SUMMARY:
Both the S&P 500 and the Nasdaq have emerged from the bear market of 2022. Both indices have reached all-time highs recently.
The Russell 2000 (small cap stocks) is still 20% below its all-time high.
This does not mean that we are out of danger.
Markets will likely remain volatile until there is clear evidence that inflation is under control and that a recession will be avoided.
The trend has been positive for the market since the end of October 2022.
The markets are off to a strong start in 2024, continuing the positive trend that began in October of last year.
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. The small cap stocks (Russell 2000) have continued to lag as this index still is down 20% from it’s high reached at the end of 2021.
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 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 that bad investment strategy.
It is not just the last few years that have been bad for the target date/financial advisor strategy. If you have been paying attention to my blog posts, you know that this investing strategy significantly underperforms over the last 30, 40, and 50 years.
If you continue to stick with this bad strategy, you will be costing yourself and your family over $1 million in your retirement account. Stop waiting and let us help you fix your investment issues. We can do it in 30 minutes. It is easy and painless. And we do it for free. There is no commitment or obligation. Click the link below to schedule your “401K Instant Fix”.
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.
You don’t have a lot of good options as a 401K investor when it comes to your investment strategy. Your strategy is very important, however, because your strategy dictates your results, and your results dictate what kind of retirement you will have – comfortable or difficult.
ULTRA-CONSERVATIVE
Some people simply cannot stomach any losses in their investment portfolio. These people are called highly risk-averse investors. They are forced to limit their investments to money market funds, guaranteed income funds, and shorter-term bond funds. Stocks are not an option for them. As a result, they end up with low investment returns – between 2% and 4% per year.
ASSET ALLOCATION
You can follow the advice of the investment industry professionals and spread your money across a bunch of different assets. They will put you in a variety of stock funds, large cap, small cap, value funds, international funds, etc. They will also tell you to invest in bond funds. This strategy is the equivalent of the Target Date funds or Lifecycle funds that most 401K plans offer. Following this “blended or balanced” approach will give you annual investment returns that are a little higher than the typical conservative investors - somewhere around 6.5% per year. The Target Date fund investors still don’t get high enough returns to be able to retire comfortably. And Target Date fund investors also get crushed in stock market collapses.
ASSET ALLOCATION WITH ASSET ROTATION
This is version of the asset allocation strategy described about but it involves shifting money between asset classes based on forecasting which asset classes will do better in the next twelve months for example. Since it involves forecasts which are usually wrong, these investors typically end up doing worse than the standard asset allocation approach.
GROWTH
This strategy relies on investing in the funds with the best long-term performance. The funds with the best long-term performance are stock funds - large-cap index funds and large-cap growth fund. These investors can achieve long-term (20 years plus) annual investment returns of between 9% and 10%. But it will be a rocky ride. Growth investors suffer the big losses in bear markets.
GROWTH WITH PROTECTION
This is our Beyond Buy & Hold strategy/system delivered via our Market Signals alerts. It is the same as the growth strategy described above but it shifts money out of the stock market and into safer assets when the risk of a stock market collapse is high and it shifts money back into stocks when the market rebounds. In the long-term, this strategy can produce annual returns of 12% to 13%. It achieves similar results as the Growth strategy in bull market but loses less money in bear markets. And, more importantly, it does not force investors to Buy & Hold & Suffer through market meltdowns. You can learn more about Market Signals by clicking on the home page in the menu bar at the top of this page.
Which investment strategy do you follow?
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.
One of the key benefits of 401(k) accounts is their tax advantages, which can significantly boost your retirement savings over time. However, navigating the tax implications of 401(k) accounts can be complex.
One of the primary advantages of 401(k) accounts is their tax-deferred status on contributions. When you contribute to a traditional 401(k) account, the money you contribute is deducted from your taxable income for the year in which you make the contribution. This means that contributing to your 401(k) can lower your taxable income, potentially reducing your tax bill for the current year.
For example, if you earn $50,000 per year and contribute $5,000 to your 401(k), you would only be taxed on $45,000 of income for that year. This immediate tax benefit can provide a powerful incentive to save for retirement.
The other major tax benefit is the fact that the growth of your investments in your 401(k) or IRA is not taxed during your working life. Your money grows tax free. This allows your money to grow and compound over decades much faster than it would have if the investment income were taxable.
While contributions to traditional 401(k) accounts are tax-deferred, withdrawals from these accounts are subject to income tax. Withdrawals from a traditional 401(k) account are taxed as ordinary income in the year in which they are withdrawn. This means that when you start taking withdrawals from your 401(k) in retirement, you will owe income tax on the amount you withdraw at your marginal tax rate.
It's worth noting that the IRS imposes a penalty for early withdrawals from 401(k) accounts before age 59½, with certain exceptions such as disability or financial hardship. In addition to ordinary income tax, early withdrawals are typically subject to a 10% penalty unless an exception applies. Therefore, it's generally advisable to leave your 401(k) funds untouched until you reach retirement age to avoid unnecessary taxes and penalties.
In addition to traditional 401(k) accounts, many employers offer Roth 401(k) accounts as an option for retirement savings. Roth 401(k) accounts differ from traditional 401(k) accounts in that contributions are made with after-tax dollars, meaning there is no immediate tax benefit. However, qualified withdrawals from Roth 401(k) accounts, including both contributions and earnings, are tax-free in retirement.
Roth 401(k) accounts can be a valuable tool for tax diversification in retirement, as they provide tax-free income that can complement withdrawals from traditional 401(k) accounts and other retirement savings vehicles. Additionally, Roth 401(k) accounts do not have required minimum distributions (RMDs) during the account holder's lifetime, making them an attractive option for those who want more flexibility in managing their retirement income.
If you are at or near retirement age, you should consult a financial advisor about tax strategies for retirement account withdrawals. Figuring out Roth conversion strategies, planning for required minimum distributions and the impact on your Medicare and Social Security benefits is quite complex. Licensed advisors are really good at this kind of financial planning and everyone’s tax situation is unique.
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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