I can remember back in my Wall Street days when the internet boom was raging and the NASDAQ was pushing well above four thousand, on its way to an all time high of forty-five hundred and change. We had just passed the Y2K barrier, and the good times were rolling. Everyone involved in the market was printing money. Everyone was a genius in a bull market.
It’s now fourteen years later, and guess what? We are just now getting back to those levels on the NASDAQ. The DOW and the S&P are hitting new all time highs seemingly every day. The volatility index is grinding lower, squeezing all of the fear out of the market. Mark my words; these are dangerous times, my friends. I hate to be the one to break it to you, no matter that the FED is printing trillions and pumping up the market. It is NOT different this time; and for those getting on the train now, this will end badly.
I have no idea when the correction, or even a crash, will come. But I know one thing–it will come! And we are much closer to the top than the bottom. There is so much global event risk in the world today, and something is bound to trigger the sell-off. Whether it be conflict in the Middle East, a new terrorist attack, China threatening its neighbors, or the Fed finally ending QE and raising rates, the market will sell-off. I’d much rather protect myself at this point in the cycle rather than play a game of musical chairs and come out on the losing end. You may miss the last spectacular crescendo of the market top, but you will be able to sleep at night with the gains you have made over the last several years.
So what to do? I suggest buying insurance on your portfolio, raising your cash position, and adjusting your asset allocation towards investment classes that have underperformed and corrected recently. Precious metals, including gold, come to mind. If there is one thing I learned on Wall Street, it’s to sell when everyone is buying and buy what nobody wants to buy. If you are near retirement and need income off your portfolio, for goodness sake, go to cash. You’ll have an opportunity to buy some good large cap dividend-paying stocks cheaper at some point in the future to generate income. And stay away from the bond market; it’s expensive as well. There is no value in bonds today. Interest rates only go from twenty percent to zero once in a lifetime. There is nowhere to go but down regarding bond prices. Bond funds are even worse as they have no maturity, and you never will get your principal back.
They say that in order to make good asset allocation decisions in the markets, you need to have seen several boom and bust cycles. I’ve seen plenty, and I’m telling you–it’s not different this time! Protect yourself! The barbarians are at the gates!
Photo credit: Jon Whitton (Flickr)
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This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom