Whatever Congress decides to do about the current deficit situation, Sallie Krawcheck, president of global wealth and investment management at Bank of America, has these five suggestions for people living on retirement income and for anyone doing retirement planning.
- Consider investing in the stocks of high-quality companies with market values of $20 billion or more. These tend to be companies with strong exposure to the global economies whose earnings are far outpacing that of the U.S. gross domestic product. Good choices are those firms doing business in the energy, manufacturing and raw materials sectors, especially those companies with interests in emerging markets. In the current environment where many countries are dealing with rising deficits, companies with plenty of cash are likely to increase dividends and continue to grow.
- Invest in emerging markets. Some of the world's most vibrant economies are among the 21 countries included in the MSCI Emerging Markets Index. While emerging markets tend to be volatile over the short term, they can provide yield in such areas as corporate credit and sovereign debt. Check your risk tolerance, though.
- Move away from U.S. Treasuries. Instead, consider putting at least some of the fixed-income portion of your investments in investment-grade corporate bonds and some emerging market sovereign debt. Lisa Shalett, head of investment management and guidance for Merrill Lynch, also likes municipal bonds and advises holding onto some U.S. Treasuries because they compensate for downturns in the stock market.
- Get ready for rising interest rates. Reduce the duration of fixed-income investments and increase holdings in other parts of the world. Floating-rate instruments like bank loans also can allow an investor to win when rates rise.
- Invest in things you can touch. In inflationary times, commodities, real estate (including REITs) and Treasury inflation-protected securities, or TIPS, are good additions to a portfolio.