Should You Take Risk?

A Wall Street sign is pictured outside the New York Stock Exchange in the Manhattan borough of New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri – RC2HAJ9BI6XP

The US economy, including the world’s are at a free fall because of the pandemic. Prior to the Covid-19, the US economy started to recover until we had an inept President. One of the results of all these is the interest rate, which is perhaps the lowest we have ever seen and will remain so for a long time. What this means is that it is cheaper to borrow money. On the downside, if you have money saved in any savings accounts, you are unlikely to get any interests from the banks.

What the pandemic has taught us is that we need to keep at least 3 months in a savings account for rainy days. However, the pandemic continues to go strong in every parts of the world. Some experts believe the old belief that having 3 months of cash to cover the cost of living is no longer enough. Now we need at least 6 to 9 months saved.

The question is where do we save the money. Saving the money under the carpet is a bad idea for obvious reason. Saving the money in the bank is the best choice. However, with the interest so low even the highest yield saving account could hardly pay any interest at all. How do we continue to generate passive income, in this case interest, that will help us to have a peace of mind in case we ever need that kind of money at times of need?

I was reading the December 2020 Kiplinger issue and one of the article suggests that we should adjust our investment portfolio and put more in stocks. If you read my earlier posts we need to be aware of the risk tolerance that we are willing to take. We should be more conservative by spreading our risk between bonds, ETFs and stocks. However, with the interests so low bonds hardly pay any dividends. Should we take more risks by divesting bonds and put more in stocks?

If you follow the stock market today (as of January 2021) it is doing the opposite from what the economy is telling us. There are more and more Americans filing for unemployment and there are more and more companies shutting down because of the Covid-19. Why is the market still going up? The stock prices for many stocks are perhaps at their highest we seen in the past decade.

Investing more in stocks become more intriguing because for the past year they continue to shoot up at an unprecedented pace. After Apple stocks split, it’s price continue to go up at a steady pace. Elon Musk because the richest man in the world as Tesla stocks went up by 100% after it splits its stocks. Now experts are saying we are at the cusp of market bubble.

The Kiplinger magazine is one of the magazines that I read every month and I’m surprised that it would suggest its readers to invest more in stocks at the time like this. Is there any truth or rationale for taking such a drastic step? As I ponder this question, I totally agree given what we know of the stock market today. As an example, I helped my wife to invest in stocks using Robinhood. Since October 2019, her portfolio increased by 63%, which is crazy.

Regardless, I will continue to take careful step when it comes to investing. While I have enough cash to cover my living expenses for the next 8 month, I continue to take a conservative approach and leave my portfolio unchanged. My portfolio is made up of 40% bonds and ETFs, 30% on reputable stocks that pay dividends and the remaining 30% of “play” money where I use it to flip. My strategy has been successful in that I am able to increase my portfolio by about 70% since I started investing in 2017.

Let me know if you will subscribe to the thought that investing in stocks better today? Or are you willing to take the risks in hopes that the stock market will continue to go up?

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