All times are dangerous
I read this blog post today, and it tied in with some things I have been thinking about.
Where should we be investing our money now? Specifically, what kind of asset allocation would be appropriate? At the moment:
- Stocks have been going up for a while. Historically, they have to correct or crash at some point.
- Bonds are facing low interest rates. At some point rates will go up and bond prices will fall (but yields will rise, partially offsetting that).
- Gold is an unproductive asset.
- Cryptocurrencies are a bit of a long shot, to say the least ;)
The standard advice would be to invest in a diversified portfolio with stocks and bonds (and maybe some REITs/commodities/P2P lending). Something like your age in international bonds plus world equities (so if you are 40 years old, you would have 40% bonds and 60% stocks). People in Japan might want to add some Japanese bonds and stocks to that. The equities provide growth and the bonds provide stability.
This might be a sensible portfolio depending on your personal circumstances and assuming that the rules haven't changed (see Nassim Taleb's work for a deep dive into that).
So far my investing plan has been twofold: to buy dividend stocks (mainly from the US) in order to hold them forever and enjoy the dividends, and to buy equity index funds so that they will go up in price and be sold eventually. I believe the latter approach is more likely to succeed over the long run, but the former is more fun and simpler (you don't have to worry about selling things to get an income, you just get your dividends every month). It's incredibly satisfying to see your dividend income rise over time.
The question is, should I change this approach going forward? My wife and I are still working and still doing our best to save and invest for the future.
Every so often I am slightly tempted to sell something and keep the proceeds in cash, so that I can use that cash when stocks go on sale...
So far my natural laziness has stopped me (it's much easier just to keep buying stuff than start worrying about when to sell it and rebuy it again). Plus I remind myself that people have been predicting an imminent crash for the last six years or so -anyone who sold in 2012 to wait for a correction must be deep in the depths of despair by now (we'd have to have another generational event just for them to break even).
Hopefully today's post will spark a discussion and help me figure out what I want to do. What do you think? Sit tight or try to adapt to our long bull market (and possible future correction)?