Should I Buy Stocks Now?

Are you frozen in cash that's losing value every day with inflation? Here are some alternatives for investing and protecting the value of your capital.

The short answer is yes. Americans are sitting on a lot of cash. Over $3.3 trillion has been added to people’s bank accounts since the beginning of 2020, which is almost 3 times the amount accumulated over the prior 75 years. Inflation, whether 2% or 20%, destroys purchasing power of cash. 

Where should you invest the cash to beat inflation? For most people, the choices are stocks, bonds, and real estate. The wealthiest people may consider private equity, direct lending, venture capital, and the arts. For the most adventurous, cryptocurrency and NFTs are also on the table.  

FRED table - Checkable deposits and currency asset levels
Source: FRED

Bringing it back to Stocks. Stocks are still a compelling asset class for most households. American companies have a long-standing track record of delivering shareholder value. Particularly when interest rates are still at historical lows, bonds remain unattractive. And given the barrier to entry, most people cannot build a diversified portfolio of real estate on their own.  

Capital markets have rewarded long term investors
Source: Dimensional Fund Advisors

Time in the market? If you have over 10 years of time horizon and are happy being passive, it is probably a good idea to follow a Boglehead strategy also recommended by Warren Buffet and just buy low cost index funds on the S&P 500. Dollar cost average in over multiple months to get time diversification and ignore the short-term volatility. In the long run, staying invested has proven to be powerful. Over 20 years between 2002-2021, missing 10 best days in the market would have cut the returns in half.

Performance of $10,000 invested in S&P 500 between 2002 and 2021
Source: JP Morgan

But what if your time horizon is less than 10 years? Markets can be cruel, if your window for investing closes earlier and you need to dip into that capital at the wrong time, you may not come out on top. For instance, someone with $10,000 invested in the S&P 500 in January of 2000 would have less than $9,600 10 years later. That is a total loss of 5.7% over 10 years, assuming all dividends were reinvested. 

Fear not, you have options. One more investment vehicle to consider: equity options. While most households are invested directly or indirectly in stocks, only about 10% own options. The reason for the slower adoption is because options are complex and have historically been reserved for professionals. This is a shame because most individual investors can greatly benefit from using options to mitigate what they fear most - volatility. 

Imagine defining an outcome by building a downside cushion in exchange for capping upside over a specified period of time on any optionable stocks and ETFs. This way of investing is not new. For decades, banks and insurers have been selling high net worth individuals structured notes and indexed annuities, which are built and priced on options. These protective strategies are tried and tested, but Olive is the first to make it more accessible to every day investors. Join today to invest smarter.

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