For the average person without special expertise in investing, these can be confusing times despite a bull market. The Dow has grown 40 percent since the Trump election in 2016.
Stocks are at a high level, but with a myriad of factors they’ve been up one day and down the next.
Unfortunately, many people are switching to bonds.
Many investors get temporarily spooked by the inverted yield curve. That’s when short-term bond rates trend higher than long-term bond rates. Ostensibly, they’re worried about some people are putting money into long-term investments because they’re apprehensive about the short-term.
In the past, an inverted yield curve was a sign of an impending recession. But authoritative economists assert this economy is different than in past years during an inverted yield curve and is quite strong, and that recession fears are unfounded.
Meantime, there are good reasons why stocks are better investments.
The market has grown largely thanks to big technology companies in particular Amazon, Apple, Facebook, Google and Netflix. However, doubts about their long-term success are now being raised.
The Justice Department has launched investigations for antitrust allegations, especially Facebook and Google over privacy issues.
Walmart is successful in competing with Amazon in groceries.
As for Netflix, it’s spending huge sums on new productions while losing subscribers as Disney has become an ominous threat.
Apple’s product sales have slowed and is emphasizing services.
Meantime, consumer spending remains high and other service businesses are growing. For instance, Microsoft has enjoyed a resurgence in market capitalization mainly with contracts with businesses its strong showing in cloud services.
Businesses have become more efficient thanks to innovations in artificial intelligence and robotics. But it’s difficult for even savvy investors to predict which of these innovative companies will prevail.
For investors, the best bet is stay diversified in their portfolios looking for firms that provide value in changing people’s lives and show profits.
This is where a price-earnings ratio is important. The P/E ratio of a company indicates the dollar amount you can likely invest to get a dollar of its earnings.
If a company has a high P/E ratio, higher growth is anticipated by investors.
Currently, the average P/E ratio ranges from 20 to 25 times earnings. If a company doesn’t have a P/E ratio, this probably means it’s losing money.
But globally economic growth is sputtering. The world’s two largest economies, the U.S. and communist China, are embroiled in a trade dispute. President Trump is the catalyst to protect America’s from Chinese aggression – stealing intellectual property, manipulating it currency devaluing its yuan, and talking tough militarily.
Central banks are slashing rates. But rates are ultra-low and they can’t go lower. Cutting rates is a tool normally reserved to ward off recessions.
The U.S. is prospering with a gross domestic growth expected to continue at 2 percent or higher. Household income is growing. Corporate profits continue to grow.
With a dramatic growth in the stock market and the historically low unemployment rate, jobs are being created but 7 million jobs are unfilled. So the president is pushing for expanded apprenticeship programs and reforming job-training programs.
America needs more tech-savvy workers.
America is enjoying an explosion in digital technology that’s contributing to the growth of the services sector. Mainstays – housing, autos and Boeing – aren’t as dominant as factors. That might change as Boeing solves its 737 Max issues.
The administration’s push for job-creation is a recipe for a continued healthy stock market. That’s also a good rationale to stay in equity investments.
Meantime, it’s safer for older investors to stay in a diversified portfolio of stocks, bonds and CDs. More on that later.
Becoming a landlord or flipping houses for such folks is tedious, highly competitive with large firms, and requires discernment and patience in coping with IRS depreciation rules.
Even with just moderate growth in stocks, they’re advantageous to fixed-income investments.
The Federal Reserve is being pressured to keep rates low because inflation still has not reared its ugly head and it has to compete with foreign central banks that have been slashing rates.
Further, it’s also worth noting long-term 10-year Treasuries have lagged behind the S&P 500 by at least 50 percent the past half century.
Businesses have tons of cash as they look for business opportunities. As big companies buy up smaller competitors, it’s another reason why it’s difficult to anticipate the new big corporate players.
So, if you’re the average small investor, be patient and consider broad-based index funds such as Fidelity or Vanguard. (Vanguard has been particularly impressive for a long time. And no, I’m not compensated for my kind words.)
As you approach retirement age, be more conservative and avoid risk. You should put about 50 percent of your funds into fixed-income opportunities that will mature in five years or less.
You’ll enjoy your retirement.
From the Coach’s Corner, editor’s financial picks:
Due Diligence for Getting the Most from Your 401(k) – Will you be satisfied with the results of your retirement planning? With the stock market soaring in recent years, there are even more trillions of dollars in 401(k) plans that allow employees to save for retirement and acquire wealth. Here’s how savvy employees avoid regrets with 401(k) plans.
Best Financial Strategies to Invest a Big Inheritance – If you want to make the most of a big inheritance by investing, it’s important to take your time, understand your tax obligations, and to evaluate the likely return on your investments.
How to Find the Right Financial Planner for Your Situation – If you decide you want a financial planner, always remember due diligence is necessary for your financial security. Here are four questions to ask yourself.
Stock Market — 5 Reasons to Invest … in a Financial Planner – For a highly sophisticated approach, it makes sense to pay for investment advice – but not pay for investment advice if the advisor will only periodically rebalance your portfolio.
Finance Your Vacation with Credit Card Travel Reward Points – If you plan well, you can finance most of your family’s vacation with travel reward points. The trick is to learn all the ways you can earn points. This entails far more than just buying airline tickets or reserving a hotel room.
“Successful investing is anticipating the anticipations of others.”
-John Maynard Keynes