The temptation to be a speculator in this market is high thanks to some neck snapping stock market volatility, surging gold prices and pathetically low Treasury yields. In such an environment, I suggest you craft a diversified portfolio of stocks, bonds, and gold.
If you don’t have an advisor, focus on exchange traded funds (ETFs) or mutual funds and stay away from individual stock picking. Keeping track of stocks can often times be too much work for one person. Like your yard, even if you stay on top of it with watering, it’s easy to one day wake up and see it burnt to a crisp.
The growth in assets in the ETF market has been explosive since 1990 and the market is now worth $1.71 trillion according to BlackRock. In a recent report, management consultant McKinsey & Co. said “no other significant segment of the U.S. asset-management industry has grown as quickly.” I suggest you find yourself a good dividend paying ETF to compensate you for investing in this market.
August wasn’t a pretty month, with the Dow losing 4.4%—its worst August in a decade and worst month since May 2010. There were a record four consecutive days with 400-point swings. Money outflow, according to the Investment Company Institute, from long-term domestic stock mutual funds exceeded $35 billion. That hasn’t happened since October 2008, a month after the Lehman bankruptcy.
Gold is hot. Everyone from hedge-funds to your neighbor is piling into the yellow metal. It gained 12% during the month—its best month in almost two years. The SPDR Gold Trust ETF, a simple way to own gold, surpassed the SPDR S&P 500 in August as the largest ETF by assets. Who knows where gold is going over the short term so tread carefully, the word is out, as they say.
Stay away from Treasuries. You can do better than locking in a measly 0.19% yield on two-year Treasury notes or a bit over 2% in 10-year Treasury bonds. You can thank Federal Reserve Chairman Bernanke’s free money truck for that. I like the idea of constructing a bond ladder with corporate bonds. Again, an advisor can help you with this.
All in all, a brutally tough market especially if volatility continues in equities, with surging gold and pathetically low Treasury yields. Get a game plan. It should help keep the temptation to speculate at bay.