The Anna Maria Island Sun Newspaper

Vol. 14 No. 40 - July 30, 2014

BUSINESS

Anna Maria Island Sun News Story

Risk on - risk off

Investment Corner

In the investment realm the term risk on – risk off usually refers to the short to intermediate term attitudes of investors. Are they taking money out of safer investment to move into stocks and other more aggressive opportunities indicating a high level of optimism? Or, are they pulling back from growth investments and moving into government bonds and cash, indicating a high level of cautiousness?

There is also a longer-term aspect to risk on – risk off behavior. There is a tendency for investors to build confidence as an economic expansion takes place, moving a larger percentage of their portfolio into riskier investments as the rising bull trend rolls on. This is not in keeping with the idea of buying low and selling high.

Unless you use some sort of method to proactively reduce equity exposure as the new downtrend begins, this could be a tough experience. So, here we are, more than five years into a bull market that began, much to everyone’s disbelief, in the spring of 2009. At the time we were worried that ATMs wouldn’t spit out $20 bills, let alone that a new upward trend for stocks would emerge. Historically bull markets have lasted in the 3- to 4-year range. The current bull is now the fourth longest running bull market on record without a 20 percent correction. Granted, we did experience a 19 percent correction in the S&P 500 Index in 2011, so perhaps we’re splitting hairs, but this is still a long-running bull.

We do not have a negative outlook, and think the market has a good chance of moving higher before this uptrend is over. But, my question for all who control investment decisions is this – Is now the time to be taking on additional risk to try to get the very best possible performance?

I think the obvious answer is no. The time to add risk in big doses is after stock prices have experienced heart wrenching declines. Yes, the market could go lower, but the name of the game is to buy low and sell high. Moving whole hog into stocks when we’re five plus years into an uptrend does not seem to be a good bet, particularly when major indexes are up over 170 percent from the last bear market lows.

Should you run for the hills and get out of stocks now? The short answer is no. However it’s probably a good time to be making sure you’re not too heavy in equities. It is also a good time to develop your plan of attack for when the next bear market arrives. Choices include being a buy and hold investor and riding it out, or begin watching carefully for the time to start reducing your level of risk if you’re a tactical investor like we are at Breiter Capital Management.

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit www.breitercapital.com.

 


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