Stocks are at record highs - what now?
2019 was a great year for public market investments. Domestic stocks, international stocks, commodities, and fixed income securities all had a buoyant year of returns. How did your investments perform?
Looking forward, I’m excited to see what the public investment landscape provides. If this decade is anything like the last, people can expect to see great returns from their investments.
Some items on the horizon to consider are:
A flight to quality, profitable businesses. Startups saw a wave of capital last decade, even the unprofitable ones. But mishaps at WeWork and a struggling Uber suggest that investors will have a greater appetite for profitable businesses with good governance structures (ie. Airbnb).
The presidential election in the United States will definitely cause some noise in domestic markets. It’s difficult to determine how the presidential race and aftermath will affect the economy and investments, but we should all be certain that it will.
An uncertain interest rate dynamic will prove difficult as investors look to invest in equities and fixed income. The Federal Reserve has raised, lowered, and held steady interest rates all in the last 2 years. It is difficult to determine their next step.
While these uncertainties exist, the following macroeconomic variables should still serve as a guidepost to your investment process.
Investing is very important. I will be the last person to discourage you from positioning your money to work hard for you.
Here are some thoughts on how to move forward.
Let me start with what to avoid.
Investing in ETFs (exchange traded funds) has allowed a wave of investors broad exposure to the stock market. As the market has gone up, more investors feel comfortable putting their money into these broad instruments. But, what happens when people no longer feel comfortable? Some of the most popular ETF tickers in this space are SPY, IVV, VTI, and VOO. Avoiding these for smaller alternatives may be a great option to protect yourself from unnecessary volatility.
Using Robinhood, Acorns, Betterment, and Stash provide investing access to anyone with more than $5 to invest. They have been instrumental in democratizing the investment process. But, before you sign up for these services, make sure you fully understand the investment vehicles they are using after you take their “risk questionnaire”. Zenith Solutions is always here to provide objective advice on your investment portfolio with these tools.
Any company that trades above 40X its price to earnings ratio should be deeply scrutinized by a professional before you purchase its stock! Just because a company is in the tech sector (ie. Amazon, Shopify o_o, and Square to name a few), does NOT mean its stock will grow forever!
Now I’ll move on to some things to consider.
Commodities may provide an interesting return dynamic if inflation continues to rise. Rising inflation means the price of things is going up, and commodities are things.
Emerging market companies and their debt may provide a compelling place to invest if the US dollar weakens further. As US currency depreciates, foreign currency appreciates, which can have a nice, positive effect on foreign securities.
Real estate could surprise and do very well as inflation rises and interest rates stay steady or fall. Buying a new home, investing in a basket of homes or buildings, or buying the stock of real estate companies could all be appealing.
*note that these are just thoughts, not recommendations :) *
I want everyone to make money this year. If you are concerned about your ability to do so, feel like you can’t do so, or just want to talk through your strategy to do so, let’s have a conversation!