Whenever you see or hear a message that states or implies, "Now is the best time to buy [enter product name here]," proceed with caution. I recently read a Morningstar article about small-cap stock investing, called The Truth About Small Caps And Rising Rates, I thought I might find some useful information to share with my clients and readers.
As the name of the article implies, the general idea is about the conventional wisdom of buying small-cap stock funds during periods of rising interest rates. From experience, I knew that this was generally true but I wasn't sure why the angle of the article seemed to be coming from some kind of contrarian or maverick perspective: "Here's the truth that you won't hear anywhere else!"
After reading the first page, I was a bit disappointed in myself because I failed to look at the source of the article, which turned out to be Fidelity Investments. Instantly, a metaphorical light flicked on above my head and I knew that this was a not-so-subtle call to buy small-cap stock mutual funds with a less subtle hint to buy them from Fidelity.
If you believe marketing messages, it's always a "good time" to buy everything. A case in point: I recall that 2006 was a great time to buy real estate because of the "historically low interest rates" and the "hot market" at the time. Today, most real estate values and interest rates alike are 25% lower and than they were 6 years ago. In hindsight, 2006 was a great time to sell and today may, in truth, be a great time to buy.
The Fidelity article, to tell you the "truth," is mostly factual. However, small-cap stocks have not consistently beaten mid-cap stocks and large-cap stocks in the past two recoveries (calendar years immediately following recessions). For an unbiased article, you can look here to see for yourself: The best time to invest in small-cap stocks.
Nice correlation on marketing ethics you made there. “A good time to buy”, LOL. Thanks for the insight on that phrase. From now on I will have my defenses up when I see it as well.
Isn’t this so typical of the big brokerages? You would think that such a conflict of interest would not be legal – but unfortunately it has been they way these businesses have operated since…. forever.