Making Money Alert: A Holding Pattern and the Ugly Side of the Cliff

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

The markets have been relatively quiet during the past week. So far in 2013, the S&P 500 is up less than 1%, even though stocks shot up in the year’s first trading day. After the initial euphoria about the tax side of the fiscal cliff deal, the market is beginning to worry about the ugly side of the cliff, which is the pending battle about spending cuts and a lifting of the debt ceiling.

Both sides of this debate — the administration and Congress — have vowed to get their way on the spending and debt-ceiling debate. Though we don’t know how the terms of any deal will come out, based on past experience with the tax side of the cliff and last year’s debt ceiling fight, both have the potential to really knock stocks lower during the next 30 days.

For investors, now is not the time to commit new money into domestic equities. You are much better off here waiting for some clarity on the debt and spending deal. The upside between now and then in stocks is, in my opinion, limited. However, the downside you face due to money running for cover in front of what could a nasty political fight is potentially very harmful to your portfolio.

The bottom line here is that patience is definitely what’s needed right now. The market is giving us that indication by virtue of the overall lack of any real movement in stocks. Of course, there will be sectors of the market that sell off — the latest being tech giants and, in particular, Apple (AAPL). And there will be sectors that show signs of gains. A good example here is banks and financial stocks, many of which have seen big buying during the past several trading sessions.

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Overall, however, now is the time to wait for the craziness to pass and for you to get your wish list of stocks and sector funds ready for the year’s next big buying opportunity.

Fiscally Fit for the New Year, Part II

In last week’s Making Money Alert, we began a special series on how to become fiscally fit in 2013. The first installment was all about taking an inventory of all of your assets. Here we took a page from corporate CFOs, as they regularly are tasked with determining the precise value of their company’s assets. The result of that inventory should be that you now know how much money you actually have, and in what type of asset class that money resides (equities, bonds, real estate, gold or silver coins, checking account, certificates of deposit, etc.).

This week, we are going into Part II of my “Fiscally Fit for the New Year” series, and that involves doing an asset allocation review. This is the time to dig down deep into precisely where your assets are and, by that, I mean knowing specifically which stocks, bonds, exchange-traded funds (ETFs), mutual funds, variable annuities, etc., you currently own.

You also need to know how much you own of each security. Your goal this week is to take an inventory of all of your securities holdings so that you can see if there are any glaring weaknesses and/or omissions in your asset allocation.

Once you know, in percentage terms, how much of your total investment portfolio is committed to stocks, how much to bonds, commodities, cash, etc., you can make the necessary adjustments to get the desired mix of assets where you want them.

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I am of the opinion that equities are going to see a lot more volatility in 2013 than they have in the past, and that means both opportunity and risk for your money in the months ahead. But before you can make intelligent decisions to reallocate your capital, you first need to know where that capital is, and where you need to make alterations.

Next week, we’ll do an inventory of all of the income streams your money is generating. If your primary goal is to capture high yield and dividend income from your existing assets, next week’s lesson is aimed directly at you.

Paine on Wicked Government

“Society is produced by our wants and government by our wickedness.”

–Thomas Paine

Perhaps the most innovative thinker of his time, Thomas Paine was the inspiration behind the creation of America. Here, Paine gives his thoughts on the role of government and the reason why she exists. If you ever want to treat yourself intellectually, then read his Common Sense, The Crisis, Rights of Man, and The Age of Reason. Each should be required reading for all sentient humans.

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions that you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.

previous article

To build upon last week's ETF Talk theme of sectors that offer steady and consistent growth, this week's article focuses on the energy sector. People always need to use energy. With the rapid development of countries such as China, global demand for energy should climb.

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