The following is an excerpt from an article I originally published on InvestorPlace.
The year 2016 has been, for lack of better description, a strange one. It started with one of the worst Januarys in history and an oil price bust … continued with a surge of populist election surprises in Europe and the United States, and wrapped up with the Trump Rally — what might be remembered as the most unlikely rally in history based on pre-election sentiment.
So after a year like this, what will 2017 bring?
Frankly, your guess is as good as mine. I’m generally pretty optimistic, and I think it’s likely that the market surprises us to the upside next year. But I’m also a realist, and I also know that an aggressive Fed, surging bond yields and an expensive stock market all pose some pretty significant headwinds.
There are a lot of big question marks out there. But even with far greater uncertainty than usual, we still have to invest our portfolios in something.
So today, I’m going to cover 10 ways to make money in the market in 2017.
Some will be broad, while some will be specific stock and fund picks. Some will be fairly standard … perhaps even obvious. But others will be a lot different than the advice you’re reading elsewhere. Some might sound downright ridiculous, but hear me out. Unusual times call for unusual investing solutions.
Ways to Make Money in the Market in 2017: #1: Buy REITs
I really believe real estate investment trusts (REITs) are the single most attractive American asset class right now. REITs have gotten utterly obliterated by the recent surge in bond yields. As a sector, they are down about 14% from their summer highs, and many of the more “bond-like” conservative REITs are down by closer to 30%.
REITs are sensitive to bond yields for two reasons. First, they borrow a lot of money to buy their properties, so higher market interest rates cut directly into profits. Secondly, as income-focused investments, they are priced relative to bonds. So as bond yields rise (and bond prices fall), REIT yields rise (and prices fall).
But remember: REITs, unlike bonds, actually enjoy a rising payout over time. REITs tend to raise their dividend by at least a couple percent per year, more than keeping pace with inflation. And should the inflation that everyone seems to fear from a Trump presidency come to fruition, real estate should perform at least moderately well, as real estate is a natural inflation hedge.
That makes the Vanguard REIT ETF (VNQ) — which holds REITs such as Simon Property Group Inc (SPG) and Public Storage (PSA) — a natural play here.
This is the third time in three years that REITs have sold off aggressively on yield fears. The previous two times, REITs went on to soar to new all-time highs. Can we expect things to play out the same way the third? We shall see.
To read the full article, follow this link.