By: Tyler Vernon, CEO of Boca Raton’s Biltmore Capital Special to the Boca and Delray newspapers
- What do you make of the 2nd longest bull market in history?
It is not just a long bull market, it is a long period of underlying economic expansion, with only two down quarters of real GDP (one in 2011 and one in 2014). Some type of crisis such as financial, economic or military could derail it, but that is always true. Although equity valuations are quite high by historic standards, other investment opportunities have their challenges as well.
For example, bond yields are still historically low so investors, in our opinion, will continue to purchase stocks. With the potential for an attractive and sustained U.S. environment for business, now is not the time to try to time out of the market.
- Why do you see more volatility in the stock market in 2018?
Volatility has been drifting downward for decades. It will clearly return at times, but the long-term prospect for volatility is modest considering the U.S., economy as well as the world economy is larger and more diversified than ever. We have seen the longest period in the market without more than a 3% pullback since the new administration. We believe things will revert to the mean and that volatility should tick up a bit in 2018. Investors should always be emotionally and financially prepared for volatility – but there is no reason to be unusually fearful of it now.
- Are investors getting too risky and forgetting their original goals?
As a group, all investors bear all the stock market’s risk – and so investors as a group cannot be buying more stock than they have sold. That having been said, those investors who have been adding to their equity positions, especially though margin, should make sure that their goals and circumstances have changed to cause this higher risk tolerance – not their enthusiasm and greed. Having said that we see that investors have a false sense of security in this market. They are adding stock market risk at a time when they should be rebalancing and taking risk off the table, so their portfolio integrity remains intact. Retail investors make the common mistake of adding risk at the later stages of a bull market and we are seeing this happen now.
- Should senior citizens keep moving away from bonds to stocks?
No one should keep moving from bonds to stocks. To the extent that equity valuations are historically high, it is investors with the longest-term time horizons who it is more appropriate for taking on higher risks. Unfortunately, many seniors have done this as bond yields were so small. So far it has worked as they’ve been able to increase their yield. Having said that, many people have a false sense of security and will experience a day of reckoning when the market turns and senior citizens could take a major hit.
- What are the key things investors need to be aware of for the rest of 2018?
We have seen investors continue to make the common mistake that they make in all bull markets… they take more risk or “buy” when markets are high, when experience shows us that they should be doing the opposite. Make sure your asset allocation is consistent with your financial circumstances and your long-term tolerance for risk (i.e., remember how you felt in the fall of 2008 and the market collapsed and it seemed like it was all over). Make sure that your asset allocation is not being driven by greedy attempts to capture lost profits from being too conservative in the past. This will keep investors out of trouble, allow them to invest within their risk tolerance, and achieve their long-term goals.
Biltmore Capital Advisors moved its headquarters to Boca Raton in 2017. Tyler Vernon has appeared on national financial networks like CNBC, FOX Business and Bloomberg more than 50 times. For more information call 888-391-4563 or visit www.biltmorecap.com.