According to UBS, the ultra-wealthy hold on average 25% of their capital in cash. Their rationale is that the stock market will see big trouble in 2020. On the surface that seems like a scary warning for the rest of us. But before you make such drastic moves with your portfolio, consider the following:
- Someone has been predicting a major market crash for 12 years now - the predictions just come from a different political perspective now than they did 4-12 years ago. Having 25% in cash over the last 12 years would have severally limited a portfolio's wealth creation potential.
- The ultra-wealthy are more concerned with wealth preservation than wealth accumulation. With one party likely to nominate a candidate that has a strong anti-wealthy bias, preservation is now more important than ever
- While the absolute level of the market indices is near or breaking new highs, the most popular valuation measure (P/E Ratio) sits at 16.80. Zacks predicts a P/E of about 17.80 for next year. Given our low-interest rates this a very reasonable market level.
- Earnings growth for the S&P 500 is expected to be 8.3%. This is on 4.4% higher revenues. Solid numbers for the market and economy.
- Recession talk for 2020 has all but gone by the wayside.
- If you have a particular political bias, which you probably do, you might want to let go of it for investing purposes.
- I've said it before and I'll say it again, this is a historic time for our economy and the market. And we're seeing this play out day by day, week by week, month by month, quarter by quarter. Make sure you're taking full advantage of it.
Things do change, only a fool doesn't change with circumstances. Always have plan "B" ready and know ahead of time exactly when and why you'll make changes. At Fund Trader Pro, we monitor market conditions and will advise changes to your 401k portfolio allocations as conditions and circumstances warrant.