Your Survival Guy takes note when Warren Buffett hoards $325 billion in cash, which is mostly invested in Treasury bills. When you look at the yield curve you can see he’s getting around five percent on his money. Not bad considering major investment firms are calling for about the same or less long-term returns for stocks. When you look at one of Buffett’s favorite indicators, stocks vs GDP, you can see reasons for his concern.
Which brings us to today’s discussion: When investors feel optimistic, they tend to see a bright future for stocks. When stocks are going up, they generally feel the next move for stocks will be higher.
The opposite is not necessarily true when stocks decline. Investors tend not to turn pessimistic until the losses run amok through a portfolio. They never stop believing in their stocks and don’t sell because they think, “This time, it’s different.” It’s not.
These are strategies, if you can call them that, heavily influenced by emotions. Your Survival Guy, as a fiduciary, is not emotional about money. I’ve taken live bullets through the worst markets this century and lived to write about it.
If there’s one takeaway from Trump’s win, it is that stocks may go up and stocks may go down, much like they have throughout history. The key is for you to have a plan to create income streams that come into your bank account on a regular basis. When you focus on income, you create a compounding mechanism to help you through good times and bad times. You do not bet the ranch on prices.
Action Line: Now is as good a time as any to get your fixed-income house in order, especially while everyone’s jubilant about stocks.
When you’re ready to talk about Treasurys, email me at ejsmith@yoursurvivalguy.com. But only if you’re serious.
