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Russell Investments: Shift Money From US Stocks to Europe

By    |   Monday, 06 July 2015 06:00 AM

U.S. stocks have greatly outperformed European ones over the last six years. But that makes now the time to exit the U.S. and go for European stocks, despite the crisis in Greece, according to Russell Investments' Quarterly Global Outlook.

"The headwinds that U.S. markets face are almost the exact opposite of the tailwinds to eurozone assets," it states. Those headwinds include:
  • High valuations. Robert Shiller's measure of the S&P 500's price-earnings ratio totals 26.7, compared to an average of 16.6 since 1880.
  • A strong dollar that is curbing exports and U.S. earnings.
  • Weak corporate earnings growth. A decline of 4.5 percent is expected for the second quarter, according to FactSet.
  • The Federal Reserve's gradual move toward raising interest rates.
And what does the eurozone have going for it, according to Russell?
  • Low valuations.
  • Strong earnings growth—expected at 15.4 percent for this year.
  • A weak euro.
  • Massive monetary easing, with the European Central Bank purchasing 60 billion euros of bonds per month through September 2016.
Elsewhere on the equities front, the old conventional wisdom that retirees should foreswear stocks for bonds is wisdom no more, says Stuart Ritter, senior financial planner for T. Rowe Price.

"Too many retirees are working from an outdated playbook, one that de-emphasizes the crucial role of equities," he writes in the AAII Journal. "The disconnect between modern retirement lifestyles and an old-fashioned approach to investing underscores a big risk that can threaten retirement bliss: the chance that a retiree might outlive his or her assets."

Given longer life expectancies and the ultra-low interest-rate environment of the past seven years, you can't expect interest payments from your fixed-income investments to provide for your retirement needs, Ritter points out.

Many in the financial community argue that curbing risk is "simply a matter of reducing equity exposure in favor of fixed-income holdings and short-term investments like cash," he says

But, "by reducing equity exposure too much in retirement, investors are simply trading a potential reduction in short-term volatility for other risks, such as ... outliving their assets."

Many experts agree with Ritter, recommending equity-income investments, such as dividend stocks, preferred stocks, real estate investment trusts and master limited partnerships.

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U.S. stocks have greatly outperformed European ones over the last six years. But that makes now the time to exit the U.S. and go for European stocks, despite the crisis in Greece, according to Russell Investments' Quarterly Global Outlook.
European, stocks, superior, US
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2015-00-06
Monday, 06 July 2015 06:00 AM
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