Updated: Jan 13
For the most part, the investment industry advises people to use the same investment strategy regardless of how the stock market is behaving. They instruct people to use the same strategy in every market cycle—and simply “hang in there” during the tough times. No matter what the market is doing, they recommend the same approach.
Does that make any sense to you? It shouldn’t.
It never made sense to me either. And because the industry wasn’t willing to put in the work to solve this problem, I decided to do it myself.
It wasn’t easy. It took me decades to develop a solution—The Growth and Safety Fund.
If you study the stock market, it is easy to see that the market moves in cycles.
The industry has oversimplified these cyclical movements into just two cycles. They say we are either in a bear market of a bull market and they have some arbitrary definitions of the two.
Examining the last 100 years of stock market data, I discovered three distinct market cycles.
Steady Growth Cycle – Stocks climb steadily with minor corrections. This is the ideal environment and occurs about 50% of the time.
Volatile Growth Cycle – The market still grows but with more frequent and larger corrections. This occurs about one-third of the time.
Bear Market Decline Cycle – Stock prices drop significantly and rapidly. These painful periods occur only 18% of the time.
As you can see in the pie chart, the market is in growth mode most of the time (green segments). But it also experiences sharp, deep declines during bear markets (red segment).
The stock market consistently generates long-term average growth of about 10% per year, but that growth does not occur in a straight line. Here are the average annual returns by market cycle over the last 30 years:
Investment Cycle | Annual Return |
Steady Growth | +22.0% |
Volatile Growth | +15.0% |
Bear Market Decline | –37.0% |
This tells us something crucial: if you can capture the upside of the Steady and Volatile Growth cycles—and sidestep the Bear Decline cycle—you’ll dramatically improve your investment results and reduce your risk.
The core challenge is this: the market doesn’t tell you what cycle it’s in at any given time.
Using advanced data analytics, artificial intelligence, and powerful computer processing, I solved this problem. I analyzed market patterns across all three stock market cycles, going back 100 years. Daily S&P 500 data is available all the way back to the 1920s.
The key is to understand the behavior characteristics of the stock market in each cycle. The graphs below paint a clear picture of those differences
The first graph shows a simplified version of the Steady Growth Cycle. If only we could live in that cycle all the time. In these phases, the market climbs steadily, typically interrupted only occasionally by small pullbacks. Average declines during this cycle are usually less than 8%–9%.
The second graph illustrates the Volatile Growth Cycle, where the market still trends upward over time—but with frequent reversals and larger price drops. Declines can range from 4% to 18%. This cycle is the trickiest to navigate because it often looks like a bear market, even though prices continue rising over the long run.
The cycle that most people are more familiar with is the Bear Market Decline cycle. This is the cycle that we all fear – and for good reason. The next chart shows the steady and large decline of the S&P 500 (the market) during the 2008 Financial Crisis. Most bear markets follow a similar pattern. This one lasted about one and a half years – a little longer than average. It also dropped by a larger amount (almost 50%) than the average bear market (more like 40%).
Once you can develop a reliable method to detect which cycle the market is in, you can apply a different investment strategy to each cycle.
This is how my system works. We invest more aggressively (up to 100% in stocks) when the market is in both growth cycles (steady and volatile) and we follow a different strategy when stocks are falling (moving out of stocks).
Naturally, we want to be fully invested (100%) during the Steady Growth cycle to capture those +22% annual returns. And just as obviously, we want to exit the market quickly during Bear Decline cycles, when losses average –37% annually. My system does that for you automatically.
An investing system like my Growth and Safety fund can double your investment returns and dramatically reduce your risk by limiting losses in bear markets. Here is how my system performs in growth and bear cycles compared to the S&P 500 and most investors.
Growth Cycle Return% | Bear Decline Return% | Total Return% | |
S&P 500 | +16.9% | -36.9% | +9.8% |
Most Investors | +10.1% | -23.2% | +6.8% |
My System | +19.0% | -10.9% | +14.8% |
People are very happy with the higher investment returns from my system, but they greatly appreciate the fact that they lose less money in severe bear market declines.
You can have the best of both worlds – high growth and protection against losses during stock market collapses. Schedule a call today by clicking on the link below to find out how to deploy this powerful strategy and to start creating the retirement of your dreams. We don’t do high pressure sales. We are educators and not salespeople. We provide the information and you decide.
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.
Some people are good budgeters, and some people hate the concept of budgeting. Just the word budget can bring up strong feelings in many people.
