by Stacy Francis, CFP®, CDFA
I feel like we all need to have extra strong antacids to deal with the chaotic behavior of the market. With the US stock markets as steady as, say, a blind man on stilts, stability and safety are the topics on everyone’s minds. How do I put my money to work without losing sleep?
For most of us, the first things that come to mind are bonds and certificates of deposits – even interest-paying bank accounts. The problem is, all financial instruments are priced according to the Finance 101 factors supply and demand. Meaning, when everyone and their brother are bidding on top of each other for, say, blue chip bonds, the returns slide and slide . . . until they are so small, inflation will eat every dollar you make. Right now, the situation isn’t all that different from the beginning of the post-depression era. Now, history doesn’t always repeat itself, but the point is, income stuff is great if it’s priced right, but currently it is set up for failure, with no room for error whatsoever.
What to do?
The secret – not as much of a secret, perhaps, as investors in the know have practiced it for ages – is to be a contrarian. We all know on some level that the key to successful investing is to buy low and sell high, yet very few of us do. All financial markets are cyclical. Sooner or later, stocks are going to climb again, and when they do, people dump their income generators. This is when you want to buy them – when you can get a good yield for a low price. For now, place some stink bids for the funds and stocks people can’t wait to get rid of. And when everyone else want to buy your stocks, let them, and buy into the income-generating securities they are dumping. Sure, it takes quite a bit of courage and discipline. But if you want to live your retirement in style, it is so worth it. Buy when the price is low and sell when the price is high is the surest way to ultimate financial success.