Delray Beach, FL– There are lots of reasons why many people today are excited about the investment markets.
For the first time in 10 years, for example, the GDP growth rate is higher than the unemployment rate.
We are seeing the strongest expansion of manufacturing activity since May 2004, according to the WSJ.
Wages are rising. Not much in real terms, but more than we’ve seen since the last recession.
And according to several sources, consumer confidence has rarely been higher.
For some investors, Len Zachs (of Zachs Investment Research) argues in a recent report to his clients, this sort of economic environment creates a perilous paradox.
Some will see data like this as a signal to go all in – i.e., to put all of their spare change into the investment markets. Many, feeling emboldened by the “good” news, will take more risk, getting into speculative investments like low-cap stocks, mining stocks, hedge funds, start-ups, etc. And a smaller number will see it as scary. Fearing that we may be at the top of an investment cycle, they will sell their stocks and other holdings and retreat to cash.
None of these reactions is smart, says Zachs. “Investors should not see the current strength in the economy as a rationale for doubling down on risky ventures, and they should not see the market at all-time highs as a rationale for staying on the sidelines.”
“Instead of focusing on big returns in short periods of time, or trying to time your entries and exits into the market,” he says, “focus on the long-term and on key economic indicators that can help you stay level-headed.”
This has been my approach since I began to write about wealth building 20 years ago. After losing good money a few times by following my gut, I began to question the wisdom of trying to beat the market. I was pretty sure I couldn’t do it. Could anyone?
The answer was yes, but only for a given period of time. And since you can’t know when an analyst that’s been hot for years will suddenly go cold, I decided to step out of the “market timing” game.
The foundation of my current stock strategy is very safe and very long term. (And yet it’s done remarkably well over the short term as well.) I call it Legacy Investing.