The Wall Street Journal recently highlighted “one of the biggest surprises of the US stock market’s relentless rally…how many individual investors have run away from it.” This is from the January 4, 2018 article “Individual Investors Sit it Out.”
The article cites industry sources about where people have been putting their money the last several years. While nearly $1 trillion got pulled out of investment products that target US stocks since 2012, almost the same amount has gone into bond investment products.
Clients, would you trade your results over the past three or five or seven years for bonds with low potential interest and growth?
Our fundamental rules have guided us. Avoid stampedes—and the stampede into the supposed safety of bonds may be one of the biggest in history. Seek the best bargains—interest rates near the lowest levels in four decades1 hardly seemed like a bargain to us.
A strong contrarian streak encourages us to think about doing the opposite of what everybody else seems to be doing. We’ve been buying stocks when others were selling.
We’re focused now on getting the next big thing right. If we seek to avoid stampedes, we need to be careful if the stampede joins us. What we now own may become too popular and get over-priced. A 30% or 40% gain from current levels might put us in risky territory.
By continuously seeking better bargains in other sectors and trimming back holdings that are no longer cheap, we seek to reduce the potential for loss. No guarantees, of course: the next poor year is out there somewhere.
On investment advisory accounts managed through LPL Financial, our revenues are a function of your account value. When you capture an opportunity or avoid a loss, we are better off. This focuses our attention wonderfully.
Clients, if you would like to discuss how this applies to your circumstances, please email us or call.
1Interest rate data from Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/FEDFUNDS (as of January 2018.)
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All investing, including stocks, involves risk including loss of principal. No strategy assures success or protects against loss.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.