This is a question I get asked more than any other regarding stock investing. Of course, the answer will vary depending on each client’s age, investment objectives, tax implications, and other personal factors. A couple of points of interest that I like to tell clients to keep in mind are:
- U.S. stocks tend to trend up 75% of the time. The other 25% of the time, stocks trend sideways or downward.
- The theory “A rising tide lifts all boats” is largely true with the stock market as well. However, certain stocks and industry groups do preform better (or worse) than others for sure.
Using history as our guide, it usually is a good time to be invested in the stock market. The timing of one’s buy can be very important in an individual’s overall return from stocks. While the “Rising Tide” theory is true, certain industry groups perform better at certain times. Large- Cap Technology stocks have done great over the past several years. However, some signs are emerging that the next great leaders of the market might not be these Large Cap household names, but rather Smaller Cap Technology stocks that are not recognizable names. Other industries that are expected to perform well are some of the Travel and Tourism stocks and niche Financial Companies. This is, of course, is dependent on the Covid numbers to continue to trend downward.
I have relied on research houses; Ned Davis Research and Lowry Research for over 25 years to determine the trend of the broad market and then what industry groups to focus on at that specific time.
What specific individual stocks one owns is important. However, the percentage an individual is exposed to any individual asset class is the most important factor in an individual’s overall return and success in investing. The “sweet spot” for a risk/return ratio is about 65-70% in stocks with the remainder in more stable asset classes such as bonds and cash instruments.
