Investment Themes for the Next 10 Years
| Paul Fain, CFP®
When is the best time to invest in the stock market? What about now? Are stocks too over-priced?
One of the U.S. stock market’s measures of value, price-to-earnings ratio, is running high by historical standards (37 today vs. 17 historically). In other words, companies are doing well and their stock prices reflect it, “We’ve experienced two years of growth in two months,” said Satya Nadella, CEO of Microsoft in 2020.
So, when is the best time to invest in the stock market? Any time. Seriously. When the market is high, pundits will say “wait for a pullback to buy.” The problem is that market declines are impossible to forecast and you could miss a lot of growth while on the sidelines. And, regardless of periodic market declines (expect them), we should also expect growth in our future. Consider the megatrends of digital transformation, healthcare innovation, and sustainability. As examples:
The pandemic has accelerated the expansion of cloud computing. Our small financial planning firm migrated to the cloud a few years ago but companies of all sizes continue to move their data and operations onto cloud platforms. Work-From-Home is now work from anywhere at any time.
Beyond COVID-19, the shift to streaming content will expand. Platforms like Netflix and Amazon Prime and the like will continue to see robust subscriber growth.
Artificial intelligence is already processing tons of data that impacts our daily lives, such as speech recognition, self-driving cars, fraud detection, recommendation engines, etc. We should not fear the rise of the machines (well, sometimes it is a little creepy).
Expect more non-U.S. leaders in innovation. Successful new foreign technology companies, especially in emerging markets (think China), can scale more quickly than established companies.
Expect major advancements in cancer testing for early diagnosis and cancer treatments particularly in gene and cell therapy.
Environmental, social and governance (ESG) issues will also be a major investing theme of the future. “Companies that are more environmentally focused and promote diversity may appeal to consumers that increasingly prefer to align with businesses that match their personal values,” writes a report from the Capital Group.
How do investors participate in these megatrends and investment themes? Simple: invest regularly and diversify.
For most investors, mutual funds make better sense than buying individual stocks. Investment companies (mutual funds) are on the front lines of market research and trends. Actively-managed (traders) and passively-managed (index) funds will offer exposure to expanding market segments as U.S. and foreign companies grow in economic relevance.
The bottom line: look past 2021’s short-term returns, market volatility, or market valuations. Investing for long-term financial wellness requires long-term thinking.
Do you have questions about financial planning or investing? Send your questions to our Knoxville certified financial planners!
This article was originally published in the Knox News Sentinel on June 29, 2021