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-Fed Chairman, Ben Bernanke, says it's too early to tell when tapering will start.
He doesn't wanna say.
He knows if market would spaz out.
So, is now the time to get some taper protection for your portfolio? Carol Pepper is here.
She's Pepper International president.
Got a lot of high-end clients who, I'm sure, have been calling you up saying, "I've gotta be ready for this," but what do you do? What are the first steps that you would take to protect your portfolio from tapering or are we overstating that we even need this type of protection? -Well, the first thing, Liz, is that a lot of wealthy individuals have a huge proportion of their portfolios and fixed income because that was perceived as very safe, especially when we are going to the crisis.
Now, unfortunately, the safe part of your portfolio may be the most dangerous part of your portfolio if you're in bond funds.
So, if you hold individual bonds and you've bought them and you can hold them to maturity and you're getting coupons every month, don't worry.
Whether the Fed raises rates now or in six months, you just hold your bonds and clip your coupons and you're fine.
-And you'll still get your money plus-- -That's right.
-a little bit of yield, I guess.
-And some yield and some of the bonds.
Even the older bonds have 6% or 7% yield.
So, if you have those bonds, you're fine.
-What if-- -If you-- -What if you didn't get it on the older bonds? -Well, if you didn't get it on the older bonds or if you're in bond funds, let's say you have smaller accounts and you're in bond fund, maybe in your IRA, those are the ones that got crushed in June and those are gonna get crushed again when the market starts [unk] -Okay.
Is everybody listening? She says if you've got those bond funds, you're going to get crushed.
Now, she's gonna tell us what to do,-- -Right.
-what to buy.
So, now, we don't have to be wary because there's now an alternative in the market.
You get a problem solved.
What's the alternative? -The problem aren't the target-dated bond ETF funds.
Now, that sounds like a mouthful, but basically, what the street is doing-- -This is-- This is the choice, right? -Yeah.
-They're basically creating synthetic bonds, ETFs that you can buy that have a target date of when they mature just like a bond would.
So, if you have a small amount of money, let's say you have $20,000 to put into bonds, you can buy a series of target-dated ETFs-- -Uh-huh.
-and that's just like a laddered bond portfolio.
Even if you don't have a large amount of money, you can basically mimic what the wealthy individuals are doing with their laddered bond portfolios-- -Laddered as in L-A-D-D-E-R-E-D.
-And ladder-- ladder meaning, get some better driven 2015, some better-doing 2016, 2017.
So, every year as we mature, you'll get your principal and the interest.
It will give you interest every month, dividends every month, and you don't have to worry about the interest rate.
-So, we showed a Guggenheim one.
Is that your preferred at this point? -Yeah, the-- Well, there's-- there are only two on the market now, but I suspect many more people are going to start to two companies offering them, but I suspect many more companies are gonna start offering these products.
So, it's Guggenheim Partners and iShares and the Guggenheim one is quite good.
-Carol, you've been here for the past year, bullish on equities.
-It's been a great call.
-Are you still hot on equities? -Absolutely.
I think, right now, if you look at every asset class around the world, the best performer is the US equity market and it will be continued to be so for quite some period of time.
Now, what you wanna do, if you're afraid you haven't gotten in yet, you're thinking what am I gonna get in, well, the summer is a perfect time for you because, what happens in the summer, all of Wall Street heads to the Hamptons and they dip in the pool and they dip in the ocean.
-In LA, it's Malibu.
-And then, what happens, the market starts to go down a little bit.
We have volatile days then trading volume.
So, you may have some days when you'll see the market going down and then you can dip into the market and get a better price.
-I'm hearing Traverse City, Michigan as well.
Let's give three names that you love right now.
So, there's three sectors that I think are gonna do well and the three names that I love: Let's start with health care sector, Johnson & Johnson.
Why do I like Johnson & Johnson? They've had a fantastic second quarter, 12% up in their pharmaceutical sector, 10% up in medical devices, and they still have room to go up because their consumer sector can still rise.
That's number one.
Number two, Home Depot for consumer discretionary.
Whether you think mortgage rates are gonna rise and people won't buy as much, what will they do? They'll renovate their own homes.
So, whether people are buying more homes or they're renovating, Home Depot is great.
Plus, they're going into the international markets.
They now have 180 stores in Canada, nine stores in Mexico, and believe it or not, seven stores in China.
Now, just imagine if all the Chinese get into a DIY mode.
-Oh, can you imagine? -That's gonna do great for Home Depot.
-Your third name? -Third name is Apple.
And why do I like Apple because, this fall, we're gonna see a slew of new products.
So, when that iWatch comes out and every kid in America has to have one and when the Apple TV starts coming out and everybody is starting to use Apple TV and their iPads, we're gonna see that stock go back up again.
-We're still trying to get a picture of that iWatch in development.
Carol, if you get one, let us know.
-Thank you so much.
-Carol Pepper, Pepper International president.
We'll put your ideas up on Facebook.com/LizClaman.
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