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How to Invest Your Money in 2018 that Will Help Boost Your Confidence

With the stock market continually setting new all-time highs, I’ve noticed quite a euphoria when talking investments with people. It’s as if everyone is saying, “I’ve finally got my investment strategy all figured out!” As a thirteen-year investment advisory veteran, I recognize the underlying phenomenon that’s at play here – it’s easy to make money when markets are good! The flip side, however, is that it’s hard to keep from losing money when markets are bad. We are certainly seeing more risk in the markets than ever before and that raises two questions: (1) is the risk of a stock market correction immediate and (2) how should money be positioned going forward?

Let’s use a simple baseball analogy. When you think about your own personal investment strategy, are you trying to hit homeruns or are you just trying to hit steady base hits? What’s your plan to win the game? Whatever your tactic, you should always know how much risk you are actually taking when you invest. You may think you’re an aggressive investor, but when you consider the dollar value your portfolio would have dropped during the past eight market corrections, you might not feel so aggressive. Or, you may want to take a more moderate approach, yet your portfolio isn’t strategic enough to give you a balanced combination of growth and protection. So, how can you be confident that your money is positioned appropriately going into the new year?

  1. Look at current market conditions. Right now, our economy seems to be stable so normal investment strategies tend to work. Consumers and businesses are confident. The housing market is still growing. Most every major economic indicator is in healthy territory. One factor to watch, however, is employment growth. We are running out of workers and if this trend continues, we might see the economy grind to a halt. But even from a technical standpoint, there is a lot of momentum behind this market that seems to suggest it will continue to move higher.
  2. Consider risks in the market today. As I write this article, companies are generally overvalued. This means that an investor can expect to pay higher prices for stocks in today’s market than they may be worth. There’s only been one other time in history when valuations were higher. But what’s more concerning is the amount of borrowed money (we call this “margin debt”) that is being invested in the market. Margin debt is it all-time highs. Consider this in conjunction with potential interest rate hikes, as well as our current geopolitical landscape, and use this information to choose an appropriate risk level.
  3. Think about overweighting sectors that are expected to do well over the next 12-36 months and underweighting areas that may underperform. When you think about all the major places you can allocate money, it’s important to diversify without diversifying to mediocrity. Consider where money is flowing and which sectors have the best prospects for growth.
  4. Don’t underestimate the role an investment advisor can play in keeping you on-track. Whether you are too busy to do it yourself or you just need someone to help you take a more tactical approach, a qualified advisor can help you avoid making mistakes. If all you do is open your monthly statements and look at whether the value went up or down, you probably need to pay a bit more attention. On the contrary, if your current advisor doesn’t proactively communicate with you, you may need to consider someone who will. You work hard for every penny and you need to know that someone is working hard for you.

This content originally appeared in the December issue of Hills & Castles magazine. 

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