No One Saw This Surprising Investment Winner Coming in 2014

You won't find it in the S&P 500, but this unexpected investment is crushing the stock market. Find out what it is here.

Jan 25, 2014 at 11:31AM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The S&P 500 (SNPINDEX:^GSPC) has had a bad start to 2014, with Friday's 2.1% plunge bringing the index's losses for the year to more than 3%. After a five-year bull-market run, minor losses shouldn't be all that extraordinary. But what's really surprising investors is the strength that they're seeing in a completely unexpected corner: the bond market. Let's look at bonds and why they're doing so well in 2014.

Source: Treasury Direct.

The big boom in bonds that no one predicted
Last year was big for two reasons: The S&P 500 posted its best performance since the 1990s, and soaring interest rates caused big losses for bonds. With the Federal Reserve having just started its tapering from its quantitative easing program, most analysts expected interest rates to continue rising, putting even more pressure on bond prices.

But so far this year, that hasn't happened. Look at what we've seen from various parts of the bond market:

  • Long-term Treasuries were among the hardest hit in 2013, but the iShares 20+ Year Treasury ETF (NYSEMKT:TLT) is up 5.5% already just in January.
  • Signs of inflation remain muted at best, but inflation-adjusted bonds have still gained ground, with the iShares TIPS Bond ETF (NYSEMKT:TIP) jumping almost 2%.
  • Many investors wrote off municipal bonds after the bankruptcy of Detroit, arguing that risks were too high. But the iShares National AMT-Free Muni ETF has gained almost 2.5% in January, and many popular leveraged closed-end funds have had even better performance.
  • Even high-yield junk bonds, which often correlate better with stocks than bonds, have held up well, with SPDR High-Yield Corporate (NYSEMKT:JNK)posting small rises of less than 1% rather than following the stock market downward.

Meanwhile, yields on bonds have fallen rather than continuing to rise. The 10-year Treasury yield has fallen by more than a quarter percentage point, from above 3% at the beginning of the year to 2.73% on Friday.

The impact on consumers has thus far been relatively small. Thirty-year mortgage rates have fallen from 4.53% three weeks ago to 4.39% as of Thursday, and the drop in Treasury yields in Friday could send mortgage rates still lower when they get reported next week.

But the lesson investors need to take from the strong performance of bonds is that even when diversification seems like it doesn't make sense, it can end up paying unexpected dividends. Many investors chose to give up on bonds after their terrible performance in 2013, but January's returns show that diversified portfolios can lead to smoother results than betting on a single asset class -- no matter how much of a no-brainer it might seem to be.

Where to get income from stocks
Bonds are useful for getting income. But they're not the only smart place to look. In fact, one of the dirty secrets that few finance professionals will openly admit is that dividend stocks as a group handily outperform their non-dividend-paying brethren, even as they pay out valuable income to their shareholders. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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