The start of a new year is always one of the best times to review your investment strategy. We know what happened last year, but 2020 is a chapter waiting to be written. One thing we can count on is that 2020 won't be exactly like 2019. And let's also not forget that not only will 2020 be a new year, but it's also the start of a new decade. That means thinking longer term than usual to enjoy a comfortable future, investing is absolutely essential for most people.
Why invest? Investing can provide you with another source of income, help fund your retirement or even get you out of a financial jam in the future. Above all, investing enables you to grow your wealth — allowing your financial goals to be met and increasing your purchasing power over time. Or maybe you've recently sold your home or come into some money, and then it's a wise decision to let that money work for you and grow over time.
While investing can build wealth, you'll also want to balance potential gains with the risk involved. As the start of 2020 showed with the coronavirus crisis, markets can become volatile very quickly. An investment might be good for the long term, but its price can bounce around significantly during some periods. Recessions can hurt investment prices for even longer, meaning you might not have the cash that you put into the investment soon, or ever.
You have many ways to invest — from very safe choices such as CDs and money market accounts to medium-risk options such as corporate bonds, and even higher-risk picks such as stock index funds. That's great news because it means you can find investments that offer a variety of returns and fit your risk profile. It also means that you can combine assets to create a well-rounded and diverse – that is, safer – portfolio.
Throw a dart. As investing strategies go, there are worse ways to forge a path forward these days.
But most investing strategies rely on finding order in chaos, distilling data into investable themes, sticking to a discipline. At least, that's what the market strategists, fund managers and investment advisers try to do: tell a story so compelling we will literally buy into it.
The investment managers below are some of the smartest storytellers around. This quarter, the panellists make arguments for why U.K. equities maybe dirt cheap; the case for following momentum (hello, Robinhood traders); a plug for a boring-sounding — but potentially lucrative — security; and more.
Before going near the stock market, however, take a look at "The 7 Habits of Highly Effective Investors." If you can tick off many of the items on that list, like building an emergency savings fund, then you're on solid financial footing. These days, being able to say that is no mean feat.
Bloomberg Intelligence ETF analyst Eric Balchunas provides suggestions for exchange-traded funds that offer ways to invest in the themes laid out by our panellists.
The 2010s were kind to the average Wall Street investor; the era ended as the first uninterrupted full-decade bull market in history. Going into 2020, the economy was still on solid footing, with the largest looming concern being the U.S.-China trade war. This dynamic informed the annual list of best stocks to buy puts together, and, like the broader market, some of the highlighted stocks were caught flat-footed. That said, with interest rates near zero, the stock market remains an essential long-term wealth-building tool for all financially able Americans.
New year, new decade, new chances to profit! While it's certain that the stock market can't continue to go up in a straight line, history also shows us that buying great stocks and holding them over the long run is a pretty surefire means to growing your wealth.
What stocks should you buy to grow you wealth in 2020? After scouring the market, I've settled on the following 10 stocks as the likeliest to put extra money in your pocket by the end of the year (and beyond). It is widely regarded as the best gauge of large-cap equities. Some of the largest companies in the index include Microsoft Corp. (MSFT), Facebook Inc. (FB), and Johnson & Johnson (JNJ). The S&P 500's total return is 23.0% over the past 12 months.1 This market performance number, and the statistics in the tables below are as of August 25.
What to Consider?
Risk tolerance and time horizon each play a big role in deciding how to allocate your investments. The value of each can become more obvious during periods of volatility.
Conservative investors or those nearing retirement may be more comfortable allocating a larger percentage of their portfolios to less-risky investments. These are also great for people saving for both short- and intermediate-term goals. If the market becomes volatile, investments in CDs and other FDIC-protected accounts won't lose value and will be there when you need them.
Those with stronger stomachs and workers still accumulating a retirement nest egg are likely to fare better with riskier portfolios, as long as they diversify. A longer time horizon allows you to ride out the volatility and take advantage of the potentially higher return of stocks, for example. Be prepared to do your homework and shop around for the types of accounts and investments that fit both your short- and long-term goals.
Best Stock Market To Invest in 2020
Some folks on Wall Street view e-commerce and cloud services giant Amazon.com (NASDAQ: AMZN) as expensive, given its estimated price-to-earnings ratio this year of 68. But they're not digging deep enough. They're ignoring Amazon's historically low price-earnings-to-growth ratio (PEG ratio) of 1.2, implying an undervalued company, at least relative to its growth prospects.
