The markets don't seem terribly concerned about the threat of war between the United States and Iran. While the Dow plunged 300 points in its first session following the drone strike that killed Iranian General Soleimani, they quickly stabilized, and then resumed rising.

But what if investors are being too sanguine about what might lie ahead? It's conceivable that the death of Soleimani, and the retaliatory missile strike from Iran, will turn out to be the beginning, and not the end, of this story.

If that's the case – and it's worth at least considering the possibility that more shoes will drop – then the markets could drop significantly.

For the moment, tensions between the two countries have dropped. Both sides could claim that they scored a point, and move on. But Iran could launch further attacks, on U.S. bases around the world, or in the U.S. itself, including the threat of cyberattacks.

And there's another source of friction that could easily spark into a major conflict. After the strike against Soleimani, Iran announced that it would pull out of the 2015 anti-nuclear agreement it negotiated with the United States and other countries.

That means Iran could start enriching uranium again immediately, and hypothetically have a nuclear weapon in just about a year. That raises the possibility of a pre-emptive U.S. strike against Iranian nuclear facilities in 2020. Iran would likely retaliate, and a full-scale war isn't out of the question.

In such a scenario, stocks would likely take a hit. Remember, the Dow fell over 13% in the period after Iraq's 1990 invasion of Kuwait and the start of the U.S. military offensive against Iraq. This time, the market action would come in the 11th year of a bull market, with stocks at record levels; this could make a drop especially sharp.

Is the scenario a worst-case one? Perhaps. But when it comes to investing, it's better to be safe than sorry. In times of uncertainty, you want to make sure you're making the right bets in your portfolio. Now is a good time to rebalance your holdings, and to reconsider investments that might have too much exposure to geopolitical risks.

Is it time to get out of the stock market? That's a question that many people are asking as the longest-ever bull market rumbles toward its 11th year. But the question is the wrong one.

If you're a serious long-term investor, you don't change course based on the age of the bull market. You don't make kneejerk decisions when stocks fall for a few days in a row, as they did early this month. The only question you should ask yourself is whether your goals or comfort level with risk have changed. If they haven't, then nor should you make any significant changes to your portfolio.

Remember the 2008-2009 crash, when investing as we knew it seemed to be forever broken? The S&P is up 370% since the nadir of that period. And if you attempted to time the market back then – to jump out early enough and get back in soon enough – you probably shot yourself in the foot.

It's just human nature. Convinced that the key to protecting and growing their money is to "do something," many investors end up doing the wrong thing. Consider this: The stock market has returned about 10% a year since 1988, on average. But the typical investor in stock mutual funds has earned only 4.1% per year, according to research firm Dalbar. Why have investors missed out on 60% of the market's profits? Because they have hard time simply being patient and letting the markets work.

Failing to exercise patience and think long-term can destroy your investment results. Say you invested $10,000 in the S&P 500 at the start of 2009, and left it untouched. But the end of 2018, you'd have $35,300. But if you had fiddled with that money based on what you thought the market might do, the results might be very different.

If you missed the 10 top performing months in that decade, for example, you wound up with just $15,800. If you missed the 20 top-performing months, you lost a chunk of principal, ending up with $6,830. This kind of behavior happens all the time: Investors see the market starting to decline, or hear experts saying that the market is expensive and is due for a fall, and they pull their money out to avoid losses.

The problem is that nobody knows whether the market actually will decline, by how much, and when it will start to recover. Those who pull their money from stocks and put it into cash or more-conservative investments often do so too early. And they are often gun shy about jumping back in to stocks, even as a recovery has begun. So they miss out on some of the biggest gains as the market recovers.

That's not to say you should never make adjustments to your portfolio. It's important to rebalance – to restore the optimal balance among market sectors and styles – periodically. This helps to give you the best opportunity for growth while avoiding undue risk.

That's very different from market timing, though. As an investor, one of your greatest assets is time, with its power to slowly but surely compound your wealth. Successful investing is about time in the market, not timing the market. If you'd like a no-obligation review of your investments, please reach out and contact us.

Smart investors are always on the lookout for coming trends that could broadly impact the economy and the stock market.

That's why we've seen endless headlines about the trade war, the impeachment battle and decisions by the Federal Reserve. Less attention has been paid to a trend that is at least as important: the corporate debt cliff.

The exceptionally low interest rates of the past decade have prompted businesses to borrow trillions of dollars. But they'll soon have to pay the piper: Some $4 trillion of corporate debt will come due in the next five years – and the fallout could affect the economy as well as your investment portfolio.

For that reason, now is a good time to reevaluate what you own, and to make sure your portfolio gives you a chance to withstand or even capitalize on what lies ahead.

So-called growth stocks, which appreciate faster than the general market and usually don't pay dividends, have enjoyed a decade-long bull market. But tech companies and other growth stocks have fueled themselves with huge amounts of debt, and in many cases they're not profitable.

Behind much of this corporate debt are regular investors looking for decent yield in a super low interest rate environment.

Here's the bad news: Even as they take on more and more debt, U.S. companies' profits are declining. Inevitably, weaker companies will start to struggle to keep up with their debt payments, especially if economic growth continues to slow.

