Don't cut and run this year: BlackRock

Published Mon, Jan 5 20155:30 AM ESTUpdated Mon, Jan 5 201510:00 AM EST

The world's largest asset manager, BlackRock, advised clients Monday to "resist the urge to exit" as stock market fluctuations increase in 2015. "Higher volatility in 2015 might tempt some investors to head for the exits," global chief investment strategist Russ Koesterich wrote in the firm's 2015 outlook note. "But avoiding the markets can cost you over time." Despite a rockier ride, BlackRock predicted stocks to beat bonds and cash for another year. The firm also said long-term interest rates would stay low, inflation would stay at bay and the dollar would continue higher this year. The firm also declared the start of the "Age of Divergence," where the U.S., U.K., and some emerging markets continue stronger while Europe struggles. This will be due to the regions' central banks taking different paths "with the Fed setting a course for higher interest rates and the European Central Bank and Bank of Japan doing the opposite." The S & P 500 posted its third year of double-digit gains, ending 2014 up 11 percent on the back of stronger-than-expected growth and falling long-term rates. The 10-year yield ended the year at 2.19 percent after starting 2014 near 3 percent. A spike on the last day of trading pushed the CBOE Volatility Index to 19, but for the most part, 2014 was one of the smoothest years on record with the S & P 500 never pulling back greater than 8 percent. "The last three years have been characterized by unusual calm for stocks," wrote Koesterich. "2015 is likely to be marked by a return to more typical levels of volatility, particularly as U.S. monetary policy starts to normalize." "The good news is that conditions are broadly supportive of stocks and, therefore, any corrections that volatility brings aren't likely to be severe," he wrote. BlackRock's worry about a quick sell trigger on the part of investors stems from a look at cash positions. The firm's research shows clients are already overallocated to cash. So how should they put the cash to work? Koesterich recommends: 1. Multi-asset funds, which invest across all asset classes, are designed to provide some cushion against declines while still participating in market upside. 2. Dividend-paying strategies tend to provide a smoother ride, as dividends can help offset market losses. 3. A core stock ETF can provide broad market exposure at low cost, which can help you keep more of what you earn.

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The world's largest asset manager, BlackRock, advised clients Monday to "resist the urge to exit" as stock market fluctuations increase in 2015.

"Higher volatility in 2015 might tempt some investors to head for the exits," global chief investment strategist Russ Koesterich wrote in the firm's 2015 outlook note. "But avoiding the markets can cost you over time."

Despite a rockier ride, BlackRock predicted stocks to beat bonds and cash for another year. The firm also said long-term interest rates would stay low, inflation would stay at bay and the dollar would continue higher this year.