5 smart investments for 2019

Everyone is looking forward to 2019 if only because 2018 has been so ugly. Before we can talk about the best investments to make in 2019, we have to quickly explore what has gone wrong in 2018.

Stocks stumbled in the first quarter, rallied for most of the second and third quarters, then rolled over and died again in October.

Much of the massive gain in 2017 was likely powered by investors looking forward to the profit windfall following the corporate tax cuts at the end of last year.


Going forward, we’ll be comparing post-tax-cut profits to post-tax-cut profits as opposed to higher post-cut to lower pre-cut.

Meanwhile, at 2 times sales, the S&P 500’s price-to-sales ratio is sitting near all-time highs, and the cyclically adjusted price-to-earnings ratio, or “CAPE,” of 29.6 is priced at a level consistent with market tops.

Fortunately, I think the new year provides an opportunity to wipe the slate clean. In my opinion, here are five of the best investments you can make in 2019, come what may in the stock market.

Retirement Plans

The IRS is letting us sock back a little more cash free of current-year income taxes.

The contribution limits for 401(k) plans, 403(b) plans and most other employer-sponsored retirement plans will be rising from $18,500 to $19,000.

If you’re 50 or older, you can continue to make an additional $6,000 in “catch up” contributions, bringing the total to $25,000. These numbers include only salary deferral; any employer matching or profit sharing is icing on the cake.

Emerging Markets

Money manager Jeremy Grantham, co-founder of GMO projects annual losses of 5.2% on U.S. large-cap stocks, losses of 2.1% on U.S. small-cap stocks and flat returns in U.S. bonds.

In fact, Grantham is projecting flat or negative returns in every major asset class but two: emerging-market stocks and emerging-market bonds.

GMO forecasts EM stocks and bonds to return 3.2% and 2.2% per year, respectively, over the next seven years.

Over the past five years – a period that has seen the U.S. market rise by nearly 45% – the iShares MSCI Emerging Markets ETF (EEM) is actually down by about 3%.

I think the short-term outlook for emerging markets is cloudy, particularly with Chinese growth slowing. And, in my opinion,you should never put a large chunk of your portfolio in something as volatile as emerging market stocks.

But given the outlook on the sector, in my view it might make sense to have at least a modest piece of your portfolio invested in emerging-market stocks, mutual funds or exchange-traded funds.

Value Rules

Consider tilting your portfolio toward value stocks.

The past decade has been all about tech stocks, and specifically big data and social media companies such as Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google parent Alphabet (GOOGL).

But this is more exception than rule in my view.

Over time, growth stocks have generally tracked the broader market. Value stocks have outperformed.

Dimensional Fund Advisors (DFA) ran the numbers for the 90-year period between 1926 and 2016 and found that large-cap growth stocks returned about 9.6% per year, a little better than the S&P 500’s 10.3%.

Large-cap value stocks, by comparison, returned a whopping 12.5%.

Consider more recent experience. Growth stocks have outperformed value stocks by a wide margin since 2009, but value outstripped growth by a wider margin between 2000-08.

The pendulum naturally swings from a value bias to a growth bias and back again. There’s no fixed time limit that says when the pendulum must swing, but the recent outperformance by growth stocks is one of the longest in history.

So, in my opinion, rather than buy the dip in tech stocks, consider looking to value stocks in the energy, financial and materials sectors instead.

Alternative Assets

It’s difficult to beat the stock market as a long-term wealth generator. At roughly 7% annualized returns after inflation, the market has historically doubled your inflation-adjusted wealth every 10 years. No other major asset class has come close.

Still, I think that you shouldn’t put all of your money in the stock market.

To start, there is no guarantee that the future will look like the past. The stock market as an investment destination for the masses is a relatively new concept that really only goes back to the 1950s, or perhaps the 1920s if you want to be generous. You can’t credibly say that the market “always” rises with time because, frankly, we’re writing history as we go.

Bonds have a longer track record, but bonds are also priced to deliver very modest returns in the years ahead. Adjusted for inflation, the 3% yield on the 10-year Treasury looks a lot more like a 1% yield.

In my opinion, investors should consider alternative strategies as a way to diversify while not sacrificing returns.

In my opinion, alternatives could include commodities, precious metals and even cryptocurrencies like Bitcoin. But more than exotic assets, an alternative strategy can simply use existing, standard assets in a different way.

The key thing, in my view, is to keep your eyes open for alternatives with stock-like returns that don’t necessarily move with the stock market.

Your Career

My mother’s financial advisor once told me that the stock market was a good place to park your savings, but that the biggest investment I should make was in my career. “Get to work and advance your career because that is what will pay your bills.”

I didn’t want to hear it. It was the late 1990s, and I planned to get rich in the stock market. I’d make millions before I turned 30!

Needless to say, it didn’t quite work out like that. Stock prices collapsed in an epic bear market in 2000, and I learned some valuable lessons in the process.

Chief among those lessons was the need for humility and for a decent work ethic. I learned to roll up my sleeves and get to work, and I’m enjoying those benefits today, 20 years later.

The hunt for quick riches in the market is alive and well, whether it’s Bitcoin, marijuana stocks or the FAANGs that have struck investors’ fancies. There’s nothing wrong with speculating in any of these things. Who knows? It’s entirely possible that you could strike it rich. Just don’t let speculation become your main focus.

Nothing in life is a “sure thing,” but busting your butt is the surest way I know to make something of yourself in America circa 2019.

A longer version of this article was first published on Kiplinger.com.

Photo Credit: Phil Dolby via Flickr Creative Commons

Disclosure: Certain of the information contained in this article is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The author believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.