In the midst of another bull-market summer on Wall Street, investors in stocks and stock mutual funds are hearing some all-too-familiar warnings.
It can't keep up at this pace. The easy money has been made. Wherever you put your money, guard against unrealistically high expectations.Sensible, sober sentiments all. The trouble is, they are the same messages everybody heard last year and the year before that - which the market, climbing to new high upon new high, keeps discrediting.
"The U.S. has never seen anything quite like the 1990-98 bull market," say analysts at Wright Investors' Service, a Bridgeport, Conn., money-management firm. "The Standard & Poor's 500 has tripled in price since its July 1990 peak, and the market's advance since 1994 has produced the best 31/2-year return in postwar history."
Today's economic fundamentals are good - perhaps as good as they have been in 50 years, according to Alan Greenspan. But there is no denying the risks in stocks currently, in particular the earnings uncertainties coming out of Asia and the highest price-earnings multiples since the 1930s.
The dilemma that for years has faced investors with new money to put to work just won't go away: Buy stocks now, and you risk climbing aboard just as the bandwagon breaks down. Hold back, and you risk missing yet another leg of the bull market.
But analysts point out that there is a way out of this box. It requires simply abandoning all efforts to guess what the market is going to do next, and focusing instead on setting up and following a consistent, diversified investment strategy that recognizes both risk and potential reward.
Adopting a patient, long-term investment strategy doesn't in any sense mean shutting your eyes to risk. Indeed, the best plans take full account of risk by spreading money around so that their whole chance of success doesn't rest on any single outcome.
The plan suggested by analysts isn't very complicated: Don't expect any specific outcome. Invest to benefit from good times, but build in a cushion against trouble. Since you know that the markets can go absolutely anywhere, don't be surprised when they do.