Stocks, Bonds and Gold all Reach Yearly Highs?

What happened to asset class diversity and non-correlating asset types? Since the beginning of 2009 we have without doubt seen a market of extremes. From the Bear Market low in the beginning of March to the current high we are presently witnessing. Though, traditional wisdom suggests when stocks are flying high, bonds prices tend to lag, and gold prices are usually flat.

So why are stocks, bonds and gold all moving in the same direction?

One suggestion is uncertainty. I believe in the current market environment has created three different types of investors.

1. The Trendy Investor - This investor almost always will invest invest in stocks when the market has already made a significant move upward, and they tend to sell their assets at or near the bottom. These investor are emotional driven and rarely outperform the overall market.

2. The Cautious Investor - Since bond prices are significantly higher than one would think based on the economic recovery that is taking place, traditional wisdom would suggest that bonds should be on the cheap. But, there are many investors that believe the economic recovery will be short-lived, and without even taking into account that bonds are expensive continue to buy these relatively safe investments. This strategy will ultimately disappoint even if the economy is weaker.

3. The Gold Bugs - Gold has now reach near an all-time high. Most experts believe that the best to invest in gold is when the risk of future inflation is great. Though, this asset does not pay a yield nor does it offer any sort of dividends. Moreover, the latest reading on inflation suggests that the future risk in not inflationary by deflationary. So, if you are to by Gold, why not buy when its prices are low not at an all-time high.

So, which asset class should the average investor pour money into? If you are investing in your companies retirement plan, the best thing to do is dollar-cost average ever month and make sure your tactical asset allocation fits your risk type and do not worry about trying to time the market. Those of you that are investing outside your retirement account or are retired, I believe the best course of action is build up cash reserves and WAIT for stocks, bonds and commodities to sell-off to more reasonable price levels. Once this occurs, I would begin to buy more aggressively.

In short, I would be very cautious putting my cash to work in any of these assets classes at the current market prices.

By David A. Mascio