Editor's note: For the most part, the market has been going up for the past two years... But it still has plenty of room to run higher. That's why Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – says it's crucial for investors to avoid letting the doom-and-gloom narratives that are dominating headlines prevent you from putting your money to work. In today's Masters Series, originally from the July 10 and July 11 issues of the Chaikin PowerFeed e-letter, Marc details why frightened investors should stop hiding their money on the sidelines...
Don't Play It 'Safe' in Today's Market By Marc Chaikin, founder, Chaikin Analytics Ed Hart faced a tricky situation... He had to convince a man he just met to stop making a big mistake with his money. In 2013, Hart worked as a financial adviser in San Antonio, Texas. His new client was a rancher in his mid-80s. The man had struck it rich after finding oil on his property. For a couple of years before meeting Hart, the rancher received a $100,000 royalty check every month. But like a lot of folks, the rancher didn't know much about investing. When Hart saw the man's portfolio, his heart sank... It was nearly 100% invested in annuities. You're probably familiar with annuities. They're one of the most conservative investment vehicles you can buy. In its simplest form, an annuity is just a monthly payment that will continue for as long as you live. Hart knew he had to be tactful. He had seen plenty of ugly portfolios from new clients over the years. And no one likes to be told they're making a mistake with their money. Plus, Hart could empathize with the rancher... The man had spent a lifetime working hard and living frugally. He had seen plenty of ups and downs in the economy and the local oil industry. He didn't trust the stock market. Now, for the first time in his life, the rancher was a millionaire. And yet, he still had no interest in taking any extra risk. Still, Hart knew that no one should invest just about everything they owned in annuities. He had to try to get his new client to take some risk. Hart started by explaining the benefits of diversification. He also pointed out that annuities aren't a good choice for someone in their mid-80s. After all, the payments stop when the owner passes away. The rancher listened. But he still wasn't convinced. So Hart then pointed out the low-single-digit returns of the annuities. Over time, that doesn't compete with the 7%-plus annual return generated by a mix of stocks and bonds. It was a solid argument. But once again, it still wasn't good enough for the rancher. Finally, Hart went through the fees and withdrawal penalties of the annuities. He pointed out that these expenses would eat up a big chunk of the rancher's already-low returns. That caught the rancher's attention. The man had spent his entire life avoiding excess costs. Hart continued breaking down some numbers. He showed how investing in stocks would almost certainly leave the man with more money to pass along to his heirs. That was another critical point. The rancher personally didn't mind underperforming the market. But he hated the idea of missing out on gains that would otherwise go to his family. In the end, Hart convinced the rancher to sell the annuities that were old enough to avoid termination fees. He also agreed to start investing his royalty income into a broad portfolio of stocks and tax-free bonds. At Chaikin PowerFeed, our readers surely know that stocks are the best vehicle for creating wealth. We've discussed this concept many times in the PowerFeed and in our paid publications at Chaikin Analytics. But millions of people in the world don't know that. And many of them are just like the rancher from this story... They're not comfortable taking control of their financial future. To these folks, investing is complex and intimidating. As such, they're more comfortable holding just cash. Or maybe they're keeping all their money tied up in annuities. But folks, we're in an incredible bull market. Stocks are soaring. Since the 2022 bottom, the S&P 500 Index is up an incredible 64%. That's a huge move for a major index in less than two years. And the tech-heavy Nasdaq 100 Index is up even more. So far in 2024, it has posted a roughly 17% gain. But here's the thing... This rally is starting to go beyond the so-called "Magnificent Seven" mega-cap stocks. That's worth noting because many investors think that the market's biggest and most popular stocks are the best long-term winners. But history tells us that's not true... According to asset manager Schroders, the biggest and most popular stocks in the market would've turned every $100 into about $15,600 from 1966 through early 2019. That's a solid return, of course. But it was nowhere near as strong as small-cap stocks. With small-cap stocks, every $100 would've turned into more than $56,000 over the same period. That's a remarkable level of outperformance over the long term. And importantly, it's where the opportunity lies now for savvy investors like us... Put simply, I expect the market's rally to broaden out in the coming months. And as that happens, the small- and mid-cap stocks in the S&P 500 will see the biggest boosts. And I expect this shift to accelerate in the weeks, months, and years ahead. Will corrections occur along the way? Of course. Will a bear market happen at some point down the road? Almost certainly. But overall, the future remains bright for U.S. stocks – especially small- and mid-cap stocks. The negativity in the mainstream media only gets worse in a partisan presidential-election race. We're fighting through all that "noise" in this part of the election cycle right now. Meanwhile, my election-year thesis remains alive and well. I'm still optimistic on stocks through the rest of 2024 – and beyond. I believe the S&P 500 could approach 6,000 by the end of the year. That's more than 5% above its current level. Earnings will continue to drive the market. In the end, don't lose sight of the overall point of investing... Make sure you don't end up like the rancher from earlier – sitting out the market on the sidelines and thinking you're making a "safe" bet. Now is the time to build wealth. And in a market like this, that means putting money to work in U.S. stocks. Good investing, Marc Chaikin
Editor's note: The market may seem scary, since we're still feeling the impact of last week's Federal Reserve meeting. But Marc believes this ongoing chaos will create myriad buying opportunities for investors who are paying attention. But he says you must understand the big picture to profit in today's market... So he recently went on camera to reveal exactly what to do with your money to prepare now. Learn more here... | 
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