Week 47: Wildcard Topic

What can you do this week?

• Not anyone, even the big firm experts, knows what will happen next.

• That said, the S&P 500 is up over 20% per year for two years in a row as one proxy.

• Capturing some gains can make a lot of sense but if you have new money to invest and you’re understandably wary, here are a few tactics to consider.

Tactics For Investing New Funds In A Hot Market

Dollar Cost Average

• Rather than guessing directions, just keep investing a fixed amount of money at regular intervals, regardless of market conditions.

• When prices are high, you buy fewer shares; when prices drop, you buy more. Over time, this smooths out the cost of your investments and reduces the risk of making large investments at market peaks.

• This gets even less emotional when you contribute more regularly, even weekly.

  

  Diversify

  High stock market valuations may signal the need to revisit your portfolio's diversification.

• Consider spreading your investments across various asset classes, such as bonds, real estate, or commodities. Alternative investments that have less correlation to the broader stock market may be one option to consider.

• Do note that these holdings also won’t have the returns of the market so comparing returns to a benchmark like the S&P 500 will be self-defeating.

• A diversified portfolio can reduce risk and help you weather volatility. Historically, not all asset classes move in sync, which provides a natural hedge.

  

  Defensive Investments

  During market highs, speculative stocks can lose more than the market averages while higher-quality companies with strong fundamentals may retain value better.

• Stocks in defensive sectors of the economy, those paying a yield that reinvests distributions during market downturns, or investments employing low volatility-themed strategies can sometimes fair better.

• This is not a safety net however but more of a parachute that may slow the decline in value of some of your investments. Look to cash and short term bonds for that stability.

• Higher quality sectors of the economy can be can mean healthcare, utilities, etc. and companies would have the following characteristics:

  • Solid revenue and profit growth

  • Low debt levels

  • Competitive advantages in their industry

    

  Bond And Cash Positions

• Bonds & cash allow you to seize opportunities if a market correction occurs.

• Instead of being fully invested at high prices, you’ll have capital to deploy during a dip.

Long Term Perspective

Market highs can make even seasoned investors anxious. If you’re investing for long-term goals like retirement, short-term fluctuations become less relevant. Tell that to your feelings when your account balances lose 30% in a matter of weeks but that is the flip side of earning the returns we’ve seen for years now.

• Historically, the stock market has trended upward over extended periods, despite temporary setbacks.

• Temporary feels very long when it’s multiple years of bad results but in the long term are more a blip on the radar.

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