Last month I quoted the following from Ed Easterling at Crestmont Research:
So, from 2016, what length of time is needed to assure that you will receive the historical long-term average return of 10.1%?
NEVER – investors from today will never achieve the long-term average return. Not in ten years, twenty years, fifty years, or the nearly ninety years that represent the most recognized long-term average return.
I followed that statement with fundamental reasons why the stock market is going to have a difficult time compounding attractive returns from current levels. As a refresher, those reasons are (1) high valuations, (2) low dividend payments and (3) earnings growth stagnation. The first two reasons are definite realities. The third is probable.
At the conclusion of my article I asked, “What then should investors do?” Trust me, I have been thinking about this often of late. It’s my job after all.
Here’s my thinking on this matter:
Diversify your securities – The investment space is huge. With trillions of dollars in stocks and bonds globally, it is probably unwise to default to a traditional 60% U S stock and 40% U S Bond portfolio. Look to build a portfolio that is spread across multiple asset classes and across international markets.
Incorporate alternatives – Alternative investments are those that are not one of the three traditional asset types (stocks, bonds and cash). This investment strategy allows an investor to harvest returns that can be non-correlative to stocks and bonds. The goal of such a strategy is to capture returns that meet your objectives while lowering overall volatility.
Invest away from securities – Real estate, private equity, oil and gas, small businesses… these are all examples of investments that require some expertise and personal involvement, but are ones that can potentially boost returns while creating even more diversification. This is NOT the path of least resistance but many a fortune has been made by “owning” something. This will be true in the future as well.
Incorporate tactical investing – Many years ago I abandoned all notions of “market timing.” If ever there was a two edged sword, market timing is one. That is not to say, however, that one should not look for trends to follow and investment areas to avoid. If ever there was a season to employ tactical asset allocation to a portfolio, I believe now is that season.
Long gone are the 1980’s and 90’s. Discipline and diligence will have to be the qualities that serve the investor going forward.
Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Mike Jones is Managing Director / Investment Group of Argent Advisors, Inc. Write to either at 500 East Reynolds Drive, Ruston, LA 71270 or call (318) 251-5800. This newsletter is available via email on a free subscription basis. You can subscribe by clicking here. Direct any questions, comments or suggestions to Byron Moore at firstname.lastname@example.org or to Mike Jones at email@example.com.
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