Stocks have been declining for the last three weeks. The markets needed to take a breather after the big gains posted since November of 2023. Recent inflation and interest data along with news from the Middle East are weighing on the markets.
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. Between November of last year and the third week of March this year, the S&P 500 and the Nasdaq (top two lines) have moved sharply higher. All three major stock indices have pulled back in the last three weeks.
Notice how the Russell 2000 index is still 20% below its all-time high reached at the end of 2021. Small cap stocks have still not recovered their losses in 2022.
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. In fact, bond prices have been dropping in the last two months due to increases in interest rates.
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 not been viewed positively by the market. The market is still expecting rate cuts from the Fed this year, but the inflation rate seems to have stalled out at around 3.5%. But those rate cuts are now expected to begin later than previously expected. Economic growth and employment data are still strong, but all eyes will be on inflation going forward.
If the recent price declines turn out to be more than just a temporary setback, Market Signals subscribers will have their saving protected against any worst case scenarios.
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.
Investing is hard. Investing is frustrating. Investing is even more difficult when fear guides your investment decisions.
If you are in retirement or near retirement, you know that stock market declines can change your financial future significantly. Yet, you also need to generate high investment returns to support your income in retirement.
The risk of stock market meltdowns is the price of admission for investors. No one ever knows the timing or the magnitude of recessions or bear markets, but you know they will happen at some point. Those risks are ever present even if they don’t happen very often.
How you deal with the fear of investing in the stock market is one of the biggest determinants of your success. Fear and greed cause most people to make poor decisions.
Guessing at what is going to happen or listening to someone predicting what is going to happen rarely works out. Even if you get lucky and reduce your stock exposure at the right time, you will lose because you won’t get back into stocks at the right time.
Holding bonds in your portfolio is not the answer either despite what the industry professionals say. The data is very clear on this. Bonds will only drag down the investment returns of your portfolio and they don’t always provide downside protection.
Investing in gold also won’t help. It does go up sometimes during stock market collapses, but it performs significantly below stocks the other 85% of the time.
Holding different kinds of stock market investments won’t protect you. When the broad stock market declines it affects all stock investments. Small cap, mid cap and international stocks all take a hit.
The investment industry’s only solution to this problem is the tired, old Buy & Hold strategy. They tell you to just “ride it out”. They are correct when they say stocks will recover, but sometimes that can take seven year or more. And watching your life savings get cut in half is painful. And older investors don’t always have time on their side.
What is one to do?
The right way to handle this challenge is having a proven strategy and a disciplined process to investing.
This is why I created the Beyond Buy & Hold system.
The best investors have a disciplined approach to owning the best funds and a proven quantitative system to avoid the worst of bear markets. Our MARKET SIGNALS investing tool gives investors just that. It puts the odds in your favor. It captures the large stock market gains in up markets and protects your savings in down markets.
The stock market is in an uptrend 85% of the time, growing at double digit rates. You want to be aggressively invested (100%) most of the time. Having a proven system to sidestep the bear market crashes gives investors the confidence to invest aggressively in the stock market.
You don’t have to worry when you know you have a system to avoid the damage caused by bear market crashes. Imagine investing in total confidence and without fear of the next market collapse.
If you want to learn more about Market Signals, click the link below to set up a free consultation. As part of the no obligation process, you will also get a free set of projections for your retirement accounts along with recommendations on how to improve your investing results.
You have nothing to lose and potentially millions to gain.
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.
I know we have some aggressive growth investors in our group. Aggressive growth investors are willing to take on a bit more risk to achieve investment returns that are above average.
When I think about aggressive growth funds, I use the S&P 500 index funds as a reference point. The S&P 500 index delivers solid growth for all investors – roughly 10% per year. But aggressive growth investors are looking to generate even higher returns. They want to beat the returns of the S&P 500.
Once again, I will only be focusing on funds here. As you know, I do not recommend buying individual stocks. You have to get lucky picking stocks to beat the best funds in the long term. Only a handful of people on the planet can do that consistently. You are not one of them.
There are several funds that can generate higher returns than the S&P 500. And almost all of them have a technology focus.
Since I will only be covering growth funds that have a long track record of success, these funds don’t carry much more long-term risk than the S&P 500. But they all carry a higher risk of short-term volatility. While you can be pretty confident in their long-term returns, their short-term results will be more volatile than the S&P 500. For example, the Nasdaq index funds that have a higher concentration of tech companies declined by 30% in 2022 compared to the 19% drop in the S&P 500.
Aggressive growth investors simply need to be prepared for more short-term volatility.
A good place to start for aggressive growth investors is the Nasdaq. Both the Nasdaq and the Nasdaq-100 have 50% of their assets invested in technology companies compared to 30% for the S&P 500. Both the Nasdaq and the Nasdaq-100 are index funds. This means that there is no stock picking in these funds. They are managed by a computer which automatically mirrors the index they are following.
All of the other funds listed below are mutual funds. This means that a fund manager manually picks the stocks that are in the fund. Based on their ongoing analysis, they are constantly buying and selling individual stock holdings.
All else being equal, I much prefer index funds to mutual funds. Stock pickers don’t typically perform as well as the best index funds. The mutual funds below have strong performance mainly due to their industry concentration and not their stock picking in my opinion. Technology companies have performed extremely well over the last 30 years so most funds that have invested heavily in tech have also performed well.
The table below compares the 30-year and 20-year investment returns of some of the best growth funds. It also includes the percentage that each fund has invested in the technology sector. While the S&P 500 holds 30% of its assets in technology companies, the Vanguard IT fund holds 99% of its assets in tech.
When I want more growth, I stick with the Nasdaq-100. Very few funds can beat its performance and the ones that do carry more risk.
Using a loss protection system like our Beyond Buy & Hold Market Signals product is really important when you are invested in aggressive growth funds. Aggressive growth funds have dropped by over 70% on occasion. With Market Signals you can capture the upside of aggressive growth funds and also protect yourself from big losses in bear markets. Combining an aggressive growth fund strategy with our Market Signals system provides investors with the potential to earn well over 15% per year.
I did include a non-tech mutual fund on the list – Baron Retail Partners. They are the Unicorn in the mutual fund industry – the one team that can consistently pick winning stocks. Their performance for every time period below beats the Nasdaq-100 and they do this without a narrow focus on sectors like technology.
I have two concerns with this fund.
The first concern with this fund is that they tend to place big bets on a limited number of stocks. The often hold 50% of their assets in just one stock. This is how they achieve their exceptional results, but it does make this fund riskier.
Another way that Baron’s generates above average returns is through the use of leverage. Leverage means debt. Baron’s borrows money to invest in stocks. Investors that borrow money amplify their returns when stocks are rising. But leverage introduces more risk because leverage amplifies losses on the way down.
Personally, Baron’s is too risky for me. But I can’t argue with their track record of consistent performance.
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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