And still the criticism pours in.
Some days we wonder if people really want to make money or if they’d prefer to stand and wave their fists in poverty screaming ‘I told you so.’
The thing is, most of those who will say they’ve been proven right when the market collapses will have missed out on the opportunity to build a nest egg during the boom years.
And believe us, the boom years could last a long time. To such an extent that following the US Federal Reserve’s statement we’re starting to wonder if our ASX 7,000 price target is a little – how can we put it – on the low side.
We’ll explain more below…
The key phrase in the Fed’s statement was this:
‘To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.‘
As you know, our target is for the S&P/ASX 200 to reach 7,000 points in 2015. Our view is that will signal the end of any genuine bull market. After that point it’s possible stocks could go higher but any further gains will be just the market letting off steam.
But now, we’re not so sure.
It could now be that a rally to 7,000 points is just the beginning of much bigger gains to come.
Looking into the Abyss
For that reason it’s time to revise our entire approach.
It’s clear that the US Federal Reserve looked into the abyss, didn’t like what they saw, and quickly put paid to any plans to stop printing money.
This is a key event. Because it now means for sure that no future Federal Reserve chairman will risk the same. The next chairman is likely to be Dr Bernanke’s deputy, Dr Janet Yellen.
Doubtless when Dr Bernanke looked into the abyss it was with Dr Yellen by his side. They both know what lurks beneath…and it ain’t pretty.
So, if it ain’t pretty, why go there if you don’t have to?
And that’s the thing. Right now there’s no need to. There’s no reward in the mainstream for pulling the pin on this monumental stock market rally. Drs Bernanke and Yellen may win accolades and applause from gold bugs and sound money theorists for tearing the down the printing presses.
But they won’t earn any high paying jobs from a Wall Street bank. They won’t get a call from academia to be Chair of this, that or the other. And the phone line to their new consulting business will be decidedly quiet if they do anything as foolish as stopping the printing presses.
Buy Stocks for Income and Growth
This is why it’s time to set new goals for how this stock market rally could play out.
Up until now we’ve advocated a relatively conservative exposure of 30-40% in stocks. Of that we’ve suggested you should have three-quarters in dividend stocks with the rest in growth stocks (our preference is small-caps but you should have some blue-chip growth in there too).
Well, if this rally continues as we expect, it’s time to think about lifting your stock exposure to 50%. That’s a big move, and it may not suit your circumstances…or you may already have a bigger exposure than this in stocks.
As for the type of stocks you should buy, that hasn’t changed. As we’ve told you for some time, the dividend stock rally isn’t over. It still has a heck of a long time to run. In fact, it will run for as long as the Fed and Reserve Bank of Australia keep interest rates low.
So you should use the opportunity to buy blue-chip dividend paying stocks and a selection of small-cap dividend paying stocks.
(The Australian Small-Cap Investigator buy list has a dozen cracking little dividend payers. You could do worse than consider a handful of those stocks to boost your income stream.)
Finally, growth stocks are a must. If you want the biggest gains from a share portfolio it’s time to add a mix of large-cap and small-cap growth stocks to your portfolio.
The industry these stocks are involved in isn’t as important as the potential for the companies’ to grow their businesses. The Australian market has a big exposure to the resource sector so it’s natural to think most of your growth stocks will be resource stocks.
But look at other sectors too. Look at technology, capital goods or industrial stocks. There are plenty of opportunities for growth in any of those sectors.
It’s a No-Brainer
But before you do any of this let us make one thing clear. It’s always risky to increase your exposure to stocks on the basis of a single news event. That’s why we always recommend acting slowly.
And it’s always risky investing at a five-year high. But the fact is, if stocks continue to gain you’ll see stocks continually trading at a new five-year high.
Of course, despite our belief that Australian stocks are heading to 7,000 points and beyond, there’s always the chance we’re wrong. You should consider that possibility before making any changes to the way you invest.
But just as we could be wrong, there’s an equal chance we could be right. In fact, to us it’s a no-brainer. The world of low interest rates has arrived and it’s going nowhere fast. Investors should utilise this fact to their advantage and buy quality Australian stocks while they still can
Cheers,
Kris+
From the Port Phillip Publishing Library
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