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The 5 Best Investments You Can Make in 2019

The following is an excerpt from The 5 Best Investments You Can Make in 2019

Everyone is looking forward to 2019 if only because 2018 has been so ugly. But investors will have to mentally sturdy themselves: Before we can talk about the best investments to make in 2019, we have to quickly explore what has gone wrong in 2018.

The year started with a bang. The Standard & Poor’s 500-stock index returned nearly 6% that month following an epic 2017 that saw the index pop by 22%. But after that, it got rocky. Stocks stumbled in the first quarter, rallied for most of the second and third quarters, then rolled over and died again in October. It hasn’t gotten better since, and investors have had plenty to digest the whole way.

Much of the massive gain in 2017 was likely powered by investors looking forward to the profit windfall following the corporate tax cuts at the end of last year. But that’s a year in the past. Going forward, we’ll be comparing post-tax-cut profits to post-tax-cut profits as opposed to higher post-cut to lower pre-cut. Meanwhile, stock prices are still priced for perfection. At 2 times sales, the S&P 500’s price-to-sales ratio is sitting near all-time highs, and the cyclically adjusted price-to-earnings ratio, or “CAPE,” of 29.6 is priced at a level consistent with market tops.

Fortunately, the new year provides an opportunity to wipe the slate clean. So what might we expect in the new year? Today, we’ll cover five of the best investments you can make in 2019, come what may in the stock market.

Consider Alternatives

It’s difficult to beat the stock market as a long-term wealth generator. At roughly 7% annualized returns after inflation, the market has historically doubled your inflation-adjusted wealth every 10 years. No other major asset class has come close.

Still, you shouldn’t put all of your money in the stock market.

To start, there is no guarantee that the future will look like the past. The stock market as an investment destination for the masses is a relatively new concept that really only goes back to the 1950s, or perhaps the 1920s if you want to be generous. You can’t credibly say that the market “always” rises with time because, frankly, we’re writing history as we go.

Bonds have a longer track record, but bonds are also priced to deliver very modest returns in the years ahead. Adjusted for inflation, the 3% yield on the 10-year Treasury looks a lot more like a 1% yield.

Investors should consider alternative strategies as a way to diversify while not sacrificing returns.

“Alternative” can mean different things to different investors, but for our purposes here we’re taking it to mean something other than traditional stocks and bonds. Alternatives could include commodities, precious metals and even cryptocurrencies like Bitcoin. But more than exotic assets, an alternative strategy can simply use existing, standard assets in a different way.

“The vast majority of options contracts expire worthless,” explains Mario Randholm, founder of Randholm & Company, a firm specializing in quantitative strategies. “So, a conservative strategy of selling out-of-the-money put and call options and profiting from the natural “theta,” or time decay, of options is a proven long-term strategy. You have to be prudent and have risk management in place, as the strategy can be risky. But if done conservatively, it is a consistent strategy with low correlation to the stock market.”

That’s a more advanced way to skin the cat. But the key is to keep your eyes open for alternatives with stock-like returns that don’t necessarily move with the stock market.

To continue reading the remaining four investments, see The 5 Best Investments You Can Make in 2019

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Ten 401k Moves to Make by New Year’s Day

I love this time of year.

It’s good that I’m not diabetic because my consumption of candy canes, gingerbread cookies, hot chocolate and virtually anything else you can think of that’s loaded with processed sugar goes through the roof.

But between shopping and Christmas parties, we still have to squeeze in a little time for end-of-year portfolio housekeeping. Because, let’s face it, life isn’t exactly going to slow down once we hit the first of the year.

It’s particularly important to take a good look at your 401(k) plan this time of year.

For the vast majority of Americans, the humble 401(k) remains the single most important piece of their retirement plan. And because they’re for long-term investments, moves you make today will have compounding effects for potentially the next 30 to 40 years.

So, with no further ado, let’s go through a quick to-do list of moves you need to make in your 401(k) plan before the end of the year.

1. Try to hit $18,500 if at all possible

This is it. You likely have only one paycheck left before the end of the year, or maybe two if you’re lucky. So, if you’re wanting to get the maximum tax break for this year, you have to act now. You can contribute to an IRA or to an Individual 401(k) up until the April 15 tax filing deadline, but regular corporate 401(k) contributions have to be made by December 31.

