Taking stock of your portfolio for 2014

Both the Dow Jones industrial average and the Both the Dow Jones industrial average and the S&P 500 index hit all-time highs in 2013. But what will 2014 bring? Above, the iconic bronze bull statue in Manhattan's Financial District. Photo Credit: AP, 2008

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If you invested in stocks in 2013, it was probably a very good year for your portfolio. Both the Dow Jones industrial average and the S&P 500 index hit all-time highs, lifting many investors' net worth with them. But ensuring many happy returns after New Year's Eve may take some planning and reconfiguring, especially for older adults whose portfolios are heavy in defensive, ultrasafe investments such as U.S. Treasury bonds.

"For people who are preretirees or in retirement, they typically have balanced-type portfolios with bonds in them," says Mary Moglia-Cannon, a senior investment analyst for Manning & Napier Advisors, an investment firm with headquarters near Rochester. "And right now you're looking at the Treasury market at historical levels of valuation."

Many investors and mutual fund portfolio managers flocked to Treasuries over the past few years because of their safety. But fixed-rate investments, such as bonds, typically decline in value as interest rates rise. "Investors have placed a big premium on safety and yield, particularly in the bond market, and that's of concern," Moglia-Cannon says. "And we also know that rates are going to go higher." Most economists expect the Federal Reserve to raise interest rates in 2014.

Meanwhile, stock investors may also face some hard choices. The S&P 500 index had robust returns this year, but that may not be the case in 2014, Moglia-Cannon says. Anyone thinking of investing in a fund that follows the S&P 500 might be disappointed next year. "We are in an environment where when people think about investing, they often reference indices," she says. "The problem with indices is that these tend to become more heavily weighted in areas of the market that have appreciated the most."

So what's an investor to do in 2014? Moglia-Cannon likes real estate investment trusts, which are stocks that typically pay high dividends. She also likes companies with "innovative or disruptive technology," especially those with a track record of technological advances in the wireless technology sector. She advises that those closing in on retirement do what generations before them did: save. Not every year will see the explosive stock market gains of 2013.

"Never before had we anticipated that you would be in retirement for 35 years," she says. "So it's important for those preretirees to make sure that they're maximizing their savings."

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