Why a Long-Term Investment Focus May Prove Beneficial
By Mark Landis, Co-Founder
Where do you go to look for a hot investing tip? Do you flip on CNBC or Jim Cramer? Maybe your crazy cousin Eddie shares his keen insights for high return investments. Perhaps you have friends who love to brag about their ten baggers (stock picks that went up to ten times its purchase price).
These tips make great entertainment, but they don’t often lead to consistent investment returns.
Due to changing macroeconomic conditions, the highest return investments typically change day in and day out. Just take a look at our analysis of some of the “Hot Picks” of the past, and how a changing time horizon paints a completely different picture.
The S&P 500 represents the stock prices of the 500 largest US based companies. Investors consider the S&P 500 the best benchmark for measuring returns and volatility. Over long periods of time, it offers some of the best upside potential for investors.
Currently, the S&P 500 is in its third longest bull run in history. Stock prices within the index are up nearly 200% compared with their low point on March 9, 2009.
Of course, for every bull market there is a bear. The index barely recovered from the 2000-2002 bear market before taking a tumble from 2008-2009. Even long term investors suffered from the near decade of stagnation.
Question to Consider: Will large cap stocks continue to grow at breakneck speeds, or should we expect a bear market in the near future?
Emerging Market Equities
Emerging market equities, in their simplest form, are stocks from less developed parts of the world. These include stocks from Brazil, Russia, India, China, Eastern Europe, and Central and South America.
Since the start of the year, emerging markets are up 25%. This makes emerging markets one of the top performers this year.
However, this recent uptick pales in comparison to the emerging markets crash in 2008-2009 that set off close to eight years of stagnant returns in emerging market equities.
Question to Consider: Are emerging markets poised for growth, or will they remain stagnant for years to come?
Gold provides value as a hedge against inflation, and as a store of value in economic downturns. Since 2011, the value of the Gold ETF (GLD) dropped 31%, reflecting the overall drop in the value of Gold. These recent poor returns lead some investors to question gold’s value as an investment.
Of course, the same Gold ETF grew to more than 400% of its original value within the first seven year on the market.
Question to Consider: Is gold poised to make a comeback, or will it continue to fall?
Investment Grade Corporate Bonds
In times of falling growth and low inflation, corporate bonds offer returns that equities and other assets don’t offer. Since 2012, investment grade bonds have offered lackluster returns.
However, investment grade bonds surged by over 25% over the course of less than 2 years between March 2009 and November 2010.
Question to Consider: Will corporate bonds bring high yields again, or do you think their value will continue to fall?
What will yield high investment returns next?
The macroeconomic landscape changes due to forces outside of the individual investor’s control. Most investors cannot predict which type of investment will yield high returns in the short run. Instead of trying to pick hot investments, we offer portfolios designed to hedge against unpredictable economic climates.
Our Next Generation Investing is constructed to spread your risk according to your investment goals and to maximize the chance that you’ll see investment returns in every economic climate. We invest in over 40 ETFs in more than a dozen asset classes to help you reach your investing goals. This approach allows you to participate in some of the high investment returns right now, while protecting yourself from downturn risks.
Source: All graphs provided by Yahoo Finance.
Note: As with any investment, hedging does not remove the risk that you may lose money. There is no guarantee that any investment strategy will be successful.
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Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this commentary is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in this report is derived from sources that Longwave believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.
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¹ SEC registration does not indicate a certain level of skill or training.
This website is operated and maintained by Longwave Advisor LLC ("Longwave"), an SEC Registered Investment Advisor. For information pertaining to the registration status of Longwave, please view the United States Securities and Exchange Commission’s website at www.adviserinfo.sec.gov. SEC registration does not indicate a certain level of skill or training. Past performance is not a guarantee of future results and may have been impacted by events and economic conditions that will not prevail in the future. Investing involves the risk of loss and investors should be prepared to bear potential losses. Unless otherwise specified, all return figures shown above are for illustrative purposes only, and are not actual customer or model returns. Actual returns will vary greatly and depend on personal and market circumstances. No portion of this commentary is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information is derived from sources that Longwave believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages. Brokerage services provided to clients of Longwave Advisor LLC by Interactive Brokers LLC, an SEC registered broker-dealer and member FINRA/SIPC. Investments are not FDIC insured and may lose value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Longwave Advisor’s charges and expenses.
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© Copyright - Longwave Advisor LLC