The noise is deafening.
The amount of chatter around normal people about abnormal topics is incredible these days.
Specifically, the topics of Marijuana, Bitcoin, NAFTA, Trump and the overall stock market rally specifically in the U.S.
What makes this unusual is that a few short years ago, none of these topics would have even been on the minds of most of us and now its all that we seem to talk or worry or be excited about.
Let’s talk about the overall investment strategy around the stock markets, Trump and NAFTA.
First, no one knows how the stock market will perform on any given day/month/year. All market moves can be justified AFTER they happen. As an example, with every new high we see on the stock market the media can easily say to us that the moves are justified by the news of the day, the performance of the company, the changes in the tax code etc. And then the very next day if it was to drop 10% the same media will find someone who can justify that the stock was overpriced, the market got ahead of itself, the government is in chaos etc. So, it’s important not to listen to ANYONE who tells you they KNOW what’s going to happen. I certainly do not.
So how do you keep your money safe today?
Well, it’s not SAFE if it’s overly exposed to any ONE thing. If you own nothing but bonds, you will have very little return (even negative if the interest rates continue to rise) and you will be disappointed that everyone else is making money as stock prices rally. If you have nothing but cash, you will be sad that you are missing out on the rally but think you’re ok because you cannot lose money. In fact, your losing 2% or whatever inflation is every year on cash. And that’s before tax.
If you only have exposure to U.S. and tech equities you are probably making lots of money right now but may feel the full impact if/when the stock market pulls back. And it feels just as bad or worse losing money as it feels good when you’re making it. If you have exposure to Canadian equities you have likely not made much money over the past year or two. And again, if you have exposure to International equities only, you have probably made lots of money this year, but overall perhaps you have not made real money for 20 YEARS!
So, the answer is, spread your money around these different types of asset classes, have them professionally managed to take advantage of what happens, not just what might happen. In other words, when asset prices go down too much, we BUY them, when they go up too much we SELL them.
Every once in awhile some might make the right call and go to cash at the right time or go fully into the market at the right time, but no one can make that a consistent strategy. No one. Not even a computer or a robot. (not yet anyway!!)
There will always be reasons to be invested and reasons to be in cash. If you are still accumulating and more than 5 years from using the money, then being properly invested (see above) is the right thing to do. If you do not need more than 3% (pre-tax) rate of return on your money, then perhaps buying a GIC is the right thing to do. And if you cannot handle ANY loss at all, you should not be invested in anything unsecured.
What about marijuana? Probably a good long-term play if the rules remain the same. Lots of investment dollars are finding their way to this commodity. I just got an email from a large fund company that they have invested in 2 cannabis companies. So, I think you will see some others in the near future. Again, if the way you’re invested has some exposure to this commodity, you will probably be fine, or then again it may go up in smoke… (pun intended)!
Bitcoin – the last thing I will claim is to be an expert on bitcoin. This is pure speculation right now. Like the US dollar, there is nothing behind a cryptocurrency to give it real value at this point, so the prices will rise and fall like crazy until some measure of value can be placed on it, and that could be low or high! There are new cryptocurrencies coming on the market all the time, so we will see if it’s a “real” thing or not. The likelihood is that money will take the form of bits and bytes at some point in the future, but at what valuation and how is it regulated? Keep your seatbelt tightened.
If you have any questions regarding your personal portfolio and how it is invested, please give us a call.