Is Now a Good Time to Invest?

• Not only has talk of a looming recession receded, and inflation has eased without a notable increase in unemployment, but industrial policy and artificial intelligence — economic game shifters — back investment and growth.

• Before looking into the best investment approach for them, investors should consider their financial situation, including their monthly expenses and obligations, and factor in how much they can afford to invest.

• Even during years when returns are sub-average, the longer an investor is in the market, the more gains that can be earned.

At some point before the end of 2023, it became apparent: the recession that was widely expected, if not feared, did not materialize. Not only that, but inflation has waned, unemployment is low, and growth is strong. But is now a good time to invest? The answer is yes but read on for more.

Five Reasons to Start Investing Now

Here are some of the top reasons why it is a good idea to start investing now:

1. A stock market that generally trends upward. The stock market is inherently volatile, subject to bouts of short-term instability. On the whole, though, the market has historically trended upward. This should cheer long-term investors.
2. The compounding factor. Even during years when returns are sub-average, the longer an investor is in the market, the more gains that can be earned. Why? Because, over time, gains compound, even if contributions are relatively modest.
3. Protection against inflation. In the long run, investing can help one’s money and spending power to grow. Yes, money market and savings accounts, and certificates of deposit are safe for short-term savings. However, they generally do not offer returns high enough to outstrip inflation.
4. Prepare for retirement. With each passing day, retirement is that much closer. Getting started with investing now can provide the time necessary to amass needed wealth.
5. Tax favorability. Investing in some retirement accounts can reap tax benefits now as well as in retirement. By deducting retirement contributions in the current year, the investor’s tax refund could be bigger.

Investment Strategies to Consider When Making Decisions

Before looking into the most suitable investment approach, investors should consider their financial situation, including their monthly expenses and obligations. They must also factor in how much they can afford to invest, currently as well as on an ongoing basis.

After that, they can consider popular investment strategies such as:

Value Investing. These investors look for stocks that, in their view, are priced below their intrinsic value. The driving theory is that it is possible to buy a stock at discount and profit from it. Mutual funds are popular here, although some investors prefer to use the price-earnings ratio as a tool for uncovering bargain stocks.

This big-picture strategy is most suitable for those seeking to hold onto their securities over the long term, since it may take a while for the underlying companies to scale.

Pros

• Opportunity for large gains over the long term.
• Because they are not as dependent on cash for growth, value companies are more apt to issue dividends.
• Value companies frequently have more robust risk/reward relationships.
• Value investing is steeped in basic analytics and financial metrics.

Cons

• Patience is required for success.
• Value companies can be difficult to find.
• Success is not a given, even after holding the security over the long term.
• By only taking positions in underperforming sectors, investors undercut diversification.

Growth Investing. These investors are known to hunt for “the next big thing,” in terms of upside potential. They gauge the existing health of a stock in addition to growth prospects. This can mean assessing the capabilities of the company’s executive team, and the company’s competition.

By its nature, growth investing is relatively risky and is generally only successful during periods of falling interest rates since that makes it cheaper for newer companies to innovate and expand. It best suits those seeking shorter investing horizons — with more upside than value companies — or those unconcerned with dividends or cash flow.

Pros

• Due to shorter-term capital appreciation, profits, if any, will be faster relative to value stocks.
• The greatest stock price hikes occur once growth companies start to grow,
• Because it is not as reliant on technical analysis, growth investing can be comparatively easier.
• Forward momentum can be a positive factor with growth investing.

Cons

• Growth stocks are often beset by volatility.
• May require long-term holds, depending on the state of macroeconomics.
• There are no dividends since growth companies use capital to expand.

Momentum Investing. These investors abide by the premise that winners will continue to win, and losers will continue losing. Thus, they seek to buy stocks that are trending upward, and are also strongly dependent on technical analysis.

Traders taking this risky approach must be poised and engaged at all times to buy and sell and use constantly changing data and market sentiment to make investment calls.

Pros

• There is more potential for short-term gains.
• Because this kind of investing is done in the short term, capital need not be tied up for extended periods.
• Because it is not dependent upon larger-picture elements, this trading style may be viewed as less complicated.

Cons

• The proper gauging of entry and exit points necessitates a great deal of skill.
• This kind of trading depends on market volatility for suitable trades.
• Risk for short-term capital gains can be elevated.
• There may be no notice of invalidation occurrence.

Dollar-Cost Averaging. This is the disciplined practice of investing in regular increments, specific strategy notwithstanding, often by using automated features that invest for them. Here, the investor captures all price levels, from low to high. Such regular investments effectively reduce the purchases’ average per-share cost and lowers the prospective taxable basis of shares sold in the future.

The strategy could work for most investors since it keeps them devoted to saving while mitigating risk and the impact of volatility.

Pros

• The approach may be used with other strategies mentioned above.
• Potential future gains are heightened during periods of falling prices.
• Since investments recur regardless of market performance, the strategy extracts the emotional element.
• Minimal maintenance once set up.

Cons

• May be challenging to automate on an unfamiliar broker platform.
• Future tax liabilities may increase due to periods of falling prices.
• Stable, consistent cash flow is required.
• While it does not require constant monitoring, periodic reviews are necessary.

Investing in Alternatives 

Increasingly, investors are adding alternative assets to their portfolio. Basically any asset other than stocks or bonds, alternatives have low correlation to public markets, and so can reduce overall portfolio volatility.

Thanks to private-market investment platforms such as Yieldstreet, on which almost $4 billion has been invested, asset classes such as real estate, private credit, legal finance, art, structured notes, and transportation are more easily accessed. 

Alternatives also serve another crucial purpose — portfolio diversification, which is essential to long-term investment success.

The Importance of Diversification, Especially During Uncertain Times

Not that long ago, it was common, if not expected, for investment portfolios to be filled exclusively with stocks. Nowadays, however, most investors understand the importance of portfolio diversification, particularly during times of economic instability.

Most seasoned investors and financial professionals recommend diversification because it generally lowers risk exposure without sacrificing returns. In fact, investors holding a diversified portfolio may wind up gaining a higher return over the long term.

What is diversification? It means holding a mix of assets — but not too much of any single investment or type. Each asset type performs differently as the economy thrives and contracts, and each has varying gain and loss potential. In other words, as some assets increase in value, others will hold steady or decrease. 

Having a diversified mix of asset classes and investment approaches can also protect against inflation and economic uncertainty. Alternative investments can be a good way to help accomplish this. 

Portfolio Diversification and Alternative Investments

Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

In Summary

Given resilient growth and receding inflation, most insights point to optimism across a range of markets, likely making it a good time to invest. Remember that while all investments carry risk, including alternatives in one’s holdings can provide diversification, protect against inflation, and potentially provide better returns.