The 5 Best Investments of 2014

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Stock-market investors continued to have good fortune in 2014, with the Dow Jones Industrials (^DJI) having set more than three dozen records this year and the S&P 500 (^GPSC) topping the Dow's returns with another year of double-digit percentage performance. Yet even though investors are generally happy with the performance of the broader market, certain investment niches produced even healthier returns for investors during 2014. Let's look at five of the best-performing investments in 2014 to see what clues they might have to help you improve your own investing returns both next year and in the future.

5. Semiconductor Stocks

The technology sector performed well in 2014, and initiatives like the rise of cloud computing and the Internet of Things especially helped the semiconductor industry. After years of tepid performance through damaging price wars and supply gluts, the rising demand for chips for mobile devices and enterprise technology infrastructure broke the industry out of a long slump and produced huge gains for investors. The Market Vectors Semiconductor ETF (SMH) climbed 32 percent in 2014, with strong performance from companies ranging from industry giant Intel (INTC) to smaller players like Skyworks Solutions (SWKS). Technology needs are only going to increase, and that should bode well for semiconductor stocks in 2015 and beyond as well.

4. Real Estate Investments

Interest rates remained in check in 2014, and low financing costs brought out the best in the real-estate industry. Real-estate investment trusts performed exceptionally well, with the iShares Cohen & Steers REIT ETF (ICF) climbing 36 percent for the year. Strength came from across the REIT spectrum, with good returns from retail, storage-facility, health care, and commercial properties alike. As interest rates threaten to move back upward, though, REITs could see a tougher environment ahead. Even though bullish investors could rightly say that the same objections applied at the beginning of 2014, REITs won't be able to produce such stellar returns in anything but the most favorable rate environment.

3. Long-Term Treasury Bonds

Along the same lines as REITs, long-term Treasury bonds proved to be a huge surprise in 2014. Most investors expected long-term rates to soar in 2014, but instead, rates on the 30-year bond plunged from close to 4 percent in January to around 2.8 percent in December. That produced huge returns for bond investors, with the Vanguard Extended Duration Treasury ETF (EDV) climbing more than 40 percent for the year and other long-term Treasury funds posting respectable gains in the 20 to 25 percent range. Again, with further declines in long-term rates being unlikely, investors shouldn't expect similarly huge gains in 2015, and there's the risk of losses in the Treasury arena if rates rise substantially.

2. Biotechnology Companies

The biotech industry is a boom-or-bust business, where long years of waiting can end in huge success or utter failure. During 2014, many biotech companies got good news, lifting the SPDR S&P Biotech ETF (XBI) to gains of almost 40 percent. Big names like Amgen (AMGN) and Biogen Idec (BIIB) put up respectable returns this year, but the blockbuster performances were reserved for smaller standouts like Intercept Pharmaceuticals (ICPT) and Achillion Pharmaceuticals (ACHN). In many cases, biotech stocks have soared before the companies involved actually have products approved, so biotechs will have to follow through on their business fundamentals in order to satisfy investors going forward.

1. Indian Stocks

Emerging markets had a mixed year, but India got a huge shot in the arm as a pro-business government won power. iShares MSCI India Small-Cap (SMIN) capitalized the most with a 48 percent gain on the year, but even larger-cap funds enjoyed returns of 25 to 30 percent. New Prime Minister Narendra Modi has strongly supported growth and development in the huge Indian economy, and with more than a billion people on the subcontinent, India has immense potential to become a key economic power not just in Asia but throughout the world. Even with its big gains in 2014, India has more room to grow, and that could further reward shareholders in the future.

Motley Fool contributor Dan Caplinger likes finding winning investments. You can follow him on Twitter @DanCaplinger or on Google+. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Skyworks Solutions. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.
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