They're also overlooking its cloud services business, which is far more important than its dominant e-commerce operations. Through the first nine months of 2019, Amazon Web Services (AWS) grew sales by 37.6%, compared to 15.3% for traditional e-commerce and streaming. Furthermore, AWS is responsible for $6.6 billion in operating income through Q3 2019, compared to $4.1 billion for e-commerce. In other words, AWS is a higher-margin business that's becoming a larger percentage of Amazon's net sales. That's a recipe for a growth surge in cash flow in the first half of this decade.
With concerns of a recession continuing to haunt Wall Street, companies that provide basic-need goods and services could be extremely popular in 2020. That's why electric utility NextEra Energy (NYSE: NEE) deserves a look.
NextEra is unique in that it's generating more of its electricity from renewable sources, such as solar and wind, than any other utility in the country. These investments in renewables weren't cheap, but historically low lending rates have made these projects more affordable. Further, the long-term costs of utilizing renewables have resulted in substantially lower electricity generation costs and a faster growth rate than its peers.
One last note: NextEra's traditional electricity business is regulated. Though it can't just pass along price hikes whenever it chooses to, it also means that NextEra isn't exposed to wild swings in wholesale electricity pricing. Translation: Investors can expect a predictable cash flow year in and year out.
Kimco Realty Corp
Kimco Realty is a real estate investment trust (REIT) that owns and operates open-air shopping centres. Most of the company's properties are anchored by a grocery store and big box store. The company reported Q2 pro-rata portfolio occupancy of 95.6%. CEO Conor Flynn said that all of Kimco's shopping centres remained open and operational despite the COVID-19 pandemic.
The virus-driven downturn has now made the U.K. market one of the cheapest in our investment universe, with its current pricing about 80% below our estimate of its fundamental value.
The U.K. was hit harder by the pandemic than most countries, with respect to cases and fatalities. After an initial lag, Boris Johnson's government has reversed its original stance and followed the same strict path as other European governments, significantly slowing the transmission of the coronavirus. Restrictions on social and economic activity are already being lifted. In addition, the U.K. was able to implement large monetary and fiscal policy support swiftly.
Looking past the pandemic, the U.K.'s government is more growth-friendly than those headed by previous conservative prime ministers. Meanwhile, faced with a tight time frame to negotiate future trade arrangements with the European Union, we may end up with a Brexit that looks more like "no-deal" than a comprehensive free-trade arrangement. Although this is bad for the economy, markets have had ample time to adjust.
It is unlikely that equity markets overall will deliver strong returns while economic activity slowly resumes, but we believe the medium-term prospects for the recovery of U.K. equities are among the brightest.
How to play it with ETFs: The iShares MSCI United Kingdom ETF (EWU) offers market-cap-weighted exposure, with pharma (13%) and oil and gas (11.2%) the largest sector exposures. The fund is the most-traded index fund tracking the U.K. market and has an expense ratio of 0.50%.
Performance of last quarter's ETF plays: The iShares MSCI Brazil ETF (EWZ) rose 20.6% in the second quarter.
Money Market Accounts
Money market accounts are like a mix between savings and checking accounts. While having this type of account with a traditional bank would get you a higher return than with a checking account, you will only be able to issue a check six times a month.
Online banks offer higher APY (Annual Percentage Yield) on money market accounts, which usually depend on the minimum balance. For example, UFB Direct is currently offering 1.35% APY with a minimum balance of $25,000; however, balances less than this will earn 0.50% APY.
- Easy to open an account and access cash. FDIC insured
- You will need to invest and maintain larger amounts for bigger APY
Medifast (ticker: MED)
Health and nutrition products company Medifast specializes in weight loss products, selling bars, meals, shakes and healthy snacks, offering a variety of different plans, 30-day kits and the like. When U.S. News picked MED in early December 2019, shares traded around $90 a pop, paid a huge dividend and enjoyed an important catalyst: An activist investor, Engaged Capital, which had previously made a killing on Medifast, was back to agitate for further changes and a possible sale. That driver still exists, and a sale at today's prices would fetch considerably more than it would've to begin the year. A 2.4% dividend and a forward price-earnings ratio of 15 make MED still look attractive after its run-up, especially with analysts expecting 20% compound earnings growth over the next five years.
