I recently received a question from one of our clients. Highly analytical person that makes well though out, calculated decisions. He wanted to know if he receives significant sum of money should he just hold it in cash until the equity markets come back down? This was my response. It can apply to many investors.
There are two types of forecasters:
1. Those that know they don’t know
2. Those that don’t know that they don’t know
All that being said it is hard to park new money in cash b/c markets can be irrational over periods of years and an investor can miss out on gains. Also, it becomes increasingly difficult to identify an entry point and then have the emotional wherewithal to pull the trigger when everyone else is panicking.
I believe key is to find undervalued assets and overweight investment into those. For US exposure I would suggest higher quality assets with some downside protection in form of put options or managed volatility strategies. It will cap the upside to a certain extent but the US stock market is arguably overvalue so I wouldn’t mind giving up some upside while protecting myself against any major drawdowns.