Individual investors should invest in equity funds as well as bond funds to balance their portfolios. There is a better time to invest money in both, and there is also a worse time.
Mutual funds are long term investments and timing is not usually the main problem of investors. But what if you suddenly find yourself with a big piece of money (like a legacy or a 401k) that needs to be invested somewhere soon? This can happen when the time is right or in the worst moments. Here we are looking at the best time to invest money in the past, then look to 2015, 2016 and the years to come.
The best time to invest money in equity funds was probably reached in 1982, when the Dow Jones Industrial Average reached its lowest point (777). In 2000 (18 years later), it reached an all-time high of 11,723 … with NASDAQ up more than 3,000%! The year 1981 was best for bond funds as interest rates peaked and they paid dividends of 14%, 15% or more. For most of you, 1981 and 1982 are an old story, but if you understand what happened, you will better understand what could happen in 2015, 2016 and beyond.
The best time to invest money in equity funds is once the shares have been drastically beaten; and investors are starting to see a light at the end of the tunnel. In 1982, interest rates and inflation had reached record highs after several years of increases and a significant drag on corporate profits and stock prices. When interest rates rebounded and began to fall, the stock market changed course and headed north.
In 2015 and beyond, we could consider the opposite of the scenario above, as interest rates hit record lows and inflation is low. The market has reached unprecedented heights for six years. A significant reversal of interest rates could signal a change in the market trend and give bad news to investors.
The best time to invest money in bond funds is when interest rates are high and start to fall. The worst is when interest rates are low and start to rise. The value of their portfolios increases as rates fall; but decline when rates rise. At the time interest rates peaked in 1981, some investors in these funds were preparing to suffer losses of nearly 50%, due to falling prices of their shares (values). If interest rates rose in 2015 and beyond, investors could again suffer heavy losses.
Many investors today are not aware of this risk as they have never personally experienced a period of rising interest rates. Rates have generally been falling for many years and are now so low that they can not go down much. This is not good news if you have money to spend in 2015 and beyond. The question now is what to do about it.
Include safe alternatives in your portfolio, such as money market funds and short-term CDs. Opt for high-quality, conservative medium-term bond funds and blue-chip equity funds that earn good dividends. Pay attention to your wallet and financial news. If you start losing money and rising interest rates start to make headlines, this could be your signal to reduce your exposure to funds and increase your holdings in safe alternatives .
In the past, it was pointless to worry about the best time to invest money in stock funds and bond funds, since the losses of one were usually offset. by gains from each other. In 2015 and beyond, both countries face the same threat: rising interest rates. Good luck and keep your eyes open as this new world unfolds.