You’ve probably seen news accounts recently that equities markets in various countries are hitting new highs and continue to rally in spite of whatever alarming news exists in the economy, Europe, and the geopolitical landscape. There are good reasons for this, while other facets of this rally leave many scratching their heads. Regardless of what you’re seeing in daily news accounts, there are 3 reasons why it may not be too late to join the equities rally if you’ve been sitting on the sideline thus far, still licking wounds from the crash of 2008-2009.
- The Economy Doesn’t Matter, Only Corporate Profits Do – It’s taken me a long time to come to terms with this fact, but the economy can be in complete shambles, yet we can see stock market rallies in spite of it. Putting aside the contrived “unemployment numbers” which, depending on which country you live in, exclude things like people that have simply given up looking for work or enjoy the disability fraud bandwagon, consider looking at actual “employment” rates. It’s abysmal, especially in the under 30 crowd globally, which does not bode well for civil unrest. However, corporate profits continue to shine. Companies have become so lean during the recession, that as demand resurfaced, they were able to scale back up with the same automation and outsourcing that they learned to leverage in a declining market in prior years. So, while consumer spending has picket up, and sales increase, they’re not adding headcount at nearly the same rate. That’s resulting in profit expansion.
- Global Interest Rate Manipulation Continues to Force the Risk Trade – This one was relatively easy to call early on, but in retrospect, now it really seems like a no-brainer. Interest rates are so low, there’s simply nowhere else to invest! Bonds are becoming too frothy and are subject to crash themselves. They’re losing money to inflation. So are banking options like savings, money markets and CDs. So, at least equities usually pay a dividend and have the prospect of capital appreciation! The federal reserves globally, in a concerted effort, have been pushing investors into the risk trade.
- You’re Not a Market Timer, So Invest Per Your Strategy Now! – While on one hand you might feel like a market timer by jumping into a hot market, I’d say that you’re being a market timer by sitting out! If you’re young and have a long time horizon, you should have been in stocks all along. It’s the only way, especially now, to have any shot at beating inflation and other conventional asset classes over the next decade or two. As long as equities make sense in your strategy, stop sitting it out waiting for that next crash – it may be 5 years off!
So, for an initial investor without the traditional company-sponsored investment plan, it’s as easy as starting up an online brokerage account and buying some ETFs or with even less effort, to just buy a broad market mutual fund from the likes of Standard Life. You can basically set it and forget it, assuming your time horizon is quite a ways out.