Individual investors should invest their funds in equity funds and bond funds to balance their portfolios. Now is the best time to invest in both, and the worst time.
Mutual funds are long-term investments, and timing is usually not a major issue for investors. But if you suddenly find yourself having some money [such as inheritance, or from 401k] need to invest somewhere soon? This can happen when the timing is good, or it can happen at one of the worst moments. Here, we look at the best time to invest in the past, and look forward to 2015, 2016 and beyond.
The best time to invest in equity funds may be the best time when the Dow Jones Industrial Average hit 777 in 1982. In 2000 [18 years later], it hit a record high of 11,723 points... More than 1400% of Nasdaq stocks rose more than 3,000%! 1981 was the best time for bond funds, and because interest rates peaked, they paid dividends of 14%, 15% or more. For most of you, 1981 and 1982 are ancient history, but if you know what happened, you might be better able to understand what will happen in 2015, 2016 and beyond.
The best time to invest in equity funds is after stocks have risen sharply; investors have begun to see a light at the end of the tunnel. By 1982, interest rates and inflation had reached record highs after several years of growth and became a major drag on corporate profits and stock prices. When interest rates turned and began to fall, the stock market turned to the North.
In 2015 and beyond, we can see the other side of the above situation, as interest rates hit historical lows and inflation rates have been low. The market has been hitting a record high and has risen for six consecutive years. A significant reversal of interest rates may herald a change in market trends and bring bad news to investors.
The best time to invest in bond funds is that interest rates are high and start to fall. The worst thing is that interest rates are low and start to climb. When interest rates fall, the value of their portfolios rises; but when interest rates rise, they fall. When interest rates peaked in 1981, some investors in these funds approached a loss of nearly 50% as the fund's share price [price] plummeted. If interest rates soar in 2015 and beyond, investors may suffer serious losses again.
Many investors today are unaware of this risk because they have never experienced the period of rising interest rates. Interest rates have been falling for years and are now so low that they cannot be much lower. If you have enough money to get working in 2015 and beyond, this is not a pleasant news. The question now is how to deal with it.
Add some safe alternatives to your portfolio, such as money market funds and short-term CDs. Choose conservative, high-quality medium-term bond funds and blue-chip equity funds that pay good dividends. Pay attention to your portfolio and financial news. If you start to lose money and interest rates rise to make headlines, this may be a sign of reducing your capital investment and increasing your holdings of safe alternatives.
In the past, there was little need to focus on the best time to invest in equity funds and bond funds, because one party's losses were usually offset by the other party's earnings. The same threat is faced in 2015 and beyond: interest rates are rising. Good luck and open your eyes when this brave new world unfolds.
Orignal From: The best time to invest in equity funds and bond funds
No comments:
Post a Comment