I want you to understand that stocks have MUCH MORE appreciation ahead of them, as a whole. What you’ll see below is that households STILL OWN about a fifth of their wealth IN BONDS!
In my mind, that’s a bubble! There is ZERO JUSTIFICATION to park 20% of society’s net worth in bonds that don’t generate a return, are exposed to inflationary erosion and can’t be relied upon for the years to come. On top of that, having 15% in cash (now even more) creates a situation where investors have TOO LITTLE EXPOSURE to stocks.
There are trillions of dollars on the sidelines. I’m telling you that in 2018, equities BEGAN TO see outflows from stocks and inflows to bonds, a trend that HASN’T REVERSED until present day. That’s not a smart move to sell equities and own bonds instead.
My message isn’t that stocks are a REAL BARGAIN, but that if you see an opportunity to own a high-quality company at a reasonable price, the attitude of WAITING FOREVER until its price returns to some historical norms MIGHT COST YOU big-time, since you’ll never get exposure. Stocks might not return to those P/E ratios of the past.
Instead, consider a TRIED AND TRUE strategy of splitting your purchases in increments, BEING METHODICAL about two elements:
- Total Position Size – Figure out PRECISELY HOW MUCH you’re going to invest into a given security, why you’ll SELL IT (for a good or bad reason), what the ideal entry price would be, and then execute a tactic of buying 10%-20% of the OVERALL SIZE.
- DROP-SIZE STEPS – Companies either experience INCREMENTAL REDUCTIONS in price or one-day BIG DROPS. The incremental ones are created because of collective views about the company or its industry, while DRAMATIC SELL-OFFS that occur instantly are reactions to news releases.
You need to be ready to capitalize on these INSTANT DROPS and one of the best ways is to set limit orders.
As you can see, the OVERWHELMING NUMBER of equities is owned by the top 10% of wealthy households and that’s A HUGE MISTAKE that the rest are making.
My one wish for families who have low-wage incomes is that they would save 5%-10% of their net income every month and buy equities. Even if their careers never take off, they’ll SAVE THE NEXT GENERATION from poverty!
Save, invest, REPEAT!
Escape poverty in 25 years or less and be the hero of your dynasty.