The world has been changing rapidly due to the pandemic and many of us are caught off guard as a result. This has impacted not just every aspect of our everyday lives but also our investments as well. With a massive injection of liquidity by central banks all around the world, the stock market is also reshaping investor’s perception of volatility, growth, and yield altogether. For instance, investors who have witnessed the boom of Tesla would probably give up on dividend investing for at least a few years simply because of the stark difference in returns. Thankfully, this phenomenon is rare and we are starting to see most markets consolidate again. So the question on our minds would probably be, “So what now?” In this week’s post, I will outline how I feel the changes in the market will affect investors in the coming years and how I will be positioning myself in the markets moving forward.

We are running out of “Cheap” money

This artificial boost in the economy is caused by none other than the close to zero interest rates by central banks. As it slowly spoils investors who believe in a never-ending rally especially in the US markets, one must be reminded that it is unsustainable and the decision to reverse can come sooner than we imagine. This is not a threat but rather a wake-up call as markets are not booming because of their country’s economic performance but rather by the potentially high rates of recovery. This means that the recovery should not push the markets drastically above pre-pandemic levels. In fact, we should be more careful if we bet on some market that has performed exceptionally well even during times of struggle for the country.

Money is expected to move in a big way

Keeping too much cash in the coming years will not be productive as we expect to see a considerate rate of inflation due to the many episodes of “unlimited QE” performed by the US and other major economies. Do expect these monies to be moved overseas as foreign investment in search of yield rather than being parked in their original countries. With those movements, the development of emerging economies will increase manifold and their beneficiaries will be the parent nation of those companies. Therefore, we should be expecting China to take advantage of its reach and influence in emerging markets and reap the harvest of those FDIs.

I will be “waiting” to go all in

Unlike other investors, I will be taking a more conservative perspective of the markets. As a realist, I expect the market to have less and less room for expansion without any real data backing its continued advancements in stock price. Hence, I have already begun retreating and bracing for a potential significant discount and at the same time moving my capital to counters which are still cheap in the current state of the economy. These precautions are taken not because the dip is coming soon but because I believe that when the world snaps out of it, it will be too late for anyone to react calmly and objectively. As such, I have lowered my annual yield targets and have stocked up on more liquid assets (~20%).

Closing Thoughts

There is absolutely no benefit whatsoever when people try to warn others of any impending drama ahead in the markets. However, I do see value in alerting people who might want to consider likely scenarios with objectivity. In the meantime, perhaps the slower markets are our salvation and a more stable source of returns before we grab discounts from the frantic herd of innocent followers.