Two Investments to Consider when You're Coming off the Sidelines

“Is now a good time to come off the stock market sidelines?” I’m getting that question a lot lately considering that the market is clearly much more expensive than it was a year ago and that many investors are still sitting on the sidelines in cash.

In fact, according toBlackRock’s recent Investor Pulse survey of 400 Americans, U.S. investorscontinue to hold a sizable percentage of their assets in low- or no-return cash investments.

While I wouldn’t say now is a bad time to enter the stock market andI don’t believe equities are in a bubble, I would be a little bit opportunistic when entering the market today.

Stocks are still reasonably valued and cheap compared to the bonds; but there are parts of the market that look a bit more stretched. As I mentioned this weekin a BlackRock video, there are two equity segments where I would be comfortable putting money to work now:

1.) Cyclical sectors like technology.While the tech sector’s growth is much slower than in the past, I see value, if not excitement, in the sector.Tech stocks are reasonably pricedand typically carry little debt, making the sectorless vulnerable to rising interest ratesthan its counterparts. And within the sector, I especially like larger firms, part ofmy general preference for large and mega-cap stocks.

2.) International equities. Generally, stocks inmost overseas markets look much cheaper than U.S. equities.

At the same time, I would be more nervous about putting new money to work in these three segments:

1.) U.S. small- and mid-cap stocks, which have had a very big run already.

2.) U.S. consumer discretionary companies – including retailers, hotels and restaurants — because I think they’re dependent upona consumer that hasn’t fully come back yet.

3.) Defensive sectorslike utilities, which are likely to sufferif interest rates rise further in 2014.

What’s your take on where to enter the market today?

Source: BlackRock Investment Strategy Group Research

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