The other day, I heard a pundit declare, “There is no alternative to the US equity market!” They seemed to conveniently forget about stock market alternatives that are available to any investor or trader.
First things first: Ignore this narrow-minded thinking. It will get you in trouble.
Second, you should never go “all in” on the US equity market. While I do believe the environment is more favorable here than in international markets, all of my money is not in US markets.
Don’t forget about these stock market alternatives
As Jim Cramer likes to say, diversification is the only free lunch out there. Stock market alternatives include:
- Bonds
- Gold
- Cash
Yes, you can diversify in equities, but don’t discount these other asset classes.
Bonds and gold are both having a stellar year so far. Some analysts argue that these investment vehicles have run too high in 2019. Are they due for a correction? Perhaps, but even a balanced, diversified portfolio carries far less risk if the equities markets take a dive.
Equities markets are near all-time highs again, much like they were a year ago. As you may recall, pundits and analysts were urging people to buy stock at this time last year. “It’s the only game in town!” they said.
How did that work out? October was miserable. December was one of the worst performing months we had seen in decades.
A mixed portfolio would have lost money, of course, but far less than a portfolio that was 100% equities. Those who only owned stocks were waking up each day to the same nightmare.
Then there’s cash. Cash is always an excellent alternative, no matter what the markets are doing. You don’t always need to invest all of your money. Having cash, or dry powder, on hand, gives you flexibility to sit on the sidelines or seize a great trading opportunity.
With so many risks facing the US economy, why would you not diversify into these other asset classes? Uncertainty is very high now. If you have gains, don’t lose them. Maintain balance, choose your plays wisely and diversify into these stock market alternatives so you can sleep better at night.