So, if you haven’t contributed the full $18,500 this year (or $24,500 if you’re 50 or older), this is your last chance to do it. Talk to your company HR department now and ask them to put 100% of your next paycheck into your 401(k) plan, if that is feasible for you. Every nickel you get into the plan is a nickel that is safe from the tax man, potentially for decades.

2. Revise your allocation

Market technicians may quibble on the details, but the bull market that started in 2009 is considered by many to be the longest in history. If you don’t look at your allocation all that often, you should give it a look.

After nearly a decade of stock market gains, it’s possible that you have a lot more exposure to stocks than you want or need. Take this time to rebalance your portfolio to an allocation that is appropriate for you at this age and stage of life.

In my Peak Income newsletter, I’m currently recommending that most readers keep no more than 50% of their account in stocks. To find out more about my income-generating service and get more 401(k) tips,

3. Take a good, hard look at your target date funds

Along the same lines, if your 401(k) plan is invested in a target-date fund, take a moment to look under the hood and see what it actually owns. You might think you’re invested in something appropriate for your age, but that’s not necessarily the case. Your target date fund might have much higher (or lower) exposure to stocks than you want. One fund company’s definition of an appropriate portfolio for a person retiring in 2020 might be very different than another fund company’s definition… or yours!

Checking the allocation might involve a little homework, but it’s generally something that you can do with about 10 minutes of digging around on Google. Look up the fund on the internet, and the management company’s website should give you a good idea of what it owns. There’s not necessarily a right or wrong answer. It’s just an issue of making sure the allocation you have the one you actually want.

4. Bump your contributions higher for 2019

With a new year comes a new opportunity to stick it to the tax man. In 2019, the maximum you can contribute (not including employer matching) increases from $18,500 to $19,000. And if you’re 50 or older, it gets bumped from $24,500 to $25,000.

$19,000 is a lot of money, of course. It amounts to almost $1,600 per month. But I’m betting that if you make it a priority, you can make it happen. And when you see the reduction in your tax bill, you’ll be glad you did.

5. Roll over any older employer plans

If you’re like most Americans, your retirement plans are probably a disorganized mess. In addition to your current employer’s plan, you might a half dozen older plans from previous jobs.

The more plans you have, the harder it is to keep track of them all. Do yourself a favor and consolidate them. I will likely take no more than 10 minutes on the phone with your old employer’s 401(k) administrator to make it happen. This isn’t something you necessarily have to do by year end, but if you’re already doing a little portfolio housekeeping, why not do it?

The fewer plans you have to keep track of, the less likely you are to get overwhelmed and neglect them altogether. So make this a priority.

6. Revise your beneficiary designations

I’ve been married for 10 years and have two children. Yet I discovered in horror two years ago that I still had my sister listed as my primary beneficiary on one of my larger retirement accounts. Had I gotten hit by a bus, that would have been a very awkward mess for my poor wife and sister to sort out.

So, be smart and check your 401(k) beneficiary designations, particularly if you’ve had any major changes such as a marriage, birth of a child or a divorce. You really don’t want your ex-wife to inherit your life savings rather than your children or current spouse.

7. Don’t forget contingent beneficiaries

Along the same lines, don’t forget to specify a contingent beneficiary. If you were to go down in a fiery plane crash along with your primary beneficiary (likely your spouse), you’d want to make sure the funds transferred to the next in line, which would generally be your children.

If you have no living beneficiary on record, your 401(k) plan will get dumped into your estate, where it will have to go through probate. Having a proper beneficiary on file bypasses probate and gets the funds to your heirs faster. So, do them a favor and make your contingent beneficiary designations are in order.

8. Consider a reverse rollover… maybe

As a general rule, I prefer Rollover IRAs to 401(k) plans because you have more investment options and, often, lower costs. But there is one major exception where it absolutely makes more sense to keep your assets in an employer plan rather than an IRA.

Active 401(k) plans (a plan you are actively contributing to) are not subject to required minimum distributions (RMDs).

So, if you are 70 or older and still working and contributing to your company’s 401(k) plan, you can eliminate your RMDs on any outside IRAs by doing a “reverse rollover” and moving the funds to your 401(k) account.