This is why I prefer the term “Spending Plan”. A budget feels restrictive. Most of us like to spend.
Regardless of what you call it; it is important to forecast your spending needs in retirement. It can take a bit of work if you haven’t done it before. If you were a good budgeter in your working years, this will be a piece of cake.
A monthly plan should suffice in retirement.
FIXED EXPENSES VS. DISCRETIONARY EXPENSES
A best practice is to sort all your spending into two buckets – fixed or discretionary. Let me show you how easy it is to plan your expenses this way.
Fixed expenses are the items that you are obligated to pay each month. This includes:
· Mortgages or rents
· Utility bills
· Car payments
· Car insurance
· Health insurance premiums
· Food
· Phone, cable, internet, etc.
· Subscriptions
· Taxes
Most of the items on your fixed expense list cost the same amount every month. Some things like your electric bill may vary seasonally, but using an average is good enough.
All you need to do is to add up your fixed expenses monthly. As an example, your monthly fixed expenses might be $3,000.
Everything else falls into the discretionary category. Things like:
· Entertainment
· Travel
· Charitable Contributions (some put this into fixed expenses)
· Gifts for others
· Clothing (may be fixed for some)
· Furnishings
· Repairs and Maintenance
· Uncovered medical expenses
· Other purchases
These spending plans are highly personalized. You can organize your spending in the way that works best for you. There is no one-size-fits-all template.
Let’s look at a simple example.
This person needs about $30,000 to cover three months’ worth of expenses. They are collecting $2,500 per month in Social Security or $7,500 for three months. They would need to withdraw roughly $22,500 ($30,000 less $7,500) quarterly from their 401K account to cover their expenses.
In this example, this individual will need to withdraw $87,000 annually ($117,000 less $30,000 Social Security) from their retirement account.
The next step is to compare this number to your 401K retirement income forecast to see how they match up. Hopefully, the retirement forecast supports an annual withdrawal of more than $87,000.
Now that you know how to do this, you should create your own spending plan and see if your 401K forecast covers your spending needs.
IDEAL VS. MINIMUM SPENDING
In your first several years of retirement there is a risk factor called the Sequence of Returns. If your investment returns are below average in the first 5 years or retirement, it can potentially reduce your retirement income by as much as 15%.
A way to mitigate this risk is to create two versions of your spending plan– your ideal plan and your minimum spending plan.
Your ideal plan includes your fixed expenses plus your ideal discretionary spending – all the travel and other purchases. Your minimum spending plan would include your fixed expenses and a bare minimum of discretionary spending.
The example above would be an ideal spending level of this person. It includes $14,400 in discretionary spending for this three-month period. A minimum discretionary spending plan might be $10,000 for this three-month period. The minimum amount might reduce the amount of your travel or other purchases over this time period.
To be sure that you don’t run the risk of running out of money in retirement you need to know your minimum spending needs.
If you get lucky in the early years of your retirement and participate in a strong bull market, you can spend closer to your ideal spending level. If stock market performance is weak in the first several years of retirement, you can offset the risk by sticking to your minimum spending plan.
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.
The market survived Phase One of the Tariff wars intact. After the big decline in stock prices in March and April, stock prices have climbed all the way back to even for the year. As of Friday June 13th, the S&P 500 was up 1.9% for the year and the Nasdaq was up 0.6%.
In the chart below you can see the extreme price volatility in April and the steady move higher over the last six weeks.
Unfortunately, the period of shifting tariff policies is not over although the stock market thinks it is over. The various 90-day pauses are not up yet and there have been no major trade deals completed. The stock market believes that the Administration will back off of their most extreme tariff positions but it remains to be seen.
Economic news has been mostly positive over the last month.
Inflation reports have been positive although the impact of the tariffs has not shown up in the data yet. July and August inflation readings will be the first indications of the impact of tariffs on inflation. The Fed is waiting on those readings to make their decisions on interest rates.
Unemployment claims have been rising gradually but the overall numbers are still at levels that indicate a healthy job market.
Corporate profit reports for the First Quarter have been positive which has contributed to the stock market rebound in May and June.
The Israel-Iran conflict caused a slight pullback in stock prices at the end of last week. Hopefully, cooler heads will prevail, and the conflict can be contained.
It was a wild ride to nowhere in March, April and May. Discipline and patience paid off over the last two months. Following a disciplined system in times of volatility always produces better results than letting emotions drive your investing decisions.
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.
%20(1).png)
