I’ll be 44 in three months, and I have to say the 40s feel pretty good. Lots of energy, and I can do about anything I used to do in my 20s, and I do.
Skiing, four wheeling, basketball and now I’m running as well. Forty must truly be the new 30.
But then I get on a basketball court with some guys in their 20s, and I see the truth. Sure, I’m still out there. I may not even be embarrassed. But the reflexes are slower, the jumps aren’t as high and I hold my hand up to sub a bit more often. The truth is, whether we like it or not, age matters.
This is also true in financial markets, the stock market in particular. History shows us the market runs in cycles. These cycles tend to run closely but not directly linked to the underlying economy, which also runs in cycles of its own.
The current stock market cycle began in 2009 out of the ashes of the prior cycle. It hit its “teenage” years in the volatile 2011 time period and really came into its own as a wealth creating (not just wealth recovering) tool in mid-2012.
Two years later, the market is still performing and creating wealth for many, but signs of aging are beginning to appear. Does this mean sell everything and run for the hills? No, but it may be time to revisit your strategy and make sure you are properly positioned.
As bull markets age, certain sectors have historically provided continuing opportunity while also offering the ability to gain some potential protection. Later stage bull market stocks also can tend to be neglected during earlier stages because they can often underperform. After all, is a stock like P&G going to get a lot of attention when we have high flyers like Tesla, Google and Facebook to play with?
So as the market ages I tend to focus on companies with a history of paying solid and growing dividends (OK, I always like dividends) in sectors considered defensive such as energy, consumer staples (food, beverages and household products) and health care.
In the current market, however, health care stocks have had a solid run, but utilities or even commodity stocks have been beaten up with the emerging markets they tend to be so closely linked to and so may be worth a look.