Nine years upside: Time to lock in some of those gains?
As we head to the end of 2017, we are approaching the nine year anniversary of the current bull market. If nine years seems like a long time, you are correct: It is.
This is the second longest bull market in history and counting. Most stock indices are at all-time highs and many investors are currently sitting on massive gains in their portfolios.
At the same time risks are rising. We have a number of global events that could shake the market. Brexit, the Saudi situation and of course Trump.
In addition, it's likely that we are going to be seeing tighter monetary policy from both the US Federal Reserve and the European Central Bank.
The local dynamics are just as uncertain. We are likely to be downgraded by Moody's in a few months, which would put us at “Junk Status” with all 3 ratings agencies. Fitch and S&P already consider us to be below investment grade.
The ANC faces a key electoral conference and the next budget speech in February 2018 is likely to be very painful.
Given these factors, locking in some of your profits sounds like a pretty smart move at the moment.
So how would you protect yourself?
The easiest way would be selling some of your investments and holding cash. As with most easy methods, they are also normally not the best.
The reason it's a poor choice becomes pretty obvious when you look at the history of bull markets. As I said before, we are currently in the second longest bull market in history, 9 years.
The longest bull market was 13 years.
If you had sold at year 9, you would have missed out on another 4 years of growth.
But, a little financial engineering can help you lock in profits while not entirely removing access to further market upside. It’s part of the reason we have seen the dramatic rise in capital guaranteed products over the last few years.
At the moment there are a number of products available to retail investors. They range from dollar based products with capped upside, to rand based products with unlimited upside and combinations in between.
If you want to have a peaceful holiday, now might be the time to look at adding some protection to your investments.