Sunday , 21 April 2024

The Stock Market Is the Place To Be – Here’s Why

The stock market looks to be the place to be long term, as it has always been. With all the tools at the disposal of government officials, economic collapse (as in the Great Depression) may no longer be even a minor probability in the decades to come.

…In my opinion, only the rarest of the rarest black swan event may take the markets down in a meaningfully painful way for one to consider underweighting equities this day and age. To a very large degree, we’ve substantially limited the risks of sustained economic collapse…

With any economic problem, the Federal Reserve and Treasury will throw everything it can at it, and I mean everything…If needed:

  • I believe the Fed and Treasury would even go so far as to purchase stocks outright–even in a more deliberate manner than when the banks were nationalized, in part, during the Great Financial Crisis. No policy measure is off the table. Absolutely nothing.
  • I even believe that the Fed and Treasury would set stock prices, if they had to, just like they set interest rates. If one thinks hard about it, it’s actually not that far of a leap.

The greatest risk today, in my opinion, is not being in the markets at all. The second greatest risk is pursuing a too-diversified approach to wealth creation, stretching too far to hold alternative asset classes while overweighting bonds…

Wrapping Things Up

The “socialization” of the markets through expected government intervention when things go bad, coupled with centralized management of systemic risks (driven by price-agnostic trading), makes betting against the market in the long run a very difficult proposition. This is especially true when the government owns the printing press and when stocks are priced nominally, not in real terms. Since price-agnostic trading is allowed, and indexing and MPT are huge considerations, the government just can’t afford to let these strategies fail, regardless of their merits.

I argue that even so, there are still better approaches than these…(we can’t just park our money in broad index funds and forget about it, and terrible underperformance with little volatility enhancement during crises indicate a stock/bond mix may not be best bet for most investors).

Conclusion

I believe active stock management with the right manager is the best option for most long-term investors. In the long run, my analysis suggests a 2% management fee leaves a substantial positive cushion relative to the 60/40 stock/bond portfolio while providing the potential for further outperformance via measured risk taking…

Editor’s Note:  The original article by Valuentum has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read.  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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