So what does this mean for your portfolio? Five things:
1.) Stick With Stocks. . . For Now. While 2014 is not going to be an ideal economic environment, it should support further gains in stocks and we would still overweight equities.
2.) Seek Greater Growth Opportunities Abroad. While the U.S. stocks look fully valued, international stocks – particularly those in emerging markets — appear more reasonably priced. As such, we advocate that investors underweight non U.S. stocks consider paring back some U.S. holdings in favor of international exposure, and for those investors with a strong stomach and a long time horizon, we like emerging markets.
3.) Bond Buyers Beware: Once Thought Safe, Now Risky? Put simply, there are few bargains in traditional bonds. Given the Fed’s plan to pull back on its extraordinary bond-buying program, the risks to traditional bonds are elevated. As such, being flexible and diversified globally on the fixed income side of your portfolio remains key. More on that from Jeffrey Rosenberg later this week.
4.) Consider Munis for Tax-Exempt Income. We believe muni market fundamentals remain sound and municipal bonds look attractive, but I’ll let Peter Hayes give you the full story on the case for muni bonds later this week.
5.) Go Beyond Traditional Stocks and Bonds. With stocks no longer cheap and neither bonds nor cash offering compelling values, we advocate incorporating alternative strategies into a portfolio.
Want more details? Check out the full list, as well as my special edition “2014 outlook” Investment Directions, a new outlook paper from the BlackRock Investment Institute and stay tuned for more on fixed income in 2014 from my colleagues later this week.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
Source: BlackRock’s 2014 Outlook—The List: What to Know, What to Do