Below are my predictions for 2015, to make your year rich in returns and light on costly mistakes.
4 Hots
•Gold Miners. Gold miners are very oversold. 2015 should mark a year of dramatically reduced gold supply - which is often a winning recipe for investors, particularly if demand for gold increases. Also, because there is a very high negative correlation between gold and Wall Street performance, if this bull market has a hard time making it through Year 7, gold should do great. (Recessions occur on average every 5 years.)
•Energy Efficiency Upgrades. Beg, borrow or steal to make the insulation and efficiency upgrades to reduce your energy consumption in electricity and in gasoline. Your electric bill is going up, and gasoline prices will not remain low forever. The tax credits available for energy efficiency upgrades are set to expire in 2016. Consider that every dollar you do not give the utility or the oil company is a great return on investment - more money to save, invest and compound gains. Click here for a list of 31 Tips on how you can improve your energy efficiency without a change in life style - which can amount to tens of thousands of dollars every year for most Americans.
•Clean Energy Utilities. The cost of energy is going up and clean energy utilities are in the best seat going forward. Dividends in the utilities are strong and these stocks will weather any storms in the general marketplace better than most. Be sure to purchase them at a good price, however! Avoid utilities that have a lot of exposure to the nuclear industry, as that industry is currently mothballing a large number of its nuclear power plants. Contact me at NataliePace.com for a list of green and nuclear utility companies.
•Biotechnology. With the Affordable Health Care Act and universal health care insurance in the U.S., biotechnology wins. The biggest consideration in this industry is share price. Many biotechs are trading near their all-time highs. If the markets turn down, it could drag their share price down as well.
Tepid (Warm)
•Real Estate. Real estate rose 5.8% in 2014, according to the National Association of Realtors. 2015 is predicted to soften down to 3% gains. The rebound in prices back to 2005 levels is good news for home owners, however, real estate is regional in nature, so the gains are not evenly distributed across the land. It's important to do a local analysis of the job market, affordability and future demand before you commit to a long-term, illiquid investment that can be costly to maintain. Owning your own home or owning a place that you rent out is still one of the best investments you'll make in 2015, since interest rates are at historic lows, you can write off the interest on your home mortgage, and rents are escalating at the speed of light - provided you plan to stay with the same place for 7-10 years and purchase something you can afford.
Vulnerability and Extreme Volatility
• Stocks. The stock market has been on a tear for the last six years, but has also been marked by extreme volatility. 2015 should be another year of the Wall Street rollercoaster, without the general uptrend that we've seen since 2009. The U.S. GDP growth is predicted to be a tepid 2.6%-3%. The market could be tested as early as this Friday, when the the 4th quarter GDP report is released. It is predicted to be much weaker than the 3rd quarter's.
For your nest egg strategy, it is important to remember that the last two recessions been both swift and deadly. The Dow Jones Industrial Average dropped almost 8000 points in under a year and half between 2008 and 2009 (more than half). NASDAQ lost 75% of its value in the Dot Com Recession. These kinds of corrections are part of our New Normal, which makes it essential that you don't buy into a never-ending Wall Street Rally. Buy and hold doesn't work on today's Wall Street rollercoaster. Proper diversification, annual rebalancing, avoiding the bailouts and adding in hot industries does.
Cold: Investor Alerts
•Nuclear Energy. Fukushima reminded everyone that the cost of nuclear includes thermonuclear meltdown, radioactive waste and the destruction of an entire community. In the wake of that sad tragedy, there has been a quiet, but rampant, decommissioning of 17 nuclear power plants across the United States. Consumers and investors will be footing the bill on these decommissioned hot spots for the next four decades.
•Pensions. Defined benefit pensions are getting more and more risky as time goes by. When plans fail, the haircut you take can be astonishing. For instance, so-called "multiemployer insurance programs" benefits are capped to under $13,000 per year - regardless of what your union promised you that you would receive. There are currently 150 underfunded plans in critical condition, according to the Department of Labor, with another 85 that are "endangered."
•Bonds. As I've been highlighting for a few years now, it is highly likely that the U.S. (and Europe) will continue to experience an extended period of low interest rates from a Central Bank perspective. That's good news for homeowners and mortgage borrowers, bad news for savers and toxic for fixed income retirees. Today, the bond market is being priced based upon credit risk, not interest rate risk. Do not reach for yield; the risk is not worth it. The best bond strategy remains to keep your terms short and the credit worthiness high.