I recently joined Moe Ansari of “Market Wrap With Moe,” a nationally syndicated radio broadcast, to discuss three doomed investments that investors should avoid as the New Year approaches.
Specifically, problem areas are:
Momentum Tech Stocks: Sure, it’s been a big year for a lot of tech stocks. But Twitter (TWTR) had big IPO and then quickly rolled over about 10% in short order. Facebook (FB) is up 60% year-to-date but has faded 20% in about six weeks. Be very careful chasing these high multiple tech players now that they have gotten so frothy and are finally showing signs of weakness.
Long-Term Bond Funds: Consider that from May to early July, when rates on the 10-year T-Note rose about 1%, the iShares 20+ Year Treasury Bond ETF (TLT) lost about 15%. That’s because 95% of the holdings are more than 25 years in duration, and the longer the duration, the more susceptible bonds are to interest rate increases. Though interest rates have not been increased by the Fed, the market can still move rates a bit higher on sentiment alone – and thanks to the inverse relationship between bond prices and bond yields, you stand to lose some serious principle in your bond funds should rates increase in 2014.
Overbought Dividend Darlings: Dividend stocks are a powerful investment for the long-term, and most investors looking for income have few options right now in a low interest rate environment. But they are trading at historic valuations without much earnings upside. Consider that in 1997 the P/E of defensive sectors was sometimes as much as 40% below the relative P/E of the broader market, and now these sectors trade for a 20% PREMIUM! That’s way out of line with past trends, and will result in some unfortunate moves lower should these valuations correct in 2014.
Check out the full audio in the attached player. Or get complete details in my original article on the topic that was published on InvestorPlace.com.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.