The U.S. economy is growing at a languid 0.2 percent annual rate, according to the Bureau of Economic Analysis. But consumer spending is starting to increase and the housing economy has a detectable pulse. Is this the moment to invest in America and cash in on your civic pride?
“Investing in the U.S. — you understand it, and it’s patriotic,” says Boris Castillo, chief financial planner with MJF Financial Group, an advisory firm in Newport, California. “There’s a nervousness in investing overseas because people don’t feel that they know, politically, what’s going on, and there are cultural issues. Americans wonder if Greece could be shoved out of the European Union, and how far could the euro fall?”
Of course, a diversified portfolio calls for exposure to other parts of the world. But for the portion dedicated to the U.S., here’s how to wrap your investing strategy in the American flag.
To literally invest in America, consider real estate and agriculture, says David Kass, clinical associate professor of finance at the Robert H. Smith School of Business at the University of Maryland–College Park. Real estate investment trusts (or REITs, many of which are traded like stocks) can pay “high dividends, close to 10 percent,” he notes, “in an era when income from fixed securities is close to zero.”
Shopping centers are not a growth hot spot, and neither is commercial real estate, as mobile technology sends stress fractures through cubicle farms. But large-scale apartment development and management looks like a good bet for the foreseeable future as millennials leave home but can’t afford to buy, Kass says.
“Look at markets that are flourishing by geography,” he says. “Washington, D.C., is always stable, for example. For real estate, you want stable incomes and steady growth.” Millennials appear to be committed to urban living, so downtowns and well-established neighborhoods are experiencing a renaissance — especially those with reliable public transportation.
Residential real estate is picking up, and that means you can invest in neighborhoods by buying homebuilder equities, says John O’Donnell, chief knowledge officer for the Online Trading Academy, based in Irvine, California.
The homebuilders that are around today survived the recession and are poised for sustained growth, he believes. Builders are trying to lure millennials into homeownership with affordable first-home developments. “They have inventories of buildable land and lots. They usually have inventory [of completed homes],” he says. “And if there is a renaissance in wages and employment, homebuilders will experience that lift in profit first.”
One way to get in on homebuilders, O’Donnell says, is through the exchange-traded fund SPDR S&P Homebuilders ETF (symbol: XHB), which is a diversified portfolio of 20 homebuilders.
Another mode of investing in your fellow Americans is through home lenders, especially Wells Fargo, the country’s largest mortgage lender.
Agriculture and food processing are other steady, reliable categories, Kass adds. He recommends considering agricultural suppliers, such as farm equipment manufacturer John Deere, as well as fertilizer and crop engineer Monsanto. Archer Daniels Midland processes commodities, such as corn, into ingredients for a multitude of processed foods — part of a trusted, tested American food chain that is not experiencing quality problems of the sort that threaten the credibility of food supplies in China, Kass says.
Is there gold in American dirt? Mines themselves are risky, but the financial infrastructure that supports precious metal mining in the U.S. and elsewhere is sufficiently diversified to be worth considering, O’Donnell says. Companies like Silver Wheaton invest in mines and take royalties on what they produce. “It’s a low-risk way to invest in mining,” O’Donnell explains. “They don’t underwrite the cost of mining the ore, or exploration. They advance money and get a royalty of the net return.”
Other trends to watch:
— With labor costs rising in the U.S., thanks to rising minimum wages, some big-box retailers will see profits squeezed as operating costs rise — not to mention the ever-accelerating threat of e-commerce, Castillo says. “Walgreens, Wal-Mart, Target [and similar stores] will be shutting down stores and realigning,” he predicts.
— Some manufacturers, like General Electric, are shedding bureaucratic lending operations and doubling down on research and product development, O’Donnell says.
— For all the talk of “onshoring,” or bringing manufacturing back to the U.S., there’s “only a drizzle” of that, O’Donnell says. But a strong economy is built on strong industries, he adds, so a good long-term play might be basic manufacturing.
Finally, Uncle Sam himself might be worth considering, O’Donnell says. “There’s nothing more patriotic than lending money to the government,” he says. “You won’t make money, but if there’s a correction in the market, you won’t lose.”
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How to Invest Like an American originally appeared on usnews.com
