By Jeff Voudrie
The U.S. stock market has surged 12% from the low set on June 4, 2012. Retired wealth investors and those pursuing retirement income strategies may be tempted to jump in—especially since the markets have recently broken above some longer-term lines of resistance.
Is now the time to get in if you haven’t already? I believe the answer to that question is “No.”
Since the stock market crash in 2008, I’ve seen two types of reaction to market surges amongst retired wealth investors. There are those retirees that may never reinvest in the stock market and then there are those that have a tendency to chase rallies. I’ll assume that the first type probably won’t ever read this so I’ll focus on the second group.
As a wealth manager, I spend several hours each day watching and researching the markets and news-flow on a global basis. My clients tend to be retired or nearly-retired and they are more concerned with preservation of capital than they are with growth. Don’t get me wrong, they want their accounts to grow and that is a very important focus, but they don’t want to chase growth at the expense of losing 5-10% of their wealth. Therefore, I tend to focus more on risk metrics and the underlying forces that may be the cause of a rally or decline.
The reason that I do not recommend jumping into this rally now is because I don’t believe it has much further to run. The volume during this rally has been well below historic levels so there isn’t a lot of new money flooding into the market. Extended rallies depend on the individual investors pouring more and more money into it in order for it to continue past the ‘professional investor surge.’ That isn’t happening. In fact, the statistics show that individual investors continue to take money out of equities.
Nor do I see a strong fundamental basis for a continued market rally. The news out of Europe is not encouraging. Sure, there continues to be rumors of ‘this’ and press releases of ‘that’, but there is a huge chasm between what is being said and what is actually taking place. Here in the U.S., there has been some improvement in the economic numbers released recently, but those are still within the context of an overall economy that is sputtering.
The bottom line is that there isn’t going to be a magic solution in Europe, nor in the United States. It is going to take time (perhaps many years) to work through the enormous levels of debt that have built up worldwide. China is faltering and it is highly unlikely that it will continue to see 7-8% annual growth rates in the future. Even a change in the U.S. Presidency may not have a significant impact on our fiscal policy.
My investment thesis of conservative investments out-performing aggressive ones on a risk-adjusted basis remains. I continue to believe that we are in a Bear market and remain nimble in navigating the inevitable ups and downs.
Feel free to contact me at jeff@CommonSenseAdvisors.com with any questions or comments.
Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.
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Twitter: @JeffVoudrie @seeitmarket Facebook: See It Market
Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.
