Monday, October 17, 2011

Possibly better times ahead!- Not yet a screaming buying opportunity for stocks!

I think that for now the economy and in particular the stock markets are turning the corner or at least are stabilizing. However, I do not think that this is the time to invest full blast in stocks. Cash and cash flow should be number one priorities in today's portfolio!

I think a year-end stock market rally is possible and that we are not in a recession, but I am also sure that the European debt crisis and the paralyzed U.S. political environment are not disappearing overnight. Stick to a regular stock purchase program using whatever monthly amount you have planned to buy; but this is not yet the big 'once-a-year' buying opportunity where you spend all your cash. Possibly such an opportunity will not present itself this year at all. There may be better opportunities in real estate or in fixed income to come. Maybe we will go down in the stock market another 20% and you can buy stocks truly dirt cheap.

Stick to your overall investment strategy; be steady; don't sell off in a panic; collect your cash flow and have a higher cash position and short term income position than usual. Short term income would entail money market funds; short term government and corporate bond ETFs; or cashable short term GICs (1 year or less). My current cash and short term income portion is close to 30% of my paper (stocks; bonds) security portfolio.

If you have used your line of credit to finance real estate or other debt, you may consider paying them off - after all, you pay probably 3% interest on them. The same for margin loans that charge close to 5% interest. There are few short term income investments that will provide you such after-tax returns - and this is as close as you can come to a 'guaranteed' return. When the investment climate brightens and real opportunities present themselves, you can access these lines of credits and margin loans on a moment’s notice so you won't miss out on buying opportunities while you preserve more cash.

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