Betting the House

Betting the House

We are continually reminded by conversations we have with others just how vulnerable we all are to the lure of advances in broad stock market indexes.

In a common exchange, we’ll remind people of the pain they experienced in 2008 and suggest reducing risk by paring down stock and bond holdings and keeping more cash on hand. The typical reply: “But cash isn’t paying anything.”

Savings vehicles aren’t about hitting it big

This is true, but the primary objective of savings vehicles is to maintain stability and liquidity, not earn a high rate—and rates won’t stay at zero forever. Unfortunately, this kind of logic usually goes unheard. The lure of the increasing price is so strong, no amount of reasoning can penetrate the draw of the investment marketing industry’s message.

For many people, this is exacerbated by the knowledge that they haven’t saved enough money for whatever objective they’re saving it for and they’re throwing the Hail Mary. The irony here is if you haven’t saved enough money, stocks and bonds are the worst places to keep what you do have.

Greed: The one trait that will never change.

In a 2014 speech, then-Chair of the Federal Reserve Janet Yellen said, “We’ve seen these valuations before.” She was addressing comments about concerns that the Fed’s policy was precipitating asset bubbles. What she didn’t say was those other times were 1999, and 1929, and the risk (especially to small investors), was unimaginably high.

Fast forward a few years and now Janet Yellen is Treasury Secretary, and her replacement, J-Pow, is about to step to the mic so he can hem and haw about tapering, temporary inflation, and employment figures. Again.

The valuations Yellen was talking about in 2014 now exceed those we saw in 1929, and while they have yet to exceed those we saw in 1999, it doesn’t really feel like it’s time to party like Prince’s song suggests.

Sometimes not losing money is the best way to make money. Put another way, avoiding losses is more valuable than picking the winners. This is the focus of Quantum Leap Capital.

Want to learn more? Contact us today and schedule a free consultation.

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