Do you have a proven investing strategy in place to protect your life savings from another stock market meltdown?
Or are you just going to Buy & Hold & Suffer? Or are you just doing to “wing it” and try to adjust your investments on your own?
The investment services industry and all the professional advisors have let everyone down with their lack of solutions to the “safety” issue. I’ve often discussed how their Asset Allocation strategy only smooths out your returns by limiting your gains in up markets. It does not do a good job of protecting your money in bear markets. Look no further than 2022.
You don’t want to make emotional decisions when the market swings wildly over short periods of time. Many people panic and sell their stocks at the bottom and then buy back in at the top. This guarantees that you will absorb even bigger losses.
Stock market volatility causes many people to just stay out of the market. But this leads to really low investment returns (3% to 4%) and not enough money to retire comfortably.
Fear leads to the biggest investing mistakes that people make.
I get it. Dealing with the irrational cycles of the stock market is very hard. That is why I created the Market Signals system. The industry just did not have a good solution to this problem of keeping your money safe in difficult markets.
We all want Growth and Safety. We have been told we can’t have both – that you can either have an investment strategy built for Growth or one built for Safety. I simply couldn’t accept this. I thought we could use the markets irrational movements to our advantage.
We know that we will see market corrections (drops of 10%) every other year on average and bear market declines (drops of 20% or more) about once every six years.
We also know that the market always rebounds from both corrections and bear market collapses. Sometimes it can take a long time for the recovery (four plus years) but it always recovers.
The market is also trending higher about 85% of the time. In these rising markets, we see average annual gains of 15%. So, you want to be fully invested in the stock market most of the time to capture these excellent returns.
Bear market crashes only represent about 15% of market cycles. But they are extremely painful. Prices drop at an annual rate of 39% in bear markets. Avoiding that financial and emotional pain should be a priority. The problem is that nobody knows when they will appear and why they will appear. The “talking heads” are always wrong with their market predictions.
I spent the better part of a decade using my “Mad Scientist” data skills to create the computer models that drive my Market Signals system. The only reliable solution to the safety problem is a disciplined and data-driven approach that takes emotion out of the equation.
Market Signals does not predict when crashes will occur. It simply kicks into gear after they have started. We don’t attempt to “time the market.” We react to the market. Bear market declines last an average of eleven months. We use a probability-based risk system to indicate when to get out of the market and we use a different set of algorithms to tell us when to get back into the market.
We alert our customers to get out before most of the damage is done and when to get back into the stock market when the coast is clear.
Most of the time, we are “all in” on the market to capture the large long-term gains of the stock market.
In tomorrow’s post, I’ll show you exactly what happened in 2022 and 2023 for our customers using the Market Signals system.
The system is fully explained in my book, FIX YOUR 401K, which is available on this website and on Amazon. You can also learn more about Market Signals on this website.
Happy Investing,
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.
For those of you who struggle with deciding upon which funds to choose for your 401K, I will be reviewing all of the different categories of funds available to 401K investors. Today, I will be focusing on another 401k investing option - Real Estate funds or REITs.
Many, but not all 401K plans offer REITs as an investment option.
Real Estate Investment Trusts (REITs) offer a unique way to invest in real estate without directly owning property..
REITs are companies that own, operate, or finance income-producing real estate across a range of property sectors. These include residential, commercial, retail, and industrial properties. By investing in REITs, individuals can gain exposure to the real estate market without the need to buy and manage properties themselves.
REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. In addition to dividend yields, REITs also offer the potential for capital appreciation. As the value of the underlying real estate properties increases, so too can the value of the REITs.
It's important to note that, like any investment, REITs come with risks. These include economic downturns, fluctuations in real estate values, and changes in interest rates.
The chart below shows why I am not a big fan of REITs. Their performance over the last 20 years is well below the performance of large cap index funds like the S&P 500 and the Nasdaq.
REITs can also be just as volatile as the stock market. They have had some periods in the past where they have performed almost as well as the stock market, but they are more likely to drag down your results than to increase your investment returns.
Happy Investing,
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.
Most of the people we help are "above average" 401K/IRA investors. They generate returns that are better than the 5% per year that the average 401K investor. Most of the portfolios we see are positioned to generate about 6.5% to 7.0% per year - about what a Target Date fund investor produces. This is not bad, but we can immediately get them to be able to generate 9% to 10% per year just by changing their fund selections.
Very rarely do we get to work with more advanced investors who have the fund picking part of the equation solved. But, even these sophisticated investors struggle with the challenge of protecting their portfolios in bear market crashes. Let me tell you about Tom.
Tom is a very successful Do-It-Yourself investor. When he came to us his fund picking was so good that he was positioned to achieve almost 10% per year on his investments. It took him a long time and a lot of work to get to this point. He says he made a lot of mistakes along the way and he has the scars to prove it.
Tom had tried all the various methods being pitched including following the big names on CNBC. He had read tons of books on investing and paid for many investing services. He is definitely the most sophisticated and experienced investor we have ever helped. He even uses some of the more sophisticated analytical and trending tools used by the big Wall Street firms - industry tools like MACD and RSI indicators. He was using these tools to make adjustments to his portfolio in volatile markets.
We were not able to help him much with his investment choices because he was doing pretty much everything we teach already. We were able to simplify his investments because he had a lot of overlap in his portfolio and some investments that just did not fit. So he will earn a little more as a result but he came to us because he wanted a better system to protect his portfolio during bear markets.
He was using a service that relies on the trending tools previously mentioned, but he lost a lot of money in 2023 using that service. He never really trusted it to begin with but now he knew he needed something better.
For the sophisticated investors in our group, we do not use the standard industry statistics like moving averages and relative strength indicators because, like Tom found out, they don’t work. Most of these tools are lagging indicators. They do a good job of telling you what has happened in the market but they are not great predictive tools. And because they rely on moving averages, they are too slow to react.
We use our own proprietary algorithms for our Market Signals indicator. It was developed and refined over many years and has the sole purpose of moving our customer’s money to cash when the probability of a market meltdown is high. It is not perfect, but our “secret sauce” that makes it so successful is our rapid self correction mechanism when the Signal is wrong. There is no other tool like this available anywhere to protect your life savings.
Tom is new to the service but he was able to get an in depth understanding of our model and he is very comfortable with our approach. Since our service is so simple and easy to use, our next goal for Tom is to get him to spend less time analyzing the stock market and spending more time doing the things he loves. We do the work so you don’t have to.
Happy Investing,
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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