Investors wondering where to get returns in today’s market may feel like they’re being forced into equities right now. Bond yields remain extremely low (though they are rising of late), providing investors with income means little in the way of a reasonable income stream for more conservative 50-50 portfolios (50% stocks, 50% bonds). Even portfolios with a smaller allocation to bonds have underperformed in terms of yield, making equities seem like the only investable asset class right now.
The idea of “keeping powder dry” or having some cash on the sidelines either in the form of cash or short-term bonds is therefore very unappealing right now. Most investors who have stayed fully invested in recent years have benefited from an unreal stock market run. The fear of missing out on these returns can result in investors holding too little in the way of cash to take advantage of cheaper stock prices on the horizon.
Of course, if one believes stocks are priced accurately on the basis of the macroeconomic environment and the stimulus we’re seeing enter the markets, then having cash sitting there isn’t a good idea. For more conservative investors concerned about valuations today, I would argue such an approach is prudent.
I think these valuations can’t last, and we’ll see a revaluation at some point. Exactly when, no one knows, but being prepared and able to buy the dips when they come can prove to be very profitable if we see a correction similar to the one we experienced March of last year.
Invest wisely, my friends.
