The financial markets are in decent health in 2024, showing resilience against a rocky economy.
The Standard & Poor’s 500 stock market index is up 10.6% for the year through May 31. The index was also up 24.2% in 2023.
Other asset classes are posting positive numbers as well. Take the short-term yield market, where many bank certificates of deposit (CDs) return 4% to 5%. Select short-term bonds are in the same ballpark, with two-year United States Treasuries yielding about 4.7% as of mid-June.
With multiple investment sectors well on the upside in 2024, it’s a good time to discuss the best asset classes for the second half of the year.
“Now is an excellent time to revisit your overall financial situation and assess any changes or anticipated changes,” said Shinobu Hindert, a certified financial planner (CFP) at Empowered Planning and the author of “Investing is Your Superpower.” “By reevaluating your financial goals, you ensure your investments align with those goals.”
What are the best assets to invest in going forward? These investment vehicles top that wealth-generating list.
Stocks
Adding stocks to your portfolio is crucial for myriad reasons, but the ability of equities to outpace inflation, especially for money you won’t need to access in the next few years, is first and foremost.
“This strategy helps ensure your investments grow, maintaining their purchasing power,” Hindert said. “However, it’s crucial to avoid letting emotions dictate your decisions. Trying to time the market is risky and can lead to poor investment choices. Instead, focus on a well-thought-out strategy that aligns with your long-term financial goals rather than reacting impulsively to market fluctuations.”
Another key attribute of stocks is that they allow investors to harness the power of compound growth, which is the ability to earn returns on one’s initial investment as well as any subsequent returns. It’s the fuel that drives long-term total returns.
Mutual funds and exchange-traded funds
Mutual funds and exchange-traded funds (ETFs), including index funds of both varieties, are cost-effective investment options that offer broad market exposure and low fees.
“ETFs have the added benefit of being traded intraday like stocks, providing flexibility for active management,” Hindert said. “While they are excellent investment tools, building a diversified portfolio with appropriate exposure to stocks, bonds and cash is crucial.”
For example, a long-term retirement portfolio might consist of 80% stocks, 15% bonds and 5% cash, while investments made to save for a short-term goal, like saving for a house, might have a mix of 60% stocks, 30% bonds and 10% cash. “Once you’ve determined your asset allocation, you can fill these buckets with specific index funds and ETFs to achieve a balanced, diversified investment strategy,” Hindert advised.
Bonds
The US fixed-income landscape appears attractive as the Federal Reserve continues to communicate that it expects lower rates.
“However, this is not a guarantee, as we have seen so far this year,” Hindert said. “The Fed can change their minds based on current economic conditions, and they are closely monitoring inflation. Even so, having exposure to bonds as part of your overall investment strategy is attractive because they add stability and income as opposed to stocks, which have a growth goal but can bring a lot of volatility.”
Given continued high interest rates, investors have a valuable opportunity to diversify into bonds, which can offer decent returns in the second half of 2024. “This hasn’t been the case in previous years. Your return depends on the risk you’re willing to take, but even some of the safer options yield around 4%,” said R.J. Weiss, a CFP and founder at The Ways to Wealth in Geneva, Illinois.
Cash
Cash and associated cash equivalent vehicles like money market funds, bank savings accounts and CDs can add a dose of safety to an investment portfolio, especially in times of economic hardship. While every investor’s financial situation is unique, investment advisors typically urge investors to maintain a cash allocation of anywhere between 2% and 10% in their overall portfolio, which should boost its liquidity and stability. Having a cash reserve also provides a much-needed emergency fund consumers can use for unforeseen household impactors like illness, injury or in the case of a natural disaster, such as a hurricane, flood, fire or tornado.
Cash equivalent vehicles are particularly useful in 2024, as investment returns can reach into the 5% range due to high Federal Reserve interest rates. While it’s generally OK to stretch your cash accounts out to one year, keep some cash on hand that you can access immediately in the event of a financial emergency.
Roth IRAs
In the investable asset realm, the earlier you start, the better off you are. That’s certainly the case with Roth IRAs.
A Roth IRA is a retirement account with tax-free growth and withdrawals as long as certain conditions are met. Contributions are made with after-tax dollars, so there are no upfront tax deductions. Key benefits for those nearing retirement include no required minimum distributions (RMDs) during the owner’s lifetime, allowing more withdrawal control and better tax management.
Roth IRAs are particularly useful for people without a workplace plan, such as a 401(k) plan, who could use a retirement savings boost.
While any saver can invest a maximum of $7,000 in a Roth IRA in 2024 (up from $6,500 in 2023), the so-called “catch-up” provision allows Americans age 50 and over to tack on another $1,000 in Roth contributions, bringing the potential total amount to $8,000 this year.
Alternative investments
Among other asset classes, alternative investments include the following:
“The public markets have more risk exposure when there is geopolitical uncertainty, so having money in privately owned, alternative assets can hedge a lot of that risk,” said Kelly Ann Winget, founder and CEO of Alternative Wealth Partners in Dallas, Texas. “It’s important to have a foundation of long-term, safe assets — traditionally, this has been a diversified stock and bond portfolio.”
