Due to the historically painful start to the stock market in 2016, you might feel tempted to invest your cash in the nearest financial vehicle and hope for the best. Apart from the risk of inflation consuming the value of your asset, history clearly shows that such pullbacks usually lead to the perfect opportunity for long term investors to put their money working. As according to what the experts have to say, 2016 is already shaping to be a rather volatile year for the stock market and the seasoned investors are aware about when the market might crash and this is the reason why they have to be careful about the steps that they take while investing. Read on the concerns of this article to know more about which investments to choose in 2016 to reap maximum profits.
1) Invest in QE
If you remember the way in which Fed had slashed the interest rates to near 0 and introduced the asset buying program way back in 2008. It was then that the US stocks hit bottom and then gradually started rising steadily. Currently the central banks in Japan and Europe have given similar easy monitor policies using QE in order to boost their economic growth which is a step that will also boost the prices of stocks. Experts are of the opinion that this divergence will become a tailwind to Japanese and European assets and will definitely act as a headwind to the US.
2) Invest in foreign currency
The divergence in the bank policies of the central bank will continue to play in the foreign currency markets where the US dollar has been predicted to remain strong as against other currencies, although not too strongly. The US investors who own foreign assets could get back some of their gains due to the translation of currency. Investors need to consider the risk of investing in currency more seriously. You can receive an appreciation in the price of dollar and an erosion of your returns.
3) US large cap stocks
We’re currently experiencing an aging economic cycle and in such a cycle, the large-cap stocks usually perform better than the mid-cap and small-cap stocks over the 12 months and 6 months after a rate increase by Fed. According to Goldman, large-cap companies have enough access to capital during rise in rates. Within the American stock market, Goldman favors most of the large-cap stocks which boast of strong balance sheets, increasing profit margins and high level of US sales. The investment bank favors mega-cap stocks more than the large-cap ones.
4) Biotech
If you notice properly, technology is the only sector which shows phenomenal performance as compared to the broader market, followed by a Fed rate hike and tech still continues to show enough strength after a year of first hike.
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