Learning to live with stocks
Bond yields are dirt-low at the time of this post.
High interest savings accounts really don’t exist today either, they are a misnomer.
The reality is folks, unless massive changes are coming (which I don’t foresee) low interest rates are here to stay for the coming 3-5 years at least.
How on earth are you going to fund your retirement?
Learn to live with stocks.
Millennials have it easy; they have time on their side.
40- and 50-somethings striving to fund their golden years do not.
Young investors should likely go as high as 100% in equities in order to maximize their long-term returns.
Middle-aged investors should consider doing the same. This is because typically and historically over many years of investing, idle cash is a loser to inflation; cash sitting around over long periods of time earns less than bonds; bonds earn less than stocks do.
I suspect the future is very similar although even equity returns will probably be lower long-term than they are today.
How can you learn to live with stocks?
Here are my top suggestions:
1. Embrace bear markets – consider a falling market like a shopping sale. Everyone likes deals. Consider a falling market like getting a deal. Stocks that used to cost more may now cost less thanks to a falling market. When the markets fall, go shopping. Get your goods on sale.
2. Keep cash – consider keeping some money out the market – avoid being invested 100% all the time. Consider keeping some cash for investing purposes outside your normal “emergency fund”. Keeping some cash will allow you to purchase more assets without selling existing assets. Use this cash to grow your portfolio. You might have read more millionaires were created during the Great Depression than any other time in history – embrace some market chaos by keeping some cash on hand. Market chaos hasn’t happened recently but it will happen, eventually, again.
Further Reading: how much cash should you keep anyhow??
3. When in doubt, buy boring – consider boring investments. People will bank. People will use electricity. People will heat and cool their homes. People will need healthcare. People need to eat. Own investments that won’t go out of style without a huge fight or without a massive shift in our economy. This means owning banks, utilities, a few pipeline or energy companies, healthcare companies or stocks in the consumer staples sector. Don’t want to own individual stocks? No problem – index invest and own ‘em all at once.
4. Above all else, stay invested – markets will rise and fall. Talking heads will talk (they are compensated to say something important). (This site is free.) So far, in the history of investing, the stock market has always roared back. You just don’t know when. So, wait as long as you possibly can. Live with stocks for as long as you can. Stay invested long enough and ‘this too shall pass’ usually for the better.
I’ll close this post from a more popular blogger and money manager that I am:
Ben Carlson, who manages portfolios for institutions and individuals at Ritholtz Wealth Management LLC said this when it comes to fighting inflation: chose the stock market.
“The stock market is a wonderful hedge against inflation for a few reasons. Since 1928, the U.S. stock market is up 9.8% per year while inflation has averaged 3% per year. So stocks have grown at nearly 7% more than the rate of inflation. One of the reasons for this is the fact that earnings and dividends also grow at a healthy clip above inflation. Over the past 93 years, earnings have grown at roughly 5% per year. Stocks also have perhaps the greatest income stream of any asset. Dividends have grown at roughly 5% per year.”
No argument here Ben.
What are your plans to hold stocks in your portfolio long-term?