Best investment ideas: Reversion to the mean
Taylor Gang, a wealth manager at Evensky & Katz in Miami, chose "reversion to the mean" as an investment theme for 2014. The idea of reversion to the mean is that asset prices will eventually return to their averages. Someone told Gang a long time ago that in his 401(k) account each year he chose the funds that performed the worst the previous year without doing any research, and it worked out.
While Gang doesn't recommend forgoing research, he's intrigued by some assets that underperformed this year. For example, "(Treasury inflation protected securities) have gotten creamed," he says. TIPS are Treasury bonds whose values are indexed to inflation.
The Barclays Capital U.S. TIPS Index fell 6.1 percent year-to-date through Oct. 22, according to Morningstar.
TIPS' Treasury component could benefit if there's an unsettling political or financial event that sparks a "flight to quality," Gang says. And when it comes to the inflation component, "as the economy improves, inflation has to be part of the discussion," he says.
Many commodities also have fallen this year, he notes. But again, "as the economy heats up, at some point commodities are a part of it."
So buying TIPS and commodities next year may pay off, Gang says.