This can be a little tricky, however, so if this sounds like something you’d like to do, I recommend you first have a chat with a good CPA.

9. Ask your employer about deferred comp plans

Let’s say that you’re a diligent saver and that you’re able to max out your 401(k) every year and still have ample savings left over.

You might be able to stuff some of those excess savings into a tax-deferred, non-qualified retirement plan called a deferred compensation or “deferred comp” plan.

This is exactly what it sounds like. In these plans, your employer sets aside part of your pay into a tax-deferred account that is similar in look and feel to a traditional 401(k) plan. These are particularly good options if you tend to get large bonuses. You may be able to dump all or part of that bonus into the deferred comp plan and supersize your retirement savings.

Not all companies offer deferred comp plans, and you should be aware that these plans do not have the same legal protections as 401(k) plans. If your employer were to go bankrupt, your deferred comp savings could go up in smoke.

But, if you’re looking for additional tax-free savings, a deferred comp plan might be a fantastic idea.

10. Keep perspective

Finally, don’t forget why you contribute to your 401(k) in the first place. We save money today so that our families have security when we’re too old to work.

So, take a moment to give thanks for your loved ones, and try to do something special for them not specifically related to money. Spend some time with them without the distraction of your smartphone, and really listen when they talk rather than just waiting for your turn to speak.

Ultimately, that’s going to make all of you a lot happier than a couple extra bucks in the retirement account.

A very merry Christmas to you all, and a happy new year!

This article first appeared on The Rich Investor.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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THIS Is Why We Hedge

The Dow dropped more than 500 points on Monday… only to finish the day in positive territory.

Now, even a few months ago, a massive swing like that would have been news. It would have had investors swapping stories and likely high-fiving each other.

These days, it’s just par for the course.

In fact, Monday’s swing was comparatively minor. Last Thursday saw a 710-point intraday rally that left investors believing that maybe – just maybe – the worst was behind us. Of course, this was followed by a nasty 559-point drop on Friday.

Wild swings are the order of the day.

Whenever we see moves like these, investors are hardwired to look for an explanation. They want to know why the market cratered or why it blasted higher.

Was the arrest of a Chinese executive that signaled a worsening of the trade war that pulled the floor out from under the market? Or was it softer language from a Fed speech that lit the fuse for a rally?

Whenever I hear explanations like these on CNBC, I want to reach into the TV and condescendingly pat the anchor on the head like a child.

That’s simply not how markets work.

Stock prices work just like any other competitive auction. When there are more buyers than sellers, prices rise. When there are more sellers than buyers, prices fall.

For the past two months, there have been more sellers than buyers, which is why the general direction has been down. But beyond that, corrections and bear markets also tend to be a lot more volatile than healthy bull markets. Everything gets more extreme. Stocks fall harder on down days and shoot higher on up days, and intraday swings gets larger as well.

Some investors choose to simply buy and hold and ride out rough patches like these. Most corrections tend to be short and relative painless, after all, so why bother selling to try to avoid downside if you’re just as likely to instead miss the upside when the bull market resumes?

That sounds great, of course. But some of those relatively painless corrections end up sliding into full-blown bear markets like 2008 or 2000 to 2002.

Rather than ride it out and hope for the best, some investors prefer to dump everything and sit in cash until the coast is clear.

That sounds great too. The problem is knowing when to get back in. Excess conservatism can cause you to miss major rallies when corrections turn out to be a lot shallower than feared.

In my trading service Peak Profits, I split the difference. When my model flashes warning signs, I neither close my eyes and hope for the best nor pull the ripcord and eject.

Instead, I hedge. I reduce my usual position sizes in the value and momentum stocks I recommend by half. I then use the 50% of the portfolio that is free to take a short position in the S&P 500.

So, instead of running an aggressive long-only stock portfolio, I run a hedged, market-neutral portfolio. At this point, the market can go up down or sideways, and I’m prepared for it.

Let’s say the market tanks on me. No problem. My portfolio’s value and momentum stocks might take a hit, but any damage is offset by the returns I earn from the short position in the S&P 500.

