This article could be consider “Part 2” of the article I posted a few weeks ago, Is It Time for the Market to Crash
Write it down: March 5, 2013 the Dow reached it’s all-time high at a close of 14,253.77. Remember the last “all-time” high? It was in 2007, October to be exact. The bear market low of 2009? That was almost exactly four years ago, March 6, 2009. So the question becomes: Is now the right or wrong time to invest?
First, let’s take a look at where we are. The markets are up over 100% since the Great Recession, but why? Isn’t the economy still in shambles here and overseas? Job growth is anemic, currency and debt issues abound, right?
True. All true. But stocks aren’t priced based on what the currency markets are or aren’t doing. They’re not priced based on the trade balance between Argentina and Botswana. They’re priced based on expectation of future earnings. It’s that simple.
Or it’s not.
The Case For Now IS The Right Time To Invest
There are of course, other factors – for example, stocks have been (and probably will continue to be for a while) a better overall value than bonds and other fixed income securities like CDs. Interest rates continue to be low and investors are generally tired of their paltry 0.50% interest on their cash in the banks. Just this week I had a conversation with a client who has $50,000 in cash reserves, earning a whopping 0.75% dividend at his local bank. Those factors also drive stock prices higher.
We should ask this question: How are the largest companies of the U.S. and the world doing? Some other questions that will lead you to a rosy future: Look at free cash flow (that’s at an all time high) corporate balance sheets (exceptionally flush with cash) company stock buy-backs (trending higher) dividend payouts (and the ever increasing rate of those payouts).
That mutual fund of yours? Based on these numbers, it appears we’re headed higher.
The Case For Now ISN’T The Right Time To Invest
That doesn’t mean there won’t be major pullbacks. A few weeks ago, I talked about having a “It’s time for the market to crash” kit ready to go. Investors are piling money into the market again after sitting on the sidelines while things looked lousy, and that’s not a good sign.
Just because you’re planning for a pullback doesn’t mean you can’t also be planning for the next leg up. As I talked about then, planning is important, but plans are not. (So said the wise Winston Churchill…just a few years before I wrote it here).
My Overall Take
When I evaluate the strength of earnings potential of the greatest companies here and abroad I see great things ahead. That doesn’t mean there won’t be market swings. It doesn’t mean there won’t be a pullback of some kind. But when I look to the future, I see a world that continues to get bigger, faster, and stronger, and I’d rather own the companies that are leading the charge.
So yes, now’s the time to invest. But so was yesterday and the day before and so it will be tomorrow. As long as you believe in the future and think tomorrow will be better than today, it’s always a good time to invest. Don’t stop your investment plan because of CNBC hype or Wall Street Journal headlines.
…but, if I’m wrong – and Lord knows I probably will be more times than not – I’ve still got a back up plan on the shelf ready to execute at a moments notice, and you should, too.