Each METAR makes their own investment choices. @buynholdisdead clearly doesn’t believe in buying and holding. @intercst believes in stocks for the long run and holds a minimum amount of cash to cover a few years of expenses. @captainccs cleverly uses his stock portfolio to generate income from covered calls.
I am risk averse and dislike stock market volatility. I hold a ladder of bonds which I hold to maturity to avoid price fluctuations due to interest rate movements. I have held stocks in the past. I do time the market and don’t plan to buy stocks until the next recession brings their prices out of the bubble range and into a more historically reasonable range. I don’t see any point in adding risk when I easily live on my current income. However, interest income is fully taxable. @intercst has made a good case for capturing tax and other benefits (e.g. Obamacare subsidies) from stocks.
Is there a “correct” approach?
There’s new evidence that market timing doesn’t work. Your odds of success are better if you just hang on and aim for average returns, our columnist says.
By Jeff Sommer. The New York Times, Nov. 24, 2023
A new study provides fresh evidence of why it makes sense to strive for an absolutely middling return. And the study implies that a simple, unspectacular strategy — buying and holding the entire market through low-cost index funds — is probably the best bet for most people…
The strategy that appeared to work best … beat a simple buy-and-hold approach in these markets by an annualized 5.5 percent, seemingly a remarkable achievement. And it managed to do this with a straightforward method — abandoning stocks and buying safe Treasury bills when the stock markets were overvalued…
Accept that you can’t beat the overall market and focus instead on minimizing your costs so you can get as much market return as possible. Broad, diversified, low-fee index funds — either traditional mutual funds or exchange-traded funds — will do this for you. But you need to be willing and able to withstand substantial losses, sometimes for extended periods, because while the stock market has risen over the long haul, it often declines… Other studies have demonstrated that successful stock-picking over long periods is also extremely rare…[end quote]
Here is the link to the study. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4586684
With money market funds paying close to 5%, cash has become a reasonable investment again. Institutions and investors together have a record $5.7 trillion parked in cash-like money-market funds. Will this money burn a hole in their pockets?
Investors are plowing cash into stocks and bond funds. Invesco’s QQQ exchange-traded fund, which tracks the tech-heavy Nasdaq-100 Index, reported its largest weekly inflow in history the week of Nov. 13. Funds that track high-yield bond indexes—the higher risk portion of the corporate bond market—reported their two highest weekly inflows on record in the middle of November. [end quote]
The Control Panel shows that the bull runs in both stocks and bonds are continuing. The trade is strongly risk-on as stocks and junk bonds are rising faster than Treasuries even though Treasuries are also rising. The Treasury yield curve is falling and is close to flat at longer durations. The Fear & Greed Index is in Greed.
The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2023 was 2.1 percent on November 22. This is slower than 3rd quarter but right where the Federal Reserve hopes to see.
The METAR is sunny. The year-end rally will continue next week.