A Bull Market in Everything
In twenty-six years of work as a financial advisor I have often been asked if we are near a peak. There probably were some “peaks” during that time – a peak prior to the dot.com bust in 2000, a peak prior to the 2008 global financial crisis and a peak prior to last year’s Covid-19 induced market sell-off. At the trough of each of those sell-off’s investors would likely have regretted that they “bought at the peak”, yet with the hindsight of decades there were no peaks – just momentary blips on the path to higher prices generated by global capitalism.
What about now? The world is awash with stimulus checks and ultra-loose monetary policy over the course of the last decade has pushed stocks, bonds and real estate to levels either seldom or never seen before. Inflation appears to be a threat once again – pushing up prices for precious metals. Cash yields are at record levels of less than 1% and bond yields are only slightly more – even for junk and longer dated securities with exceptionally higher risk profiles. In addition, cryptocurrencies, and new ways of taking private companies public via SPAC have created additional ways for investors and speculators to spend this seemingly inexhaustible liquidity.
So back to the question on if we are near a peak – which is another way of asking “is now a good time to invest”? In my experience it’s always a good time to invest. Ben Graham (Warren Buffett’s mentor) was credited with saying you should invest like you buy groceries – not like you buy perfume. I agree. Your time horizon and comfort level with risk should dictate your allocation of assets – NOT an attempt to determine what’s too expensive to own.
A couple thoughts:
1) “Stocks” is just another word for publicly traded companies – unfortunately, some people have disassociated the two. You purchase stocks as the fuel for the future in your portfolio. They can experience wild swings in prices over short periods of time but even if you are retired you should own some publicly traded stocks to overcome the effects of inflation and move your portfolio ahead. You will need to be patient when you own stocks – a wise man once said the stock market was a tool for transferring wealth from the impatient to the patient…
2) Bonds are loans that you have extended to governments or companies. They are the “ballast” to your portfolio. Do not extend credit for too long a time period or to a poor credit quality borrower or you may be sorry. Inflation and a bad economy will be your enemy if you are searching for higher yields instead of keeping your bond portion of your portfolio “simple and soon”.
3) Cash is not trash. Cash can be used to cover short term unexpected financial needs and generate yields as well as store value. Keep too much cash during an inflationary time and you will fall behind. If you don’t have enough cash on hand you may be forced to sell stocks or cash at the worst possible time…
4) Precious metals are excellent protection against worst case scenarios. Whether it be the “zombie apocalypse” or just a bout of inflation you will be glad you have some. Also, a little will go a long way (no need to have more than 5% of your net worth in precious metals).
5) SPAC’s and cryptocurrencies. These are very speculative and should be used with extreme caution. They may be worth nothing in years to come or you could get lucky…
Financial navigation of your retirement cash flows is difficult. It is a greater test of your patience and resolve then your smarts. I believe watching CNBC and other financial news channels is negatively correlated with investing success. They are designed to be salacious as opposed to help you exercise prudent behavior. The best course is to make a decision based on data and then to learn to "invest and relax".