Despite the federal government’s financial troubles and talk of rising insurance rates, it’s still possible to maintain a balanced, productive investment portfolio. According to financial advisor Marvin Ellis, a partner in Bountiful’s Ellis Financial Group, the key is varying your investments through enough businesses and countries that individual dips won’t have a dramatic effect on your overall portfolio.
“Everything cycles,” Ellis told the Bountiful Rotary Club at a meeting late last week. “But if you have the proper blend and rebalance as necessary, you can get a smooth ride.”
Ellis disputed rumors that the stock market was being oversold, saying that the market’s price-earnings ratio is doing just fine. The price-earnings ratio, which is the market price per share of a stock divided by its earnings per share, is at about 14 percent.
“The average is about 15 to 16 percent,” he said. “We’re still at healthy levels.”
Though bonds have traditionally been seen as the safer investment alternative, rising interest rates have made bond investments far less profitable. Ellis explained that even a 1 percent interest rate climb could knock a full 18 percent off the earnings of a 30-year treasury bond. A 10-year treasury bond, which is the kind normally tied to home mortgages, could lose approximately 9 percent.
“We’ve started moving up the cycle of interest rate climb,” said Ellis. “When interest rates go up, bond prices go down.”
Still, that doesn’t mean you should forgo investing in bonds entirely.
“There are bonds that are less affected by interest rates,” he said. “You just have to choose wisely.”
Another way to avoid interest rate concerns is to invest outside of the U.S. Though China’s economic growth has recently slowed down, the country is still healthier than the U.S. Other countries, including Malaysia, have economies that are continuing to grow.
“In the 1980s, we were about 75 percent of the global economy,” said Ellis. “Now we’re only about 43 percent. It’s good to have investments in other countries.”
One thing Ellis advises against is trying to time the market in order to avoid dips. Though you may get lucky and make a move at the right time, that’s only the beginning of successfully managing your investments.
“You’ll have to be right twice Р both when to get in and when to get out,” he said. “You’ll get burned both times.”
In the end, it’s safer to simply keep your portfolio varied and ride out each rise and fall as it comes.
“You can’t predict (the market),” he said. “And if anyone tells you they can, take your money and run.”