I actually wrote this blog a long time ago - way back in July. July seems like a long time ago, doesn't it? I wouldn't change a word from way back then...interesting.
In my 20+ years in this profession, I don’t think I have ever had a greater desire for a crystal ball. The market and economy are always uncertain, but we have a lot at play right now – all at the same time. Whatever happens, at some future point we may look back and everything will seem so obvious – it often does in hindsight.
We cannot predict what is going to happen (no one can, no matter how confident they may sound). But that doesn’t mean we don’t prepare for various outcomes and consider our options.
Before I get into some of these considerations, I need to emphasize that I am not recommending any change in strategy. Your plan accounts for uncertainty; the very nature of the markets is uncertain. This is more about mentally preparing ourselves for whatever may happen and understanding that without perfect foresight, a disciplined and diversified approach is the best option.
- In March we had the quickest stock market sell off and recovery in history. The market has literally been a “V shape” to start 2020. However, the economy is not a V shape, nor is it likely to be.
- There is great anticipation of a vaccine, but there is no assurance that one will prove effective and safe in the next year. Lots of hope, but no guarantees.
- The economy is opening slowly. Employment is improving, slowly. The expectation is that things will continue to open and we will “limp” towards a full recovery. But we don’t know if there will be a Round 2 of COVID or if the economy will stagnate after the initial openings.
- There is a lot of government support, and likely to be more, which puts some of the money into hands of investors and may influence the stock markets positively
- There is a record amount sitting in cash currently – meaning there is a lot of money on the sidelines, and with the Fed actions we can expect more money to be availabl
So what investments are attractive?
- Some may say the stock market is expensive and has gotten ahead of itself with rosy expectations. That may be true. But maybe it continues higher, especially if a successful vaccine is developed and the economy recovers.
- Bonds are also “expensive”. The 30-year treasury bond pays less than 1.5% per year (before taxes and inflation). That is awfully low to lock up your money for 30 years. The dividends on stocks are higher than bonds, and the odds that stocks are higher 30 years from today is very high.
- Cash is the worst option. First, it pays you nothing. Second, cash is not an investment. Cash would only be useful as an investment if we could perfectly predict what markets were going to do. An investor who goes to cash now has to guess when to get back in (they often don’t).
There is not a single investment that screams “deal”. There is a lot going on. This is a very interesting time politically, economically and socially.
This is where discipline and patience become your greatest assets. Let's have a chat if your discipline and/or patience are in short supply. 612 436-3733.