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Where I’ll be investing in 2018

I find that the end of the year is always a good time to examine my investment portfolio and determine whether any changes need to be made. If some investments have performed well and distorted my asset allocation, it may be time to take some profits off the table and rebalance the portfolio. Similarly, if there are attractively valued sectors, stocks or countries that I am neglecting, I can look at adding exposure. 

With that in mind, here’s a brief look at where I’ll be investing in 2018. 

Dividend stocks

Dividend stocks currently make up around 75% of my portfolio. That’s something I won’t be changing in 2018. Dividend investing, while not the world’s most exciting investment strategy, is one that works for me.

One of my main investment goals is to build up a large dividend portfolio that pays me a sizeable income stream. I still have a long way to go; however, I’m hoping one day that dividend stream will be enough to live off.

In 2018, I’ll definitely be looking to add to this section of my portfolio. The good news is that there’s plenty of value to be found in this area of the market right now. For example, stocks such as Lloyds Banking Group and Legal & General Group currently offer prospective yields of 6.2% and 5.7%, yet trade on P/E ratios of 8.4 and 10.6.

At the same time, stocks that are considered to have highly dependable earnings such as Unilever, Diageo and Reckitt Benckiser currently trade at premium valuations. I’ll be keeping a close eye on these kinds of stocks in 2018, in the hope that a little market volatility throws up attractive entry points. 

Growth stocks

Growth stocks make up the other 25% of my portfolio. This part of my portfolio has performed well in 2017 and several small-cap stocks I own have soared. Given their high valuations, I may take some profits off the table. 

I’ll continue to look for under-the-radar growth opportunities next year. However, I do think a little bit of caution is warranted towards growth stocks. 

Neil Woodford recently stated that the difference between the performance of US value stocks and growth stocks today, is “greater than at any stage in stock market history”.

Geographic mix

The bulk of my portfolio is currently invested in UK stocks, although I do have funds that have exposure to North America and Europe. 

US equities have had a strong run this year, and the valuation of the S&P 500 now looks expensive in my view. The FAANG stocks have all rallied hard, with Amazon now trading on a P/E of 300. For this reason, I’ll be reducing my exposure to the US.  

From a long-term investment point of view, I really like the emerging markets. Countries such as China and India have compelling long-term growth potential. I feel that I need more exposure in my portfolio. However, the MSCI Emerging Markets index has risen over 30% in 2017. Therefore, it might be sensible to wait for a pull back before I invest. 

Bitcoin bubble

Lastly, I’ll be avoiding bitcoin. Cryptocurrencies exhibit all the classic symptoms of an investment bubble, in my view. They may continue to rise higher in the short term, but I’d rather stick with stocks. 

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Edward Sheldon owns shares in Lloyds Banking Group, Legal & General Group and Diageo. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and Unilever. The Motley Fool UK has recommended Diageo, Lloyds Banking Group, and Reckitt Benckiser. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.