Top stocks can be found in all sizes, even if they don't have a brand name. Cancer-drug developer Exelixis (NASDAQ:EXEL) continues to swim in cash, thanks to its soon-to-be blockbuster drug Cabometyx, which is used to treat advanced forms of renal cell carcinoma (kidney cancer) and hepatocellular carcinoma (liver cancer).
Even with intensified competition in kidney cancer, Cabometyx should continue to deliver annual sales growth of close to 10% through 2022. Just as important, this drug is a cash cow for Exelixis, with roughly $470 million in free cash flow generated over the trailing 12 months. This cash flow suggests that, by the end of 2022, Exelixis could be closing in on $2 billion in cash on hand. That'd represent more than 35% of its current market cap.
Additionally, don't overlook combination studies involving Cabometyx with current competitors' therapies, or the fact that it's restarted its internal research and development. Exelixis is cheap, no matter how you slice the data.
Social media company Pinterest (NYSE:PINS) had a forgettable first year following its initial public offering. I believe that changes in 2020.
You see, Pinterest's latest operating results show improvement more or less across the board. It added 71 million monthly active users to 322 million, which should help its ad-pricing power, and has seen a marked uptick in average revenue per user in international markets. Pinterest has been spending aggressively to court overseas users, and these tactics, along with its increased emphasis on video, are beginning to pay off.
The big catalyst for Pinterest in 2020 should be the shift from losses to recurring profitability by no later than the second half of the year. Pinterest won't be fundamentally cheap this year, but its supercharged growth rate more than makes up for its lack of traditional value.
Alibaba Group Holding (BABA)
Alibaba was uniquely built to thrive, even during a pandemic originating in China, as U.S. News' original analysis unknowingly highlighted: Like American counterpart Amazon.com (AMZN), Alibaba dominates e-commerce in its home country, oversees an impressive logistics network, enjoys a growing cloud computing business and is on the forefront of hot growth areas like artificial intelligence. Asia's largest diversified e-commerce company continued to put up robust growth numbers in the second quarter, posting 59% year-over-year revenue growth in cloud computing, a 34% increase in overall revenue from the prior year, and mobile monthly active users of 874 million – up 16% year over year.
Finally, charge into 2020 with Visa (NYSE: V) on your side. What you might not realize about Visa is just how dominant it is in the consumption-driven U.S. market. In terms of market share by network purchase volume, Visa controls 53%, which is 31 percentage points higher than its next-closest competitor.
What allows Visa to deliver for investors every year is the fact that it's not a lender. Visa focuses on being a payment facilitator, which means that when the U.S. or global economy slows and credit delinquencies rise, Visa feels almost no effect.
With 85% of the world's transactions still conducted in cash, Visa also has a long runway with which to grow its business in the Middle East, Africa, and Southeastern Asia.
The case for naming Facebook one of the best stocks to buy for 2020 was fairly straightforward: With roughly 2.5 billion users, it's gobbling up the world, and reasonable people could argue that if privacy is dying, individual investors may as well profit alongside Silicon Valley. This marks the fourth consecutive year that FB has been on U.S. News' Best Stocks to Buy list. Since being named as a top stock for 2017, shares of the social media giant are up by more than 140%, easily surpassing the S&P 500's 53% return. Long-term opportunities still exist; Instagram monetization is in the early stages, and opportunities in Dating, Facebook Marketplace and elsewhere abound. Facebook Shops, which allows businesses to sell directly on Facebook and Instagram, is the 2020 rollout most rife with potential.
Like Pinterest, social media giant Facebook (NASDAQ:FB) continues to see most of its metrics improving. The difference being that Facebook has been profitable on a recurring basis for some time, and it holds four of the seven most popular social media sites in the world (Facebook, Messenger, Instagram, and WhatsApp).
On Facebook alone, the company logged 1.62 billion daily active users in the third quarter, along with 2.45 billion monthly active users. There isn't a social platform anywhere that advertisers can go to that'll reach as many eyeballs as what Facebook offers. This means unparalleled ad-pricing power, which is further magnified by the fact that Facebook is only scratching the surface on how to monetize a number of its core assets.
Investing can be a great way to build your wealth over time, and investors have a range of investment options – from safe lower-return assets to riskier, higher-return ones. So that range means you'll need to understand the pros and cons of each investment option to make an informed decision. While it seems daunting at first, many investors manage their own assets.