And as they look to issue new bonds to pay off the expiring ones – this is the $4-trillion debt cliff -- they may find fewer investors willing to lend to them. That's a very real scenario particularly because credit-rating firms have already downgraded debt for many of the companies in question to near junk-bond status.

If weaker companies are unable to sell enough new bonds to refinance their maturing ones, they could either default or be forced to sell off business divisions to raise money. That could hurt earnings, lead to layoffs and even help fuel a recession.

The corporate bond cliff and the heavy debt of many growth stocks create a good opportunity to reassess your portfolio. It may be time to sell corporate bonds and growth stocks and look at alternative ways to potentially earn growth and income.

The opportunities include so-called value companies that are profitable, don't carry heavy debt and are better positioned to navigate an economic slowdown. These companies generally pay a steady or rising dividend, unlike growth companies. And their stocks are at one of the cheapest levels relative to growth stocks in decades.

Mortgage-backed securities are another interesting opportunity. They're yielding in the range of 4% to 7% right now. Together, the right value stocks and mortgage-backed securities can serve as a good replacement for corporate bonds.

Bear in mind that any investment decision needs to fit your long-term goals, your level of risk tolerance and other factors. Please consult your financial advisor for professional investment guidance. Don't hesitate to call us if you'd like to discuss your portfolio.

In May, the prospects for a trade deal between the U.S. and China looked grim. As trade negotiations broke down and President Trump raised tariffs further, the S&P 500 plunged 2.5% from May 6 through May 9. 

 

At that time, I wrote that it’s most likely that the two countries will ultimately reach an agreement. Nobody, I pointed out, wins in a trade war. Now there are signs of progress.

 

On Friday the U.S. and China reached a modest preliminary deal in principle. It suspends the U.S. tariff increase that was scheduled for Oct. 15. In return, China agreed to buy up to $50 billion of U.S. crops and remove limits on foreign ownership of its financial-services businesses. The S&P on Friday rose 1.1%, to 2,970.

 

President Trump described the agreement as phase one, suggesting that other areas of disagreement would be tackled in subsequent rounds of negotiations. Negotiations remain delicate, and there could easily be more setbacks and detours.  Thorny issues like intellectual property protections and copyright and trademark issues still lie ahead.

 

But as I wrote in May, both the U.S. and China ultimately need to get a deal done. Trump, who is now facing an impeachment inquiry, needs a win to shore up his 2020 re-election effort. 

 

Chinese president Xi Jinping is also under pressure: Even though he isn’t facing an upcoming election, China’s economy is being hurt by the trade war because it’s become more expensive for American consumers to buy the country’s exports. Chinese leaders are aware that economic trouble can lead to social instability, and they seek to avoid at all costs. 

 

For investors, the trade war has hurt industrial and technology companies. If the U.S. and China are starting to replace tit-for-tat tariffs with incremental agreements, stocks of companies in those sectors could start to recover. 

 

For now, it’s important to continue seeking out exposure to stocks that aren’t exposed to the trade war, that have strong, durable earnings, and that are reasonably priced. Choosing individual stocks with the help of an expert investment advisor can, in a situation like the current one, give you a chance to outperform broad index-based funds. 

 

Finally, it’s a good bet that there will be more posturing, rhetoric and scary headlines as the U.S. and China seek leverage for future negotiations. The key is to remain patient, choose stocks carefully and watch for progress. If you’d like to review your investment strategy and holdings, don’t hesitate to get in touch with us. 

It's difficult to find good income opportunities in the bond market right now. The 10-year Treasury, which was yielding more than 3% last fall, is heading into this fall at 1.7%. That's even less than the rate of inflation.

As my clients' bonds mature, I'm advising them to consider some other opportunities with more attractive yields. One is an old standby – high-quality dividend-paying stocks. I look for stocks with rising dividends above the 10-year Treasury rate. Owning such stocks allows you to take advantage of price appreciation, but also to get paid while you wait.

It's true that the trade war and other pressures could hit companies' profits and force them to freeze or lower dividends. The key is to analyze and identify companies that are poised to continue growing their dividend payments over the long term.

Three dividend stocks that are worth a look right now are Discover Financial Services, which is yielding 2.1% and up 42% this year; Western Union, yielding 3.4% and up 41%, and Hawaiian Airlines' holding company, which is yielding 1.7% and up nearly 4%.

For something that may be completely different, income hunters might consider investing directly in real estate. Drawing on my own experience as a residential and commercial landlord, I wrote about real estate's pros and cons here

Owning and managing real estate properties is a longer-term commitment because it's obviously harder to sell a building than it is to sell a stock or bond. But if you do it right, it's reasonable to expect a 6% or 7% net profit year in and year out.

Finally, there's the opportunity to earn a solid yield with instruments called non-agency residential mortgage-backed securities. Specifically, I like RMBS that are backed by non-conforming loans. These pay higher yields – currently between 4% and 7% with duration under 5 years. The range is based on several variables, including prepayments and defaults of the underlying mortgages, as well as projected valuations of defaulted properties.

Non-agency RMBS can also be bought at a discount to their original price, which may increase the yield. The key is having the knowledge to track down opportunities that are discounted but also are high-enough credit quality to avoid a default.

So while bonds aren't a very encouraging place to be right now, fixed-income investors shouldn't lose hope. If you'd like to discuss the best way to add yield opportunities to your investment portfolio, don't hesitate to contact us.