Gross: Stocks are Fully-Priced
Owners of stock-heavy 401(k)s, IRAs and other investment portfolios, take note: Stock prices have had a very nice run of late. It’s been three years since we’ve even had a price correction of 10 percent or more – the last one was in 2011. In the meantime, the Federal Reserve has been throwing everything but the kitchen sink at the economy to shore up asset prices and hold down interest rates.
But indications are that stocks’ best days may be behind them for the time being.
That’s not just us saying that – that’s one of the most respected professional investors in the world, Bill Gross, manager of PIMCO’s Total Return Bond fund – the largest actively managed bond mutual fund in the world.
Gross believes that stocks are ‘tapering off’ at this point. Why? Because of the widespread enthusiasm for them, as well as the massive Federal Reserve support for them under QE 3 and a colossal effort to hold interest rates down and increase the money supply.
That policy that had the Federal Reserve actually purchasing over $80 billion in mortgage assets every month to shore up the housing market has to end sometime. Recently, the Federal Reserve under the dovish leadership of new Fed chair Pamela Yellen, has announced the Fed will be “tapering off” this massive support.
What does this mean for investors? First, stocks will be losing an important source of support as the Federal Reserve takes its foot off the monetary acceleration pedal.
But as even Gross will tell you, returns available in the bond market are frustratingly low. Interest rates are a fraction of what they were a generation ago. That’s good news for homebuyers – and low interest rates continue to support real estate prices and contribute to affordability. But it’s not great news for investors seeking and adequate return on investment.
Sure, we recognize that Gross is “talking his book.” He’s usually skeptical of stocks because his livelihood depends on attracting investment towards his interest.
Furthermore, if interest rates are near historic lows, they would seem to be likely to rise in the future, at some point. When that happens, bond prices will fall.
We’re all about diversification. But diversifying onto two different asset classes poised for underperformance, at best, or declines at worst, doesn’t do you any good.
That’s where the nimble and creative have an advantage. Those investors who have the education and ability to take independent control of their retirement accounts via self-direction have a powerful advantage over others.
With Self-Directed IRAs, you are not directly subject to the same systemic risks that plague the stock market and bond market. If you choose, those who self-direct can commit retirement assets to a vast array of alternative asset classes that don’t rely on the stock market, bond market or national interest rates for their returns.
- Rental real estate
- Commercial real estate
- Private lending
- Private equity
- Tax liens and certificates
- Oil and gas interests
- Precious metals
- Angel investing
- Hedge funds
- Closely held C corporations, LLCs and partnerships
And much more.
Each of these assets is subject to different influences and move in different ways than the broad stock market and broad bond market. If you believe stocks are a little “toppy” these days, and you aren’t happy with the historically meager returns available among investment grade bonds, then it may be time to diversify into some of these other asset classes.
You can do so by taking advantage of a Self-Directed IRAs, Self-Directed 401(k)s, Self-Directed SEPs and Self-Directed SIMPLEs, while still retaining the important tax advantages these vehicles offer.
For more information, visit us at www.AmericanIRA.com, or call us at 866-7500-IRA (472).
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