Just the right recipe for long-term investing | Article

Editor’s note: Investors are becoming increasingly concerned about the current bull market. However, Rob Spivey, head of research at our subsidiary Altimetry, argues that the length of a bull market is not the deciding factor. In a recent article published in Free Altimetry Daily Authority In the e-letter, Rob explains why proper asset allocation is essential for long-term market success.

The market has been doing a little too well lately…

Since AI took center stage, stock prices have risen almost in one direction. The S&P 500 Index is up nearly 60% in the last two years, and more than 25% this year alone.

Considering the index’s average annual return is 9.8%, that’s pretty incredible.

This is even more impressive considering the many challenges the market has faced. We have seen sky-high interest rates, growing default risks and a contentious presidential election.

Investors start to get nervous when the market rises so much over such a long period of time. They wonder if this continued calm is preparing them for a raging storm in the near future.

Regular readers already know that gold will quietly increase in value in 2024. The popularity of the so-called “safe havens” is a sure sign that people do not trust this rally.

However, as I’ll explain today, you don’t have to worry about the ups and downs of the market – at least not if you manage your money properly…

The stock market is great for creating wealth…as long as you stay on top of it Time.

What I mean by this is that you should only invest money in the stock market that you can leave untouched in the long term. (And from TheI mean at least a decade.)

The markets are volatile. If you invest money in them, you may not earn it back in less than 10 years. That’s why smart investors should divide their money into four areas.

Here’s how to break it down…

First, you should keep any money you need within the next two years in cash. There is no investment that guarantees you will earn your money back in such a short period of time.

The second area is bonds. This is the money you will need in two to five years. Although bonds offer lower returns than stocks, they offer better value protection over a five-year period.

For a broader time period—five years to a decade—you should allocate your money between stocks and bonds based on your macroeconomic outlook. You might favor stocks when you’re optimistic and turn to bonds when you see warning signs in the market.

And as I said, when it comes to going “all in” on stocks, make sure you won’t need that money for the next 10 years.

Historically, stocks are the best asset class for wealth creation – as long as you stay invested for at least a decade.

The longer the time horizon, the clearer the advantage.

Check out this table from the book Stocks in the long term by Jeremy Siegel, Professor at the Wharton School of Business. It shows more than 200 years of performance data for the top asset classes.

And as you can see, stocks crush the competition in the long run…

The market’s most popular safe-haven asset, gold, doesn’t even come close to matching the annual returns of stocks. Neither does the US dollar loses 1.4% annualized, compared to a 6.9% return for stocks.

Over the long term, bonds are the closest investment class to stocks. However, the annual return on stocks is still almost twice that of bonds.

And thanks to the effect of compound interest, $1 invested in stocks in 1801 was worth $2,334,920 in 2021. The same amount invested in bonds returned only $2,163.

Stocks are simply unrivaled in the long term…

Today, market valuations are at 24 times the common price-to-earnings (P/E) ratio. At Altimetry, we analyze returns using Uniform Accounting to avoid biases from traditional accounting methods.

Today’s valuation is above the long-term market average of 20x consistent P/E. Nevertheless, the market continued its steady rally over the past two years. And the S&P 500 rose 4% in the four days after the election.

All of these developments have unsettled investors. But remember: Bull markets don’t end simply because they’ve been going on for so long.

So don’t worry about the strength of this market. If you follow the right allocation strategy, you can just relax and enjoy the ride as stocks test new all-time highs.

Greetings,

Rob Spivey

Editor’s note: A cycle is beginning that one analyst believes will create a once-in-a-lifetime opportunity in the next decade…

After losing his first fortune to a poor partnership, he rebuilt an eight-figure fortune faster than anyone thought possible. And the secret with which he did it gave him a network of billionaires. Now he’s using what he’s learned to help investors build wealth – and get in on the best opportunities of this boom period from the start… Find out more here.