Once you’ve curated a solid portfolio, you can gauge how much you want to invest in higher-risk, higher-reward assets like alternatives. You’ll be in good company when you do so. “Most accredited investors (e.g., with at least a $1 million net worth or who earn at least $200,000 in annual income) invest 10%-25% of their portfolio into alternatives,” Winget said.
Crude oil and natural gas are particularly useful investable assets, financial experts say.
“One of the primary advantages of investing in oil and natural gas mineral funds is the potential for regular monthly cash flow from producing wells,” said Jace Graham, CEO of Rising Phoenix Capital in Dallas. “This income is generated from the ongoing production and sale of oil and natural gas, which can be particularly valuable in a high-interest-rate environment where returns can be much lower in alternatives such as real estate.”
While traditional income-generating investments might face volatility or valuation pressures due to fluctuating interest rates, oil and gas revenues can provide a steady income stream. “That makes them an attractive option for income-focused, yield-driven investors,” Graham noted.
Real estate
Chances are your home is probably not a great investment until it’s paid off and you’re living there for free, aside from any tax obligations. “The compound annual real price return on American homes, on average, over the past 130 years has been only about half a percent per year,” said Dr. Roger Silk, CEO of Sterling Foundation Management and a former Treasury officer at the World Bank.
There are, however, some decent investment opportunities in real estate.
“For the ‘regular’ investor wishing to invest in real estate, real estate investment trusts (REITs) are probably the best option, as they provide the potential for diversity among types of real estate you invest in,” Silk said. “The returns from investment in real estate comes mostly from the cash flows to that real estate or rents that can be charged on the real estate.”
Rents generally rise with inflation but don’t seem particularly likely to outpace inflation. “Consequently, real estate will likely continue to generate good, but not amazing, returns,” Silk noted.
Work income
Yes, career income in the form of a paycheck, bonuses and workplace benefits like a 401(k) plan or good health insurance falls into the household asset management realm. After all, the more you make, the heftier your cash pipeline through the course of your career and beyond, given related asset management vehicles, such as retirement accounts, annuities and Social Security payouts, that feed on career income.
“The best investment for someone who is some time away from retirement could well be to focus on enhancing their ability to earn a living,” said Ken Robinson, a CFP and founder of Practical Financial Planning in Rocky River, Ohio. “Increasing your value to your employer is something you have at least some control over.”
No one knows which financial investments will go up or down in the next six months, but you can take courses or work toward certifications that make your professional skills more desirable, Robinson noted. “If your current employer doesn’t see the increased value, another employer probably will,” he added. “Just ensure you’re working on a skill set employers want.”
Long-term wealth accumulation tips
A well-researched blend of assets can provide a big financial cushion as investors age and shift into retirement. These moves can make the long-term wealth accumulation process easier.
1. Create a security net for yourself
It’s a good idea to create an emergency fund equivalent to three to six months’ worth of expenses in your savings account. “If you need to, you’ll be able to tap into your emergency fund,” Silk said. “This can give you peace of mind, knowing that when the value of your portfolio drops, it won’t affect your day-to-day lifestyle.”
2. Expect volatility
Expect the value of your portfolio to fluctuate, and don’t sell out when it does. “If monitoring your portfolio every day makes you anxious or worried, then don’t monitor it every day,” Silk said.
3. Maintain a long-term view
Have a long-term view of investing. “Remember that you’re not trying to capitalize on a ‘get rich quick’ scheme; you’re allowing your money to grow steadily,” Silk added.
4. Save and invest consistently
Do your best to save consistently and invest consistently. “There’s never a ‘perfect time’ to invest,” Silk said. “Instead of worrying about trying to beat the market with ‘perfect’ timing, focus on investing consistently and prudently.”
5. Stay steady over the long haul
In a volatile economy, diversifying your portfolio is essential to mitigate risks and achieve balanced growth. Finding the right asset mix depends on your time horizon, individual financial situation and overall tolerance for market risk. To effectively diversify, incorporate a variety of asset classes, such as stocks, bonds and real estate, and spread your investments across different geographic regions and sectors. Regularly rebalancing your portfolio ensures it stays aligned with your goals, helping you weather economic ups and downs while focusing on long-term growth and stability.
Match with a pre-screened financial advisor that is right for you.
Answer 20 questions and get matched today. Connect with your match for a free, no-obligation call.
On Datalign’s website
Frequently asked questions (FAQs)
Historically, stocks outperform other financial assets like bonds, commodities, real estate and money market funds. That outperformance comes with risk, so it’s best to work with a trusted financial advisor to create a stock portfolio that allows you to sleep comfortably at night.
With the federal funds rate sitting between 5.25% and 5.5% as of June 2024, fixed-income investors are seeing yields of about 5.4% for three-month Treasury bills and 4.7% for two-year Treasuries. Those are attractive returns for investments fully backed by the US government.
Like any financial asset, real estate investments come in all shapes and sizes, with different property types, varied geographical regions and strategies, including property flipping or investments in funds like REITs.
Perhaps the biggest difference between ETFs and index funds is that ETFs, including index ETFs, trade throughout the day on major market exchanges while index funds, like all mutual funds, are only traded at the end of each daily market session at the fund’s net asset value (NAV).
Diversifying your investment portfolio with a variety of asset classes helps mitigate the impact of potential losses in traditional assets like stocks and helps curb the eroding effects of inflation.
