Last year I speculated that 2015 was going to be a tougher year for equities than what we’ve been used to seeing and gold prices would rebound. So far 2015 has played out pretty much in line with that script.
It’s hard to believe we burned a month of the new year already and a few large trends have already established themselves that may change how you position your investments for the rest of the year.
Perspective Is Important
It should be noted that the stock market’s 2015 performance will only be “poor” in comparison to the insane years of 2011 – 2013. By historical standards 2015 is shaping up to be a fairly decent year where patient investors can expect to see a return somewhere in the range of 6% to 8% by the time we count up all our chips at the end of the year.
Corporate Earnings Still Strong
Perspective is also important as we look at corporate earnings. In the years after the recession companies slashed costs and trimmed the size of their workforce. While business may have been slower overall, profits soared. Companies were awash in so much cash that they used it to buy back their own stock, producing one of the greatest bull markets in history in the years after 2009 until today.
During that post-recession period companies also scaled back on expansion plans and curtailed investments which would hobble growth in the future. That future is now here and companies are trimming their stock buybacks and making those investments in future growth. Professional sports teams sometimes have to invest in rebuilding years and we’re seeing something similar in the economy. Companies faced with slowing global growth are now making those investments, which means profits may not be as dazzling the next few quarters. The rebuilding companies are going through now requires investing in new facilities and bringing on more employees. Lower profits now in exchange for more growth in the future.
Positioning Yourself For The Year Ahead
Just because the stock market has a slow year, what would more accurately be described as a normal year, doesn’t mean you should pull your money out of the market or sit on sidelines. Even if the market ends up lower at the end of the year, which is unlikely, it’s still a better strategy to hang in there. Stock market gains don’t come gradually, they come in spurts that are impossible to predict. Unless you have the resources of a professional trading operation, you don’t have the high speed trading capability necessary to continually sell and buy back into the market or the means to cover the transaction costs. Smaller investors like you and I just have to tough it out.
There are a few changes you should be making to weather the balance of 2015.
Hard Assets
With the volatility in global currency markets it’s more important than ever to have a fixed percentage of your wealth in hard assets, like gold and silver. Precious metals are not a growth investment, they are in your portfolio to provide a hedge against the value of currency. Whether the dollar gets stronger or weaker, the high quality bullion products you own, like Gold and Silver Eagles from the U.S. Mint, will hold some relative value to currency. Think of precious metals as hedging the value of your cash.
Dividends
While we may not see a lot of growth in 2015, we should still see healthy corporate earnings. Even companies that aren’t investing in future growth can make money and some do it quite consistently. Investing in companies that pay consistent dividends is key to growing your investments.
Patience
The key to long-term growth of your investments is patience and persistence. Staying in the market when others flee, practicing rebalancing at least twice a year and maintaining a disciplined approach to investing are all critical to building your personal wealth. Gaining wealth slowly may not be as life-changing as striking it rich but you ultimately end up in a better place.