The Market Makes No Sense: Should I Wait It Out?

Bitcoin's crashed, stocks are too high, bonds are confusing :S

Hello friends, it’s been a while! We’ve been sticking to the less is more approach around here; as we always say, investing really doesn’t have to be that complicated. However, every once in a while, we start to hear enough of the same question to prompt us to dust off our keyboards and dive back in…

It usually goes something like this “well, Bitcoin isn’t fun any more (and I’m down more than I care to admit) but the stock market’s at all-time highs. What should I do?”

Our first response is usually… get your kicks somewhere else. We kid, we kid. But in all seriousness, investing isn’t fun all (or even most) of the time. We describe it like brushing your teeth: a boring, but necessary habit. There will be the occasional Dogecoin and AMC rollercoasters but those are the exceptions, not the rule.

OK, I hear you. Less Doge. But Why?

Don’t get us wrong - we aren’t telling you to completely give up on crypto. All we’re saying is, hopefully the past couple of months have provided some perspective on why crypto is still very much a nascent asset class and not one to set-and-forget about. If you have the time and passion for it, trade all the BTC and Ether your heart desires.

But remember - the crypto market isn’t driven by the same forces as the stock market i.e. economic expansion and profit. So if it craters, there isn’t necessarily any “rational” band it will bounce back to. And it could keep going lower, if more negative headlines come out. In that sense, individual cryptocurrencies trade much more like individual companies - with similar risk concentrations.

That’s why we’ve always recommended keeping your crypto exposure to a small portion of your portfolio, and only putting in as much as you can stand to lose. Crypto volatility continues to be extreme (vs. other asset classes), putting it firmly in the short-term trading - not long-term investing - bucket in our eyes.

Fine, No Doge. Where Do I Go Next?

In case you haven’t heard, our friends in the USA are partying like it’s 2019. Our point is: we have vaccines (take your pick!) and the new Delta variant notwithstanding, 2021 already promises a bit more normality than 2020. Hopefully 2022 even more so.

What does that mean for the stock market? The bull case is a repeat of the Roaring Twenties, fueled by almost two years’ worth of pent-up demand. The slightly-less-bullish but still pretty bullish scenario involves some cooling measures by central banks to tamp down inflation, in case things start getting really weird.

However, as we’ve seen since the 2008 crisis, the Fed has been loathe to really, seriously put the brakes on the economy and nothing we’ve seen so far would suggest otherwise… Which leads us to repeat, as we have been since the beginning, buy the Index Fund. Any Index Fund.

You’d be surprised how hard it is to convince people of this sometimes, because the S&P 500 has returned “only” 15% so far this year. But you know what? So has Bitcoin. Exactly the same return, hundreds of times the volatility. So as a long-term investor, Index Funds continue to be a no-brainer.

Assuming a (relatively conservative) 10% annual rate of return means your investment will roughly double in ten years’ time. Why say no to that?

Want a Little More Spice?

We hear you. This is where the single stocks come in. FAAMG, green energy, oat milk… whatever floats your boat. As always however, more (potential) reward comes with more risk, so do your research before committing to individual companies. And remember, global stock markets tend to move in sync with certain themes or “factors”.

Currently, “momentum” plays i.e. tech have taken a backseat to old-economy “value” plays as dividend-driven, bottoms-up investing makes a comeback. If you’re looking for a quick trade vs. a long-term holding, it’s worth being aware of these undercurrents.

Can’t be bothered to figure out if Apple is a better buy than Ryan Air? Don’t sweat it. Index, Rinse, Repeat. But if there’s a company or product you find everyone around you using a lot, maybe even daily, that’s where you want to start thinking about investing in single stocks. Try it, it’s fun!

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We apologize if this feels a bit repetitive, but we really, truly, hear the same question all the time - even from loyal GYW readers. We get it, it can be intimidating when the market’s rallied and you feel like you’ve missed out. But don’t let that deter you. Dipping your toes in now, a little bit at a time, is infinitely better than nothing at all.