The title of this article seems very fitting to me. This is another time of uncertainty that will make even the most seasoned investor a little nervous. It feels like every investment vehicle out there is expensive. However, you cannot put your money in a mattress if you are investing for retirement or need an income stream to live during your retirement years. So what do you invest in now? I am going to tell you that the best place to be at this current time is in stocks for a few very good reasons.
For one, the bond market is very expensive. The 30-year treasury is currently yielding 2.15 percent. This does not even come close to keeping up with inflation and you have to pay taxes on the income, which makes the yield less than 2 percent. The S&P 500 is currently yielding 2.09 percent and has the potential for growth. Stocks will outperform bonds over the next 5, 10, or even 30 years. The stock market has been flat for over a year now. I know it has had some volatility, but if you bought a year ago you have not made any money. The long term move in the market will be higher, and in my opinion, the second half of this year will be better than most so-called experts are saying.
Brexit is not going to be an issue for the United States market. The US is 24 percent of the world GDP and the United Kingdom is less than 4%. Most US companies derive their revenue domestically, and it’s not like Britain is going to just stop trading with the rest of the world. Oil has rebounded from $26 a barrel back up to $48 a barrel. This is important because many of the oil companies earnings estimates going forward have been cut significantly. If these companies surprise to the upside, the stock market looks cheaper going forward than it does today. In fact, on a global scale we have seen earnings revised upward not down. Portfolio managers are sitting on more cash than they have in years. They get paid to invest, not sit on the sidelines in cash. I think we will see this cash put to work and this market will drift higher and set a new high before year-end. I haven’t been the biggest bull in the last year, but I am leaning that way now. The pessimism about the stock market is extreme right now and this leads me to be the contrarian. 401k’s are being funded and pension plans need to be invested. The fundamentals of supply and demand are what will take this market to a new high before year-end.
I am not saying go invest 100 percent of your money in stocks. You should always stay diversified, but I do believe stocks will outperform the other asset classes. Call us at (772) 223-9686 if you would like to discuss this topic further.