Likewise, it’s perfectly fine if the market rallies. Sure, I’ll lose money on the short position in the S&P 500. But my value and momentum stocks should enjoy a nice bump.

The important thing is that I don’t have to guess the direction of the market.

I simply have to choose a portfolio of attractive value and momentum stocks that are poised to either gain more or lose less than the S&P 500. And once my model signals that the worst of the correction is over, it’s back to business as usual. I close out the short position and increase the position sizes in my value and momentum stocks to their regular levels.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Best Stocks for 2019: LyondellBasell Will Take the Crown

The following is an excerpt from Best Stocks for 2019: LyondellBasell Stock Will Take the Crown. LyondellBasell is my selection in InvestorPlace’s Best Stocks for 2019 Contest.

My pick in Best Stocks for 2019 is LyondellBasell (LYB), one of the largest plastics, chemicals and refining companies in the world. It’s also one of the cheapest stocks in the S&P 500, has strong insider buying, and has a fantastic history of taking care of its shareholders via dividend hikes and well-timed share repurchases.

If you’re not familiar with the company, LYB produces everything from food packaging to water pipes and auto parts. Additionally, the company is one of the largest crude oil refiners in the United States and produces gasoline, diesel fuel, jet fuel and assorted lubricants. The company sells its products in more than 100 countries and made the 2018 list of “Most Admired Companies” by Fortune magazine.

Energy stocks have been beaten up of late due to the falling price of crude oil. With global demand looking suspect and suppliers stronger than ever, the price of crude oil is down by about a third since the beginning of October.

But that’s hardly a bad thing for LyondellBasell. Lower prices for crude oil and natural gas liquids means lower cost of feedstock for the chemicals and refining businesses and thus higher profits.

Not that profits have been in short supply. Over the past five years, LyondellBasell stock has averaged a return on equity of nearly 60%. Net margins fluctuate based on the economic cycle but have averaged in the mid-teens since 2015. Over the trailing 12 months, net margins have held steady at 15.01%.

Despite its financial health, it’s hard to find too many large-cap stocks that are as cheap as LYB stock. The company trades at a trailing price-to-earnings ratio of just 6.02 and a forward P/E of just 8.05. Compare that to the S&P 500’s trailing and forward P/E ratios of 21.98 and 15.1, respectively.

To continues reading, see Best Stocks for 2019: LyondellBasell Stock Will Take the Crown.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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What if Santa Doesn’t Come This Year?

The following was originally published on Kiplinger’s as Don’t Wish for a Santa Claus Rally. Prepare Instead.

Perhaps we should all give thanks that the market is closed for Thanksgiving. It’ll give us a chance to recover from quite a beating – and for some, time to wish for a “Santa Claus rally” to rescue stocks.

It’s rough out there. The November-to-April period seasonally has been the best time of the year to be invested. It looked like that might be the case this time around, too. After a devastating October that saw the Standard & Poor’s 500-stock index drop almost 7%, November started strong.

Alas, it didn’t last.

Stocks started sliding again in the second week of November, and by the week of Thanksgiving they had already taken out the October bottom. As of this writing, the S&P 500 was about 2% away from hitting new 52-week lows.

Is a Santa Claus rally still in the cards? December is a historically strong month, after all. The final month of the year has been positive more often than any other, finishing higher 66 out of the past 90 years. And the market indeed is ready for a reprieve in December following two lousy months in a row.

But don’t hang your hat on Santa Claus coming to town.

Why the Grinch Could Steal Christmas

We’ll start with stock valuations, which never seem to matter … right until they do.

Expensive markets can continue to get even more expensive, sometimes for years. Consider that Alan Greenspan first complained about “irrational exuberance” in the markets as early as 1996. It would be well over three years until the market finally rolled over. Yet when the bubble finally burst in the first quarter of 2000, it got ugly. The market was down 15% by year end and proceeded to lose nearly half its value before it finally hit bottom.

There’s no guarantee the market will follow a similar path this time around. But it’s worth noting that when the S&P 500 peaked in late September, it was actually more expensive than at the top of the 2000 tech bubble, at least as measured by the price-to-sales ratio.

To continue reading, please see Don’t Wish for a Santa Claus Rally. Prepare Instead.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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