The current economic environment has inspired most investors to save more and reduce their debt, but wealthy investors are more likely to invest in stocks and bonds.
One-fourth of millionaires with a net worth of $5 million or more say their primary response to the current economy is to step up their investment in stocks and bonds, according to a June survey. Our research also shows that 23 percent plan to reduce their debts and 17 percent plan to save more through such products as certificates of deposits.
Most advisors predict the stock market will remain extremely volatile for the rest of 2011 and recommend investors employ tried-and-true strategies for coping with volatility, such as diversification, the practice of allocating assets across many investment classes. Some analysts also like to watch bellwether stocks, which serve as a barometer indicating which way a sector and often the market as a whole will go.
Bellwether, or barometer, companies tend to be large, well-managed firms that dominate their market sector. They are considered to have a sustainable competitive advantage, such as strong brand recognition, and are often respected blue chip stocks. A bellwether stock can be overvalued and is not always a smart buy, but it can serve as an indicator for the strength of a sector and for the economy as a whole.
There’s no official list of stocks earning bellwether status, and companies that were once known as bellwethers – such as General Motors – can have spectacular falls from grace. But most companies known as bellwethers are household names with great staying power. The big box powerhouse WalMart is widely considered to be a retail bellwether, while FedEx serves as a bellwether for gauging the health of the economy. Industrial giant Caterpillar is known as an industrial bellwether, while Google provides a barometer for internet stocks, and JPMorgan Chase, for the financial services industry.
Other companies enjoying bellwether – or “wide moat” status include General Electric, UnitedHealth Group, Praxair and Harley Davidson. The term “bellwether” refers to a lead sheep, or wether, that wears a bell around its neck so that shepherds can track the location of the flock even in the dark.