One of the most common questions many of us in the investment community are asked can be paraphrased as “is now a good time to invest in stocks?” The answer to this question consists of two parts. The first is a clarifying question: “When will you need the money?” The second, depending on the response to the first, is either “no, given your time horizon” or “yes, as long as you’re willing to stick with your investment strategy.”
The reason for first asking about when you the need money is to assess your ability to withstand a short-term loss. The market ebbs and flows. On any given week, month or year, stocks can be up or down. Short investing horizons can lack the necessary time needed to recover from a stumbling Mr. Market. This is why money needed within two years (and up to four or five years for conservative investors) should not be invested in stocks.
The math changes for money not needed for longer time periods. Since 1926, large-cap stocks have risen during 86% of all rolling five-year periods according to the Ibbotson SBBI Yearbook (Duff & Phelps, 2016). Extend the time period out to 10 years, and large-cap stocks have risen 95% of the time. These numbers include the Great Depression, World War II, the 1970s’ stagflation, the 1987 crash and the 2008 financial crisis, among other bad periods. This is food for thought for those of you who are worried about allocating to stocks right now because of valuations, the extent of the recent rally, the Fed, the Trump administration, terrorism, etc.
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Highlights from this month’s AAII Journal
- Model Shadow Stock Portfolio: New Additions, Plus Value Leads – Cloonan gives insight on the latest changes and the portfolio’s performance in the new January AAII Journal.
- Vanguard’s Dynamic Spending Strategy for Retirees – This hybrid approach adjusts portfolio withdrawals within preset limits to give retirees an “all-weather” strategy.
AAII Sentiment Survey
Optimism started the new year at a six-week high, but is still within its typical range. More about this week’s results.
Bullish: 46.2%, up 0.6 points
Neutral: 28.6%, down 0.1 points
Bearish: 25.2%, down 0.5 points
Take the Sentiment Survey.
AAII Asset Allocation Survey
Bond and bond fund allocations declined to their lowest level since July 2015 last month. More about the latest results.
- Stocks and stock funds: 66.3%, down 0.1 percentage points
- Bonds and bond funds: 15.8%, down 0.6 percentage points
- Cash: 17.9%, up 0.7% percentage points
- Stocks: 30.0%, down 1.2 percentage points
- Stock funds: 36.4%, up 1.1 percentage points
- Bonds: 2.8%, down 0.2 percentage points
- Bond funds: 13.0%, down 0.4 percentage points
Take the Asset Allocation Survey.
What’s Trending on AAII
- The Individual Investor’s Guide to Personal Tax Planning 2016 Model Shadow
- Stock Portfolio: New Additions, Plus Value Leads Asset Returns During High and Low Inflationary Periods
- 16 Financial Ratios for Analyzing a Company’s Strengths and Weaknesses
The Week Ahead
Fourth-quarter earnings season will “officially” start next week. Joining Dow Jones industrial average component JPMorgan Chase & Co. (JPM) on Friday will be Bank of America (BAC), BlackRock (BLK) and Wells Fargo (WFC). In total, seven members of the S&P 500 will report.
The week’s first economic report will be the Labor Department’s November job openings and labor turnover survey (JOLTS), which will be released on Tuesday. Thursday will feature December import and export prices. The December Producer Price Index (PPI), December retail sales, November business inventories and the University of Michigan’s preliminary January consumer sentiment survey will be released on Friday.
Six Federal Reserve officials will make public appearances: Boston president Eric Rosengren and Atlanta president Dennis Lockhart on Monday; Chicago president Charles Evans, St. Louis president James Bullard and chair Janet Yellen on Thursday; and Philadelphia president Patrick Harker on Thursday and Friday.
The Treasury Department will auction $24 billion of three-year notes on Tuesday, $20 billion of 10-year notes on Wednesday and $12 billion of 30-year bonds on Thursday.
Local Chapter Meetings
AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you! Upcoming Meetings »
This month, AAII is publishing our popular year-end stock screen review and if you join AAII today, I’d be pleased to pass along a copy for your review.
The data in this special report is pulled from the popular Stock Screens area on AAII.com and if you’re not familiar with this free members-only service, you’d be amazed at the investment ideas it can generate.
In a nutshell, AAII Stock Screens allow you to tap into the investment philosophies of promising investment professionals as well as see the resulting stock picks. With AAII.com Stock Screens, you can choose one of our more than 60 screening approaches to build a list of winning stocks. The stock screens and investment ideas are virtually endless and the resulting performance is top-notch. In fact, over the last 18 years, more than 80% of our stock screens outpaced the overall market.
Here’s a quick peek at some of our more popular screens
and their impressive 2016 returns:
Est. Rev: Lowest 30 Down screen up 44.6%…
O’Shaughnessy: All Cap screen up 41.2%…
Price-to-Sales screen up 37.8%… MAGNET Simple screen up 37.7%…
Oberweis Octagon screen up 37.1%… T. Rowe Price screen up 30.8%…
Return data as of 11/30/2016.
Join AAII Now and you’ll receive our year-end overview of the AAII Stock Screens, plus gain full access to the Stock Screens Area on AAII.com.