Equity markets have clearly generated strong returns since 2009. But now, with the current bull market in its sixth year, you have to wonder how long the asset class’ outperformance will last… and you should begin to prepare a game plan for when stocks stumble.
Once the equity gig is up, whenever that day comes, investors will have to look to other asset classes — commodities, currencies, and bonds — for profit opportunities. And we must look on both the long and short side of these markets.
One simple strategy involves gaining exposure to four key asset classes:
1) U.S. Treasury Bonds
2) U.S. Dollar
4) S&P 500
By moving in and out of each asset class — sometimes going long, sometimes selling short — an investor can stay diversified and capture gains that can’t easily be had when equity markets falter.
Here’s a look at how this approach fared over the past 10 years (in blue), compared to the S&P 500 (in red)…
As you can see, investing $100,000 in the S&P 500 10 years ago would have helped you earn about $58,500.
But by following the ebbs and flows of the four major asset classes, you could have done much better.
The long/short strategy generated over $140,000 in profits over the same period. And, the diversification gained by investing in multiple asset classes made the ride a lot less bumpy.
A long/short system trading four asset classes thrives during years in which equity markets crash, as they did in 2008. That makes this approach an invaluable tool for surviving the fall.
For now though, we’ll continue to lean toward bullish equity plays… but like I said, prepare yourself for a more flexible approach once the equity party is over.
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If “buy-and-hold” and the notion that you can’t beat the market have left you short of your personal and retirement goals, then you’re going to want to hear the truth about passive and active investing.
Chances are, if you’re more than 25 years old, you think it’s impossible to “beat the market!”
But today, there is MORE than ample evidence that proves:
- The stock market is NOT perfectly efficient
- Passive investing can be MORE risky than active investing
You CAN beat the market… you just need to use the right strategy!