“I’ve sat out this entire phony bull market…”
We’ve gotten a lot of letters from readers torn about investing in the market right now.
They see the market reaching new highs every day. But they face a paradox…
They want to get in on the wild rally. Yet they’re afraid that if they buy in now, the market will turn on them quickly.
But if they wait too long for a lower entry point… they’ll be kicking themselves for missing out on all the gains.
Daily reader Steve S. shared this dilemma with us:
I have sat out this entire phony bull market. With the market so inflated, do you really think that I should jump in with equities? Or should I wait for capitulation and a smarter, less risky entry point?
We left out some of Steve’s more colorful language… But we get his point.
Now, we can’t provide Steve (or anyone else) with specific individual advice. But here’s what we’d do with our money now, especially with the market soaring higher…
Stocks Still Key to Wealth Building
When planning your long-term investments, it’s best to own some stocks. Otherwise, you’ll be cursing the phony bull market while you miss out on large gains.
Owning businesses is the best way to grow your wealth over the long term.
Yet stocks are at all-time-high valuations. And eventually, the market will revert to its mean. That implies a large drop in the market is coming.
But we don’t know when that’ll happen.
That’s why we’re going to show you a simple strategy to protect your stock positions from any big falls.
The Barbell Portfolio
If you’re concerned about volatility in the stock market, you can hedge your portfolio with another asset that zigs when stocks zag.
We call this the barbell portfolio. Here’s why…
Picture a barbell in a weight room. The bar provides stability for the weights you load on each side.
Think of the bar as the stability you need in your portfolio.
On one side of the barbell are stocks. You can balance it on the other side with gold.
Let me explain…
When stocks start to collapse, investors seek safety in gold. So gold rises.
Look at the chart below. The blue line represents the S&P 500 and the gold line represents gold. They bounce around a lot and are very volatile.
But look at what happens when we mix our portfolio with gold and stocks. The line is much smoother.
Separately, the S&P 500 and gold each had a couple 40% drops. But in a barbell portfolio, the biggest drawdown was less than half that.
It’s simple to create this mix…
You just need to rebalance your barbell portfolio every year so that it’s 50% stocks, 50% gold.
If your stocks rise more than gold, sell some stocks and buy some gold until you have a 50/50 mix again.
Now, these results are from holding just the S&P 500 and gold.
There are better ways to own each. And it can increase your returns even more. More on that tomorrow…
Nick Rokke, CFA
Analyst, The Palm Beach Daily
Another commodity is making new two-year highs.
Aluminum prices have soared lately, rising 28% in just over a year.
Aluminum is found in many products. So it’s another indication that the commodity bull market is strong.
Impossible to Kill Bitcoin: We’ve heard from plenty of readers who are concerned that governments may try to ban bitcoin. L.H. Li is the former president of the Bank of China (the fifth largest bank in the world). He says, “Bitcoin was built on a platform without national boundaries. If you want to kill bitcoin, it will be an impossible task. So, it will continue to exist.” We agree with Li. Bitcoin is here to stay.
Three Big Blockchain Ideas: There’s more proof that the blockchain is moving into the mainstream. MIT researchers are working on some big blockchain projects: building an internet on the bitcoin blockchain, increasing privacy on the blockchain, and creating a central-bank-backed cryptocurrency. We’re looking forward to progress on the first two fronts… The third, not so much.
Morning in America Redux: The Philadelphia Fed said its manufacturing index soared in February to a 33-year high. The index surged to a reading of 43.3 from 23.6 in January. That’s the highest level since early 1984 when President Reagan was in office. Reagan made famous the tagline “Morning in America.” Is America experiencing another awakening? Let us know right here…
From Jeffrey D.: I’m grateful for the education you provided in Income for Life. My wife and I recently had an insurance salesman visit us and give us his pitch. At first, I was irritated with him but thought I’d take the time to explain his own policies to him… I told him why they didn’t work for us and then explained who they would work for. At the end, he thanked me for the education… And asked if I ever wanted a job.
From Shawn D.: I love Palm Beach Income. If there is one thing I’d like to change, it’s to immediately know when a trade is available. I live on the West Coast and normally get the trade after market close. There have been several times when a price is gone before I can make a trade.