It also makes sense to combine a riskier bond holding with long-term investment grade for safe harboring – a barbell decision that has benefited my clients throughout 2014. I frequently recommend ETFs such as Vanguard Long Term Bond (BLV) and Vanguard Extended Duration (EDV).
While the pullback in foreign equities has not been alarming – the euro-zone’s recessionary pressures have been well-documented – the September sell-off in emerging markets may be a troublesome blow for U.S. stocks. I remain committed to emergers, particularly in Asia, as long as they remain above my stop-limits as well as respective trendlines. On the other hand, Vanguard FTSE All-World (VEU) has been trading below a 200-day moving average. Investors may wish to consider the implication and pare back their allocations to VEU, as the all-world proxy is heavily weighted towards foreign developed markets.
Granted, U.S. stocks continue to hold up better than the competition. Nevertheless, with four of the “classic canaries” unable to make a peep, with foreign developed markets as well as mid-caps barely making an audible sound, how much longer will large-caps rally without a meaningful 10% correction?
Remember, IPO fanaticism and takeover talk had been rampant in 2000 and 2007; it resembles some of what is occurring here in 2014. What’s more, U.S. corporations are not just acquiring rivals, they’ve been buying back their own shares to boost prices and a perception of strong earnings. Meanwhile, bullishness recently hit extraordinary extremes. Valuation metrics for U.S. stocks are nearly unanimous in highlighting severe overvaluation. And technical analysts have identified signs of a “top” in the cumulative NYSE Advance/Decline Line as well as the NYSE High-Low Index. It would be wise to have a plan in place for protecting your portfolio.