After 10 years of a bull market in which the S&P 500 index gained more than 400%, many investors are nervous about when the bubble may burst, especially after last December’s meltdown. Bottom Line ­Personal asked a range of investment experts to recommend strategies for cautious investors to provide growth and protection in a bumpy market…


Focus on large companies with little or no debt. Over the past decade, corporate America has taken advantage of easy credit to finance acquisitions, buy back stock shares and pile up more than $9 trillion in corporate bond debt. This poses a threat if the economy weakens. Companies that struggle to pay interest on their heavy debt loads risk seeing their credit ratings fall, which would make raising new money even more costly.

In this environment, the best-­positioned firms are debt-free and they have plenty of cash for expansion or to fall back on if their profits slump or they face some kind of unexpected crisis. A recent study by Barron’s found that the stocks of companies with low debt outperformed the stocks of companies with higher debt by one percentage point a year over the past 25 years. Low-debt companies also tend to experience less volatility than the overall market.

Attractive stocks with little or no debt and balance sheets flush with cash: American Express (AXP)…biotech firm Amgen (AMGN)…and Target (TGT). 

William Smead is CEO/CIO of Smead Capital Management, an investment advisory firm with $2 billion in assets under management. He is lead portfolio manager of the Smead Value Fund (SMVLX), whose 10-year annualized returns of 15.7% rank in the top 3% of its category.*


Add some commercial real estate. The easiest way to do this is through real estate investment trusts (REITs), which are income-producing commercial real estate companies that pay 90% of their earnings as dividends. REITs tend to do very well in steady economies with moderate growth.

Even if the US economy slows substantially, well-run REITs have long-term guaranteed contracts with tenants that include regular rent in­creases. ­REITs overall held up well in last December’s stock market plunge, thanks to their high dividend payouts and reasonable valuations. I keep about 5% of my fund’s overall stock portfolio in REITs now. Attractive REIT mutual fund…

Cohen & Steers Realty Shares (CSRSX) is a concentrated fund with just 45 ­REITs. The fund’s managers develop an outlook for the US and regional economies, then decide which sectors and REITs are most likely to benefit from that outlook. Recently, the fund has been heavily focused on apartment buildings, health-care facilities and data centers (warehouses that store, manage and maintain digital data). 12-month yield: 3.4%. The fund has 15-year annualized returns of 10.5% vs. 9% for the S&P 500. 

Robert Carlson is editor and publisher of Retirement Watch newsletter. He is a managing member of Carlson Wealth Advisors and chairman of the board of trustees of the Fairfax County (Virginia) Employees’ Retirement System.

Consider a balanced fund, which ­offers a set mix of bonds and dividend-­yielding stocks. This combination can significantly reduce the level of risk without sacrificing too much in performance. Attractive balanced fund now…

Vanguard Wellesley (VWINX) keeps two-thirds of its portfolio in investment-grade corporate bonds and one-third in the stocks of large, undervalued companies, most of which pay dividends. This combination has made the fund 60% less volatile than the S&P 500 over the past 15 years, but it still has produced annualized returns of 6.9% versus 9% for the index. 12-month yield: 3%.

Robert M. Brinker, CFS, is editor of Brinker Fixed Income Advisor, Littleton, Colorado. The newsletter’s model bond portfolio for moderately aggressive investors has returned an annualized 10% over the past 10 years vs. 3.6% for the Bloomberg Barclays US Aggregate Bond Index.

Among small companies, focus on those with sustained dividend growth. Unlike fast-growing small companies whose share prices may be very volatile, shares of small companies that manage to raise their stock dividends year after year tend to be much less risky and more stable when the market starts pitching. Best way to invest in small-cap stocks…

ProShares Russell 2000 Dividend Growers ETF (SMDV) is an exchange-traded fund that holds shares of about 60 companies in the Russell 2000 Index that have been able to grow their dividends for at least 10 consecutive years. The ETF lost just 0.6% in 2018, compared with fast-growing small-caps, which lost 9.3% as measured by the Russell 2000 Growth Index. Over the past three years, the ProShares ETF returned 13%, compared with 11% for the small-cap (value and growth) stock fund category.

Neena Mishra, CFA, is ETF research director at Zacks Investment Research, Chicago.

Bond Funds

Avoid long-term-bond funds. At this point in the aging bull market, bonds should serve mainly as a shock absorber for more volatile investments such as stocks. 

To accomplish that, focus your fixed-income portfolio on high-quality bond funds whose average durations are five years or less. The longer a bond fund’s average duration, the more likely it is to lose value as interest rates rise.

Although Fed officials have indicated that they do not expect to increase interest rates this year, rates still could jump if inflation surges, and bond funds with long durations could suffer significant losses. Two high-quality bond funds with short-to-moderate durations… 

Vanguard Short-Term Bond Index ETF (BSV) invests about three-­quarters of its assets in US Treasuries and one-quarter in high-quality corporate bonds. With 70% of its holdings having a credit rating of AA and an average duration of just 2.6 years, it is well-protected from both defaults and interest rate hikes. 12-month yield: 2.1%.

Vanguard Mortgage-Backed Securities Index ETF (VMBS) can be considered if you can handle slightly more risk. It recently had a 12-month yield of 2.8%, an average credit quality rating of AAA and average duration of five years. The fund invests in bonds composed of bundles of residential mortgage loans guaranteed by US government-sponsored ­entities such as Fannie Mae and Ginnie Mae. 

Wes Moss CPA, CFP, is chief investment strategist at Capital Investment Advisors, which manages more than $2 billion in assets, Atlanta. He is author of You Can Retire Sooner Than You Think.

*All performance figures in this article are from investment research firm Morningstar Inc. and are through April 30, 2019.

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