For the better part of our blogs, we have been on the defensive, sharing our ideas on how expat investors should approach the market. After all, the beginning of the bear market was the market peak in November 2021. For most of 2022, it made sense to shift investments into value equities (energy, health care, consumer staples, etc.) and short-term cash equivalents.
A bear market is considered to have occurred when the S&P 500 has dropped by 20% or more from its previous high. The term “bear market” can be understood in a less technical sense as an environment in which nearly no investments succeed, despite the strength of the underlying business fundamentals. Investors were obviously trying to find safe havens for their money in a market where absolutely nothing was making a profit, but this was all short-term thinking.
At Expat Wealth At Work, we prioritise the long term when making financial decisions. For the foreseeable future, we want to be proud owners of excellent firms, secure in the knowledge that fundamentals ultimately triumph. We believe a bull market is re-emerging, and we hope to use this blog to discuss the best way for expat investors to take advantage of this change in the market’s trajectory. With the major indices being more than 20% above their lows reached in late 2022, we have indeed met the technical criterion of a new bull market. But again, we’d like to state things in a less technical way: when investors buy shares in companies despite weak earnings reports and when it seems like most investments are doing relatively well, those are signs of a new bull market.
Keep in mind, too, that bull markets (especially new ones) must overcome a “wall of worry” before they can truly soar. When making investment selections, we need to look ahead and not just at the current state of the economy. And in today’s market, anxiety is in short supply. If you turn on any news or business programme, we’re willing to bet that you’ll hear repeated warnings about the upcoming recession, the Federal Reserve and other central banks hiking interest rates, housing inflation, and so on. However, as forward-looking processes, markets already factor in concerns like these. While there is evidence that investors are ready to look past the present difficulties and into the future, we believe that these worries were fully priced in by the markets in 2022.
Our left brain is consequently adopting a more “bullish” attitude. We are aware of how frequently and carelessly the term is used. We hope that the advice we provide in this blog will help you adapt to the shifting investing climate and make the most of the current upswing in investor optimism. Since bull markets endure significantly longer than bear markets do, many traders adopt a more bullish stance at the outset of a rising market. The average bull market lasts 973 days, whereas the average down market lasts only 289 days. If the market is entering a new bull run, we would be in the very first inning. No, it is not too late to start buying stocks to participate, which is a question we’ve been asked repeatedly in 2023.
We are hopeful about the direction of things in the second half of 2023, as the markets are showing the first signs of a potential bull run. Schedule a meeting with us, and we’ll gladly explain why we think our plan to capitalise on the market’s rebound is sound. Even though the last two years have been rough, expat investors who are persistent in their search for profitable openings may soon see the clouds parting.
How Effective Is This Strategy?
It’s no secret that the world’s 10 largest stocks have been responsible for much of the market’s gain thus far in 2023. The major point we make is that 2023 has been a banner year for stocks associated with the AI revolution, which has been gaining significant ground. Although many AI-related businesses have our approval, we believe that the development of AI has put the field of cybersecurity into play.
For nearly half of 2023, the S&P 500 has been led by the information technology sector (up 37.63%), the communications services sector (up 34.39%), and the consumer discretionary sector (up 30.26%). That’s fantastic, but what exactly should you do? We believe now is the time for investors to take decisive action in preparation for the next bull market. If this is a new bull market, it has only begun, as the average duration of such periods of high returns is roughly three years.
The fundamental point we want to make is that it’s time to start thinking about the long term again. Most of us were, very reasonably, trying to keep our money safe in ’22. The previous year was a disaster! Let’s look back and analyse the situation. We were seeking companies that wouldn’t tumble if the markets looked sluggish, so we bought stocks of those that were projected to be more stable in 2022. Purchasing fixed income bonds with terms of only one year is another illustration of short-term thinking. This time around, the goal was to keep capital safe, but the hold period could be no more than a year. We would have to start looking for a new investment vehicle when the first year was up.
In our opinion, the ideal strategy to create a portfolio is to invest in high-quality companies over the long term. Stocks of the most cutting-edge, rapidly expanding tech companies in our economy were dumped like hotcakes in 2022. From our experience dealing with expat clients, we know that many retirees mistakenly believe they are not long-term investors. On the other hand, we prepare our clients to live into their nineties. Those who are just entering or on the cusp of retirement should prepare for at least 30 years of retirement. You’re a true long-term investor if that’s the case!
According to our conversations with financiers, many of them are keeping large sums of cash in the bank, which may now yield 3-4% (if you’re lucky), which is far lower than the typical stock return. We’re also cognizant of the fact that many traders have short-term cash investments that are about to mature. We believe it is appropriate to investigate reinvesting those funds in high-quality companies with the intent of holding them for the foreseeable future.
We also recommend looking into rolling over pension accounts you may have from a former employer, even if you aren’t sure how they are invested. You may come out much better off in the long run if you transfer those assets into an individual account and invest them in securities that grow in value over the next few years. You shouldn’t manage your money by the principle of “out of sight, out of mind.