People don’t talk much about the stress of investing in a raging bull market, but it’s there.
The fear of missing out, or FOMO, gets people agitated, and there’s an intolerance for anything that lags the great returns of the major stock indexes and particular market-leading stocks. In this kind of environment, it’s easy to fall victim to investing mistakes with long-term repercussions.
Here are a few of them:
Selling bonds, bond ETFs
Stocks keep advancing, while bonds have started 2021 in a very ugly way. With bond yields rising, the price of bonds and exchange-traded funds and mutual funds holding bonds have fallen rather sharply. In the past few days, I’ve had two “should I sell my bond ETF” queries from readers.
These questions are understandable – bonds did well in 2020 and they’re supposed to be a stabilizing force in a portfolio. If bonds are falling, what’s the point of holding them? This question is doubly urgent in light of how low bond yields continue to be, even after a recent rise.
The reason to hold bonds in a sensible blend with stocks is to cushion the impact when the stock markets next take a fall. There’s been a lot of talk in recent months that the default mix of stocks and bonds should be 70-30, a change from the usual 60-40, but whatever the blend, the role for bonds remains.
Succumbing to late-stage FOMO
It’s sensible to work under the assumption that the easy money in stocks has been made since the rebound from last March’s crash began. A slingshot economic rebound from the pandemic upside might fuel more gains, but a lot of optimism has already been priced in. Be mindful of this if you feel yourself giving way to pressure to add speculative juice to your straight-arrow portfolio.
Try a little of what investing strategists call core and explore. Maybe a 5-per-cent weighting in the speculative stuff, with the rest in well-diversified, proven stocks, bonds or funds.
Getting carried away with new toys such as bitcoin ETFs
The new Purpose Bitcoin ETF (BTCC-T) has been a huge success already – for Purpose ETFs, the company that was adroit enough to get a bitcoin ETF to market ahead of everyone. In a flash, BTCC has attracted a hefty $564-million in assets to a product with a management expense ratio north of 1 per cent. The cheapest ETFs have MERs of 0.06 per cent.
I’m open to the idea of dipping into cryptocurrency via an ETF issued by an established company. But the same rule as above applies. Contain your exposure to a small fraction of your portfolio and prepare your mind for all eventualities – huge profits, crushing losses.
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