is still good.
"People are continuing to buy in these dips, because they don't think there's any long-term change being made to the way the economy functions," he said.
"You don't want what happens when it becomes most expensive," Stone said. "We don't want to go through '07 again."
Stone said he sees gold and silver as an insurance policy for investors, citing demand in emerging nations like India and China.
"My short-term analysis of gold and silver, particularly silver, is it took almost all the world's resources to put 600 million people into the middle class, mostly in America and Europe," he said. "To take another 3 billion people and put them into the new world order, into the modern middle class, will consume every commodity that you can name."
Meanwhile, another investment alternative that appears to be reviving in Marion County is real estate.
Nic Ward of Ocala says he's invested in an array of properties, including a mobile home, a triplex and a downtown Ocala property because "there's a little more control involved."
"Gold will go up and down," Ward said. "That's determined by the whims of the market, but the changes in real estate price are based on some pretty standardized things like what features the property has, which can be improved, or location, which you know when you buy. Those are things you can control, so that mitigates risk."
Ward said he is in his mid-30s and has a 401(k) and stock shares but hasn't seen growth in those to match real estate in the last couple of years.
"Also, the real estate actually produces income and that's pretty cool," he said.
Ward is the incoming president for the Marion County Real Estate Investment Association, a nonprofit group primarily aimed at providing education on real estate investment, which meets the second Tuesday evening of each month at Comfort Suites in Ocala and welcomes newcomers.
Judith Dacey has been a member of the group for 10 years. She said while membership peaked around 2004-05 during the real estate boom, interest appears to be reviving.
"We've seen in the last year, the return of people who are not traditional real estate investors but who are seeking returns," Dacey said. "They feel nothing's really trustworthy, but at least land and real estate is always there. It doesn't disappear on you like stock market investments can."
In addition to younger investors like Ward, the group is attracting seniors, said Dacey, who is a certified public accountant based in southern Marion County near The Villages.
"The over-50 crowd is looking at real estate, Dacey said. "They trust it. They come out of a generation that trusts owning things."
No matter the investment, many watching the financial world say government action is a key concern. Norman said she wonders how the Affordable Care Act will impact not just the business community, but "the national psyche." Hilty and Willits say recurring governmental showdowns over the debt ceiling and the recent congressional shutdown of the federal government are on investors' minds.
"The effects of that are temporary," Willits said of debt-ceiling impasses. "But unfortunately, with the evolution of the Internet and how fast information is sent out around the world, people react and they don't really have a method behind it. That causes volatility, and the more volatility, the more up and down the markets go."
"I've been in this business a long time, and I've never seen more frustration and fear with people than right now with the decisions some in our government are making," he said.
Stone of Silver City admits investment in gold and silver often "operates on fear."
"I try to calm people down about that," he said. "No, I don't think the dollar's going to collapse. No, I don't think they're going to cut out Social Security, but put yourself in the position of a lot of people, like the retirees, when someone starts talking about these things.
"All this rhetoric and nonsense just tends to scare people, and when they get scared, they look for alternatives," he said. "Sometimes we're the alternative and reasonably so."
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Original headline: Local financial experts see opportunities for growth in 2014
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