Tags: safe | volatile | environment | PE

WSJ: Tips for Safety in Volatile Environment

By Dan Weil   |   Monday, 01 Jul 2013 09:26 AM

Investors seeking safety will have to change some of their assumptions to thrive in the new environment of market volatility, says Joe Light of The Wall Street Journal.

"First, keep money that you can't afford to lose in truly safe assets, or at least ones that are as safe as financial assets can be, such as short-duration bonds or cash," he writes. Accept that you'll receive virtually no income for this safety.

"Then, with money you are willing to risk, favor stocks that are cheap relative to their earnings — not those with the highest dividend yields."

Editor's Note:
Billionaires Dump Stocks. Prepare for the Unthinkable.

Stay away from the telecommunications services sector, which has a forward price-earnings (P/E) ratio of 16.9, Savita Subramanian, head of U.S. equity strategy at Bank of America, tells The Journal.

Instead, gravitate to sectors such as information technology, with a P/E ratio of 13.1, and energy, with a P/E ratio of 11.8, she says.

But don't look at stocks as a replacement for bonds. "It's always dangerous stuff to think of equities as a bond proxy," Hans Olsen, chief investment officer for the Americas at Barclays Wealth and Investment Management, tells The Journal.

"That's a sure way to make a small fortune out of a large one."

Jason Hsu, chief investment officer at Research Affiliates, tells The Journal that investors should also look toward emerging markets to find bargains.

Despite the recent upward spike of interest rates, bonds remain a worthy investment, many experts say.

"The role of bonds in a portfolio has always been to be a ballast or a diversifier to equity risk," Francis Kinniry, a principal in the Vanguard Investment Strategy Group, tells The New York Times.

"And that is very true today. Yields are low, but this is what a bear market in bonds looks like."

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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