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With the Dow Jones Industrial Average and the Standard & Poor's 500 Index both routinely making record highs, figuring out how to invest in this aging bull market has gotten increasingly challenging.
But not impossible.
"There's still plenty of upside if you know where to look," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "The game has become more one of choosing the right stocks than it is worrying about what the broader index is doing."
And the market indices have been drawing a lot of attention lately. The Dow made its 11th closing record of the year last Friday. And the S&P 500 had its third consecutive record close on Friday - its 22nd of the year.
Having passed its fifth birthday on March 9, the current bull market is already one of the longest in history. If the S&P's rally goes on just two months longer, it will surpass the bull market of 1994-2000 to become the longest bull run in 85 years.
Numbers like that tend to scare the typical investor, particularly those who were burned in the dot-com bust of 2000, as well as the more recent financial crisis of 2008. And they are not wrong to think we're due for a pullback.
"Large stocks have more than doubled in the past five years. Small-cap stocks have tripled. A summer correction would be a normal and welcome occurrence," Fitz-Gerald said.
Such a correction would be an opportunity to buy stocks you've had an eye on at a discount, he said.
And if the markets simply level off, there's opportunity there as well.
"Any consolidation at these price points represents a chance to take profits and put new capital to work," Fitz-Gerald said.
Beyond that broad outlook for how to invest in a toppy market, Fitz-Gerald said investors should focus on three specific things.
Tips on How to Invest in Today's Market
"There are three key things investors need to be concerned about right now," Fitz-Gerald said. "As is usually the case, these three areas of concern are also three of the most intriguing profit opportunities that I see right now. That's not unusual - with worry comes opportunity. They're opposite sides of the same coin."
So what are the three things investors should be watching? Here is Fitz-Gerald's list in bite-sized form:
- In periods of uncertainty, "need to have" is usually better than "nice to have."
- As long as the central bankers keep refilling the punch bowl, the party isn't going to end.
- When making investment decisions, it's better to bet on seasoned corporate leaders than with politicians worried about their next election.
Let's look at them in order.
What Fitz-Gerald means by "need to have" are the things that society absolutely can't live without.
"I'm not talking about the next iPad or smartphone, or the next hot IPO," Fitz-Gerald said. "I'm talking about investing in the things that the world has to have to keep functioning - things like food, water, highways... and power."
Power in particular holds much promise for investors. The United States alone will need to spend $2 trillion on its electrical infrastructure over the next two decades.
Why Fed Tapering Isn't Really a Problem
Some market experts have been doing a lot of hand-wringing about the U.S. Federal Reserve cutting back on its bond-buying program, also known as quantitative easing (QE).
But the Fed says it plans to keep interest rates near zero for at least another year. And recent stimulus moves by the European Central Bank (ECB) mean that Europe is fertile hunting ground for investors now.
"European Central Bank President 'Super Mario' Draghi has made it very clear that he's going to do whatever it takes to support European efforts to crawl out from under the threat of deflation," Fitz-Gerald said. "This makes buying European stocks a lot like buying U.S. stocks just before former Fed Chairman Ben Bernanke made his move, but after he telegraphed it."
So, how to invest in Europe? The most straightforward way is to use exchange-traded funds (ETFs), and there are quite a few with a focus on Europe.
For general exposure, consider the $14.3 billion Vanguard FTSE Europe (NYSE Arca: VGK) and the $2.7 billion iShares Europe (NYSE Arca: IEV), which is based on the S&P Europe 350 Index. Both include non-Eurozone members Switzerland and the UK.
Fitz-Gerald is particularly fond of the $731 million WisdomTree Europe Hedged Equity (NYSE Arca: HEDJ), which gives you the benefit of gains in European shares - while neutralizing exposure to inevitable fluctuations between the euro and the U.S. dollar.
Look for the Best Corporate Leaders
Finally, Fitz-Gerald suggests that several companies with exemplary leadership can be a good bet when navigating how to invest when the markets are hitting new highs.
When looking for companies with top-flight chief executive officers, Barron's annual list of the "World's Best CEOs" is a good place to start. Barron's specifically screens for CEOs that consistently deliver above-average returns.
And the newcomers to the list are especially good investing prospects.
That includes Richard Anderson, CEO of Delta Air Lines Inc. (NYSE: DAL); Mark Donegan, CEO of Precision Castparts Corp. (NYSE: PCP); Reed Hastings, CEO of Netflix Inc. (Nasdaq: NFLX); John Martin, CEO of Gilead Sciences Inc. (Nasdaq: GILD); Leonard Schleifer, CEO of Regeneron Pharmaceuticals Inc. (Nasdaq: REGN); and Mark Zuckerberg, CEO of Facebook Inc. (Nasdaq: FB).
"You just need to tune out the noise, not get taken down some side road by the politicians, Wall Streeters and other ne'er-do-wells... and just focus on the very real profit opportunities that always exist," Fitz-Gerald said. "Find those opportunities by using the precepts and recommendations I just talked about, and you'll find that you profit consistently and are building your wealth. When you're in that mode, what happens to the broad market isn't such a worry."
UP NEXT: Once you figure out how to invest your money, there's another step that most people aren't even aware of. That would be making sure your money is in the most advantageous type of account. Getting this right can give you a 10% to 20% edge over those who don't...
- Barron's: World's Best CEOs
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.