IMPROVING YOUR INVESTING ODDS

Investing is not gambling but I like to use the game of Blackjack as an analogy for investing.  I like to play Blackjack because it has better odds than most games at a casino.  There is also some skill involved.  If you play the game well, you can improve your odds.

The key thing to understand in playing Blackjack is that the most important factor is not the cards that you are dealt.  The cards that the dealer has been dealt are much more important.  Your strategy in Blackjack should be based mostly on the card that the dealer is showing in each hand.

But even if you play Blackjack well, the odds are in favor of the House.  The House always wins in the long term.

Investing is different.  When you invest in the stock market, the odds are actually in your favor in the long run.  While it does not go up in a straight line, the stock market does always go up.  But you need to invest in the stock market the right way. 

The best large cap index funds have average annual investment returns of between 9% and 12% per year over 20-, 30- and 50-year time periods. Investing in funds like this that have consistent and reliable long-term rates of return is the first way that you can put the investing odds in your favor.

Yet, most people do not invest this way.  They put money into international stock funds that return about 5% per year. They put money into small cap stocks that earn about 7% per year.  They put money into bond funds that earn 3% to 4% per year.

People are told to invest this way by the industry “experts”.  The experts say that investing this way reduces risk and smooths out your returns.  If lowering your investment returns is a way to smooth out your returns, I guess this is true.  But the objective of investing should be to get higher returns, right? 

In 2022, people learned the hard way that following the advice of the industry experts does not lower risk.  These “balanced” portfolios lost just as much as all-stock portfolios in 2022.

The other way that our investing system puts the odds in your favor is by investing aggressively in the stock market when the risk of loss is low and getting out of the stock market when the risk of a crash is high.

Like my Blackjack analogy, we determine our investing strategy based on what the market is doing not just what we are holding. 

Using market averages and probabilities, the stock market is in an uptrend 84% of the time.  In these growth cycles, the S&P 500 is generating annual returns of 15% per year.  The odds suggest that you want to be invested aggressively in the stock market most of the time.

However, in the down times that represent 16% of stock market cycles, the market is falling at a rate of 39% per year.  These crashes are devastating to your retirement accounts.

Our approach captures the high returns during the up cycles and avoids most of the losses during market collapses. 

It is actually that simple.  Makes a lot of sense, right?

The key is knowing which market cycle we are in at any time.  I invested the better part of a decade figuring this out.  It was anything but easy.  But our system/approach works better than any other approach I have ever utilized.  And I have tried them all.

It is not perfect, but better investing does not require perfection.  Nothing is perfect. Better investing just depends on putting the odds in your favor. 

Happy Investing,

Phil

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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.