Overall, 2013 has been a very good year for the stock market. The Dow and S&P reached record highs, and the economy has seen significant progress 2013 may be an anomaly, however, according to Jeffrey Kleintop, chief market strategist at LPL Financial. In his Weekly Market Commentary, he said that there are five lessons that investors have learned this year that they need to reject in order to be successful in 2014.
- Diversification is unnecessary – In 2013, a portfolio of similar U.S. stocks saw stellar returns, while diversification and aggressive portfolio management typically did not result in as much success. History shows, however, that having a varied portfolio almost always works in the investor's favor.
- Dividends aren't important – Companies that seemed to outperform this year used their excess cash to buy back stock rather than pay dividends to investors. Kleintop predicts that this will change next year once the market becomes more income-hungry.
- Stocks increase in a straight line – If you've only become interested in stocks this year, it may seem like indices like the Dow and S&P only seem to go up, without any setbacks. Over the past 20 years, most indices have seen more volatility.
- Risks will not materialize – This year, U.S. investors were faced with the possibility of higher taxes, spending cuts and a federal government debt default. Most of these things never happened, but that doesn't mean that they won't next year.
- Washington is all that matters – Investors spent much of their time concerned about how policy decisions would affect the market. As growth accelerates and fiscal battles become less likely, what is going on in the nation's capital will become less important.
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Categories: Risk Management, Trading & Portfolio Strategies