You simply cannot afford to lose money with your 401K and IRA accounts.
You need strong investment returns to create a retirement nest egg that can support a very comfortable retirement, but you should not take unnecessary risks to get there.
We often review retirement accounts that include investments in cryptocurrencies and other alternative investments. Crypto and other investments like this do not belong in your retirement portfolio.
You might push back and point out the recent gains in cryptocurrencies. But remember that the key to any investment is not where it has been but rather where it is going.
Bitcoin has doubled in value in the last five months. But in the 18 months prior to that, Bitcoin dropped by 50% in value. If you bought and sold at the right time, you could have made a lot of money. But how does one know when to buy and when to sell bitcoin?
Owning stock index funds also carries some risk in the short term. The stock market is very volatile. But in the long run, I would suggest that there is very little risk associated with large cap stock index funds. Over the last 30, or 50 or even 100 years, the S&P 500 had delivered annual investment returns of about 10%. That kind of consistent performance gives stock market investors confidence in their returns over the next 20, 30 and 40 years.
Advocates of bitcoin will tell you that it will double in price over the next year. But it could also drop by 50% over the next year. Nobody really knows.
Stock prices in the long run follow the earnings of the companies that they represent. There is nothing to peg the price of bitcoin against.
If you own cryptocurrencies in your 401K, you could see huge gains in the future. But you could also post huge losses. And if the value of those currencies goes way down, your retirement accounts could suffer tremendously. You will have no way to make up for those losses. And you might not have enough time to make up for the shortfall.
If you feel the need to invest in cryptocurrencies or commodities or other alternative investments, use play money for that. Use money that you can afford to lose.
Do not gamble with your retirement funds.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
The equity markets continue to be strong in 2024. The S&P 500 and the Nasdaq continue to post all-time highs.
Looking at the graph below, we see the strong steady move off the lows reached in October of 2022. There were a couple of small reversals in early 2023 and a sharp reversal in October of 2023. Since early November of last year, the S&P 500 and the Nasdaq (top two lines) have moved sharply higher.
Let’s take a look at bond pricing going back to 2020. The top or blue line below represents the price of intermediate term bonds and the orange line represents to price of long term bonds. Bond prices started falling in 2021 and fell off a cliff in mid 2022.
Unlike stocks, bonds have not rebounded in 2023 and 2024 because of the continued inflation and interest rate concerns.
I hope you have been paying attention to my ongoing recommendations to avoid bonds and anything other than large cap US index funds for your stock investments. The previous two charts clearly show the cost of holding small cap stocks and bonds. Target date fund investors and people who follow the asset allocation strategy that advisors pitch have gotten crushed over the last couple of years by following that bad investment strategy.
Recent inflation data has been mixed. The market is still expecting multiple rate cuts from the Fed this year, but the inflation rate seems to have stalled out at around 3%. Economic growth and employment data are still strong, but all eyes will be on inflation going forward.
Market Signals subscribers have all benefited by being fully invested in the S&P 500 since last November. And you remain protected against any negative surprises going forward. You can invest aggressively and fearlessly when you have protection against market downturns.
Stay disciplined my Friends,
Phil
Disclaimers *The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
Our readers learn a lot from the situations of other 401K investors, so we like to share actual case studies with you from time to time.
Daniel recently subscribed to our Market Signals investing service to fix his 401K. Daniel is in his late forties, and he is an educated investor. He has been making the maximum 401K contributions for many years and he has a very high account balance for someone his age.
He had historically been investing in index funds, but he changed his strategy in the last couple of years. Within the last couple of years, he sold his index funds and he build a portfolio of individual stocks. He did most of his own research to pick the stocks for his portfolio and he used some online investment services as well.
He read our book, FIX YOUR 401K, and learned that picking individual stocks was not a good idea. But he also came to us because he wanted the protection for his money that our Market Signals newsletter provides him.
I share this case study because it is a very common one. Daniel is a very smart guy. He is in excellent shape with his 401K. He has enough money to be able to retire before the age of 65. He had read lots of investing books and read many online newsletters about investing.
But he knew that his investing strategy was not as good as it could be. He knew he was missing something. He was also very concerned about taking another big hit to his retirement account in a future stock market collapse.
Market Signals customers get a free retirement planning session and a set of customized retirement projections. In one short session with Daniel, we were able to move his money back into large cap index funds. This change increased his projected retirement income by 30% in addition to saving him the large amount of time it takes to manage an individual stock portfolio.
He was already looking at a healthy retirement income because of his high balance and maximum contributions, but by adding in the bear market protection of Market Signals, we were able to triple his projected retirement income.
The key point today is that even highly successful 401K investors are missing out on a lot of money by playing around with many different investment approaches. I hate to see people struggle with managing their retirement investments. Significant amounts of time and money are wasted for millions of people. This is a real shame when simpler and better solutions are available to provide better investment returns, a more comfortable and secure retirement and the peace of mind that comes from knowing your life savings is protected from the wild swings of the stock market.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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