Are you a confident investor?
If you are like most people, you are not.
This lack of confidence comes from a lack of knowledge and a lack of experience.
And it is a big problem for 401K investors. The lack of confidence leads to a lack of patience which, in turn, leads to bad investment decisions.
Through our ongoing training and education, we plan to increase your confidence.
Today, I want to share the chart of the rolling 30-year average annual returns of the S&P 500 starting in 2002 and running through the end of 2022. I would expect that this chart would give you quite a bit of confidence to invest in the S&P 500 index for the long term. Look at the consistency.
The average of all of these rolling 30-year time periods is 10.1%. The lowest 30-year result was 8.8% in 2002 and the highest result was 11.8% in 2004. In most years, the 30-year results were within 0.6% of the average. The line is amazingly consistent.
All investors should be investing for the long term. As a long-term investor, hopefully this chart shows you why I am so confident that you can earn 9% to 10% per year in your 401K. And it is important to note that the time period of this analysis began in 1973. So, it includes the horrible bear markets of the 1973, 2001 and 2008. Like all fifty-year views of the stock market, it includes lots of down time periods and lots of up time periods.
This view of performance highlights one of the many thinking problems for most investors. Most investors overreact to the wild short-term swings of the stock market. This leads to emotional investing decisions which end up being bad investing decisions.
Does this data surprise you? Does it change the way you think about investing your 401K savings?
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.
SUMMARY:
The stock market is still struggling to get back to the pre-crash highs of early 2022.
But we are still sitting well above the lows reached in October of 2022.
Prices have moved strongly higher in the last three weeks after a steady drop since the beginning of August.
The major stories are still the same – interest rates, inflation, and recession concerns. The inflation reports have been positive lately. If inflation data continues to show improvement, the concern will then become recession. Can the Fed achieve a “soft landing”?
We expect the volatility to continue until it looks like the inflation battle has been won and a recession has been avoided.
We remain in a period of volatility and instability in most financial markets. The past six months have been extremely volatile as shown in the chart below.
We saw a strong move higher in May, June, and July only to be followed by a steady decline in August, September, and October. But we have seen a sharp move higher since the end of October. Both the S&P 500 and the Nasdaq are currently sitting just below the recent highs reached at the end of July. This has been a real roller coaster ride.
When we step back and take a look at the entire bear market that began at the beginning of 2022, we see a two-year period of high volatility. We see both the S&P 500 and the Nasdaq struggling to get back to the all-time highs reached at the beginning of 2022. As of the market close on Friday November 17th, the S&P 500 is down about 5% from its previous peak at the start of the 2022. The Nasdaq is down about 10% from its all-time high. Notice how the small-cap stocks (the Russell 2000) are still way below their January 2022 highs – still down 26%. In the graph below, you can see the nice bounce off the October 2022 lows.
This is more evidence of why you don’t want to own small-cap and mid-cap funds. They underperform the large cap index funds over longer time periods, and they get hit just as hard if not harder in bear markets. Advisors recommend small and mid-cap stocks for diversification, but this strategy doesn’t work.
This bear market has been driven by inflationary pressures and its impact on interest rates. While the Fed seems to be nearing the end of its rate raising cycle, the debt markets are still struggling.
The reality is that no one knows if the worst is over or not. Because of the uncertainty, it is important to follow a disciplined approach to investing. It is critical to have an investing strategy that wins no matter which way the market moves. No one can predict which way things will move in the short term. But we all know that in the long term, the direction of the stock market will be higher. Stay disciplined, my friends.
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.
You can try to do it on your own which is what most people do. The DIY investor generates average investment returns of around 5% to 6% per year. This is not good and will not produce the type of retirement fund you need. It will leave you anxious and uncertain about your strategy and your financial future. Most DIY investors are very conservative but some are more aggressive and put all of their money in stocks. The aggressive 401k investors can generate annual investment returns of 7.5% to 8.0%. But these aggressive investors get crushed in bear markets like 2022.
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 between 6.5% and 7% 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.
These mediocre options leave 401K investors in a constant state of uncertainty. They know they are not producing good enough results and they live in fear of the next market collapse. It is a big problem.
The investing industry has let people down big time.
Investing is a long term proposition and, as such, investors should be focused on just a few key criteria when deciding upon their investment strategy.
Investors should primarily be concerned with the long term average annual investment returns - and long term should be defined as 15 years or 20 years or more. Even ten years of investment performance is not enough time to judge a particular fund or investment choice.
Consistency of investment returns should be the second thing investors pay attention to. If two investments (fund A and fund B) both have an 8% annual rate of return over a 20 year time period, the deciding factor should be consistency or volatility. If fund A’s investment performance is more consistent than fund B, fund A should be chosen between the two funds. Consistency leads to more predictability and more dependability.
Beyond average annual investment returns and consistency of performance, the last thing investors need to focus on is their strategy during bear market collapses. The only viable option to date has been the old Buy & Hold strategy. If this is your strategy, you need to be prepared to watch your savings drop by about 40% once every six years or so on average. And you need to be prepared to wait about 4 years for your investments to get back to where they were before the market collapsed.
If you are comfortable just “riding it out” during stock market collapses, you can stop here. Just pick the funds with the best and most consistent long term returns and hold on for the long term.
The investment industry’s “non-solution” to the pain and suffering of stock market meltdowns is the blended or asset allocation strategy mentioned above. Occasionally, this asset allocation strategy minimizes losses in bear markets, but not always (see 2022) and only slightly. The rest of the time, it simply lowers your long-term investment returns and the growth of your retirement account.
Wouldn’t it be great if there were a way to generate average annual investment returns of more than 10% per year? With this kind of growth in your investments, you would be able to create a comfortable and secure retirement for you and your family.
And wouldn’t it be great to achieve these high returns AND protect your hard earned savings from big losses during market meltdowns?
This is why we introduced our Beyond Buy & Hold system. We put our customers in most consistent high returning investment options AND we provide protection of their savings when the stock market collapses. It generates market beating investment returns because it avoids the big losses during bear market crashes.
When the stock market is in a long-term uptrend (which is 85% of the time), we invest aggressively in the best performing funds. The top funds deliver average annual returns of 15% to 20% per year during these upmarkets. Capturing these high gains in the up-cycles does wonders for your retirement account. Our system doesn’t beat the market during these times because we are investing in the broad market via the index funds. But we are able to capture the full amount of the high returns during these periods. Most investors capture only about half of these gains because they are using a balanced approach or an asset allocation strategy.
But we can beat the market during the bear market crashes that occur about 15% of the time. We do this by losing less money, not by making money. Bear market crashes produce losses at an annualized rate of 39%. We look to lose 10% or less in these down cycles. So we beat the market by losing less and our customers don’t have to watch their life savings drop like a rock. The emotional benefit can be as powerful as the financial benefit while the markets are collapsing.
The people that follow our system and strategy are able to create the retirement of their dreams and avoid the worry of losing lots of money when the volatile financial markets head south.
401K investors now have a better option - a real option with high growth and safety - something the investment industry has not provided. Click here to learn more about a better way to invest your 401K or IRA account.
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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