It's been a highly profitable 6 ½ years for investors in U.S. stocks and bonds. That gives rise to the question: what could upset the apple cart?
Gregory Zuckerman of The Wall Street Journal cites four possibilities. Two of them include
- "Central Bankers Bungle It." The Federal Reserve may raise interest rates as soon as next month, after keeping its federal funds rate target at a record low since December 2008. "Markets have faith in central bankers fighting to generate global growth," Zuckerman says. "But corporate bonds could be hurt if . . . the Fed raises rates at a faster pace than economists expect."
- "China Goes Downhill and the Greek Bailout Fails." The Shanghai Stock Exchange Composite Index has dropped 24 percent since June 12. "If troubles persist, questions could grow about the Chinese government’s ability to steer the debt-laden economy," Zuckerman notes. And the latest bailout of Greece — it reached a tentative deal with its creditors Tuesday — might not succeed.
Meanwhile, with all the attractive investment opportunities out there, many of us have portfolios stuffed with more securities than we have time to track.
So how can we unclutter our accounts? "Start by tagging each of your holdings with your goal (or goals) for them," Christine Benz, Morningstar's director of personal finance, writes in a commentary
She sees investments serving three main goals: growth, income, and stability. So how do you measure your holdings in each of these areas?
"If you're holding an investment for its long-term growth potential, it's reasonable to use the long-term performance of a total-market equity index fund" to gauge its success, Benz says.
If you're holding stocks at least partly for income, you can seek a dividend yield higher than the S&P 500's current level of just under 2 percent, Benz says.
To test an investment for stability, "you can go straight to a simple gut check," she suggests. "How did it do in 2008?" That, of course, was the year when the S&P 500 returned negative 37 percent amid the worst financial crisis in more than 70 years.
Benz' advice certainly makes sense, but pruning your portfolio is a tricky business. So if you have solid evidence that one of your underperforming assets is headed for better times, you may want to hold on for a little longer before giving up.
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