Commentary: Paul Ebeling on Wall Street, It is Never too Late to Start Investing

Commentary: Paul Ebeling on Wall Street, It is Never too Late to Start Investing

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$DIA $SPY $QQQ $RUTX $VXX

Last weeks action

Stocks were quiet going into Friday’s options expiry, after getting good news regarding vaccines Wednesday. The economic data was good, but jobless claims were off.

The Governor of Texas said he is considering the imposition of some sort of lockdown on Friday.

I expect the market to find new leadership, given the patterns that have formed up in several sectors. We will have to see if new leaders emerge or big tech continues to lead in here.

June retail sales were great at 7.5%. While they were down from May’s 18.2% number, the June results beat the 5.2% that was expected. 

The Philly Fed beat, but jobless claims did not. They came in at 1.30-M off a bit, figure was lower than the prior numbers.

While moving from a vaccine rally to a low volume quiet state the market struggled to find a reason to rally Friday. 

Wednesday, it was all positive as Moderna announced positive results from its vaccine, and Johnson & Johnson (NYSE:JNJ)stated that it will be ready to conduct late-stage tests in September.

Technical Outlook:

The S&P 500 has the look of a Double Top, and it has cleared the 78% Fibo retracement of the February-to-March selloff and defied the odds in marking that level. 

So, will watch carefully to see if it will continue to move North and reach a new high, that will happen if the recovery stocks kick in and gain traction. 

I cannot predict what the economy will do because of the totalitarian decisions that some states and big cities will make, but I do see more aid/relief stimulus and more moves by The Trump Fed to bolster the economy.

It is never too late to start investing, but investing means a long-term approach to yield results

Traditional knowledge and practices for working with money have evolved over generations, especially those that involve saving and investing.

Saving is generally the 1st step towards financial planning, however, investing a certain portion of the money saved leads to wealth creation in the long-term.

The perception of investing, which was historically restricted to only the affluent class, has now become a reality for the common man, thanks to digital technology and an emerging number of investment instruments. Investing has also become easy and accessible through the evolution of fintech services as they offer advisory services along with secure options based on financial goals.

Time horizon and risk tolerance are 2 Key characteristics of investing and building robust portfolios.

Moreover, long-term investing, coupled with diversification of portfolios, are generally the first line of defence in reducing investment risk. These characteristics also enable the investment portfolio to navigate through unprecedented events or economic recessions/ depressions.

We here at HeffX-LTN have always emphasised investing early in life to reap the benefits of compounding wealth. But, 1 can start investing any time as it is never too late.

Retail investors are concerned about the concept of investing, especially the fear of losing the principal amount. Wealth protection is an important concept in investing, and thankfully it can be mitigated by diversification across various asset classes, geographies and industries.

Regardless of the strategy adopted by an investor, the duration is an important parameter in building wealth, while reducing the overall risk and volatility of the portfolio.

The advent of technology has had a profound impact on every aspect of our lives.

Consumers today prefer the convenience of managing everything online, which is primarily the reason for digital transformation within the global financial services industry. As a result, this has changed the face of investing, which is now easy and accessible to everyone.

Online trading was introduced by banks and other financial institutions to expedite and streamline the transacting experience. The success of online trading encouraged traditional financial institutions to offer similar services to other asset classes.

The wealth management industry has operated in the traditional way since it is limited to the HNWI’s and sovereign .

However, the evolution of fintech firms transformed the wealth management industry by eliminating the need of human intervention with cost friendly fee structures.

So, today, an individual can easily open an account with Zero balance on any of the digital platforms to start investing with no minimum investment criteria.

One of the Key considerations of investing is determining the appropriate allocation strategy, which is dependent on 3 Key factors: investment objective, risk tolerance and time horizon.

A typical allocation would include traditional asset classes, stocks, bonds, precious metals and money market instruments.

A risk-averse or conservative investor would ideally prefer to invest in low risk instruments to protect principal, such as Aristocrat dividend paying stocks or municipal/government bonds.

On the other hand, a risk-taking investor prefers higher returns with a justified level of risk adding in growth stocks.

Another important risk mitigation strategy is portfolio diversification, which can be done by investing in other geographies and industries.

A sophisticated investor could further diversify through alternative asset classes, thereby improving the overall risk-return characteristics of the portfolio.

Once we have an optimal asset allocation strategy, it will enable us to weather the ups and downs of the market, such as the uncertainties we are experiencing now due to C-19 coronavirus, and what has been learned since the global financial crisis in Y 2008.

For instance, an analysis of asset class performance during the past 20 yrs indicates that a diversified portfolio generates healthy returns with an appropriate level of risk.

To understand this better, let us consider three investment cases with an annual investment of $12,000 for a frame of 25 yrs.

A: We have a traditional style of savings/investing, which is 100% into fixed deposits/savings at an average rate of 2.5% per annum.

B: We have a balanced portfolio for a low risk or risk-averse individual with 50:40:10 split between equities, bonds and gold.

C: We have a dynamic portfolio for a calculated risk-taker with 70:10:10:10 split between stocks bonds, private equity, gold and thoroughbred horses.

Based on the above assumptions, the investment values under the 3 cases would have grown to $0.42-M for case A, $0.70-M for case B and $1.50-M for case C.

The investment strategy indicates a staggering difference in values over the long-term. Hence, it is important to understand the risk/reward of investing and accordingly select a strategy that would help in maximising returns.

Yes, this is a simple example, these cases do illustrate the compounding effect of investing by varying levels of risk.

Now that we have established the importance and the process of investing, it is equally important to understand the limitations and the way forward.

First, an investment strategy often requires long-term commitment and discipline, and liquidation at any interval could be detrimental to the portfolio.

Second, in a changing economic landscape, it is advisable to rebalance the portfolio strategy to align with new realities. It might be prudent to seek the services of professional managers while re-allocating in unprecedented times like now.

The fee structure will be higher compared to digital platforms, the professional advice is worth the money.

Today’s savvy investors realise the importance of using their savings to invest for a secure financial future.

In investing, it is important to focus on what we can control, such as setting up a sound financial plan, a realistic target, adequate protection, proper diversification, and a commitment to a long-term strategy to achieve the set forth goals.

An investment plan should not be reduced to 1 strategy, as it is wise to diversify across assets and geographies, depending on your risk profile and financial goals.

Time invested is more important than trying to time the market, so 1 needs to be invested for a longer period of time to build wealth and enjoy financial freedom.

We make recommendations daily on issues and strategies to benefit investors.

Remember, always take what the market gives, it is your money, so your responsibility.

Have a healthy week, Keep the Faith!

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Paul Ebeling

Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he it the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.