Ask the Rational Investor: What should you do now?
Most major stock market indices have nearly recovered losses for the year thus far. However, there seems to be more than normal uncertainty on the horizon, too: from a highly anticipated Presidential election, the prolonged impact on our economy and society of Covid-19, and geopolitical tensions that seem to keep popping up.
Given these factors and others, it is no wonder that many investors feel the prospective return in the stock market may be low.
Interestingly, over the last few months, many news publications reported that investors have nearly 5 trillion dollars parked in cash, as they remain too worried to invest. Historically, record levels of cash have been a bullish signal for stocks.
Cash and fixed-income investments protect investors from large swings in value but do not offer protection from inflation, as the real return in these investments are usually quite low. This predicament of reducing equities due to uncertainty and buying low return fixed-income investments puts many individual’s retirement plans in jeopardy.
Lowering returns on safe assets push liquidity and investors into higher-yielding, riskier assets. An example might be an investor purchasing lower-rate bonds to receive a higher return or taking more interest rate risk by increasing the average maturity of a bond portfolio.
Many of these options could be a good solution, but reviewing the appropriate options in the context of your overall goals and risk objectives is crucial.
Lastly, some investors are starting to question if investing in gold or other precious metals could help diversify their portfolios from inflation. A better way to invest may be to purchase shares in large-commodity producers such as Barrick Gold, as their profit margin would benefit disproportionately from a substantial and long-term period rise in the underlying commodity price.
Investors may also want to review large integrated energy companies like Chevron Corporation and exploration and production company EOG Resources that are sensitive to oil and natural gas prices and offer highly attractive dividend yields.
Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.