How has your retirement account performed over the last 5 years?
Has it doubled? If it hasn’t, it should have come close to doubling.
If you follow the Asset Allocation approach that the industry professionals recommend, your account has only gained about 30% (not including contributions). In the table below, I used the Vanguard 2050 Target Date fund (VFIFX) to represent the Asset Allocation approach. Over the last 5 years, the Vanguard Target Date fund only earned an average of 5.5% per year.
Compare this to the S&P 500 which produced average annual returns of 13.9% over the same 5-year period. If you had simply placed all your 401K investments in the S&P 500, your account would have increased by 92% (not including contributions made over the 5 years).
Our Market Signals system generated average annual returns of 15.9% which would have more than doubled your money (+109%).
If you began the period with a retirement account balance of $500,000 and you followed the advice of a financial advisor, you would have added about $150,000 (not including contributions). If you simply owned the S&P 500, you would have added $460,000 (without contributions). The investment services professionals would have cost you about $300,000 by following their bad investing strategy. If we include contributions, the opportunity cost would be even greater.
If you had invested using my Market Signals system, your initial balance of $500,000 would have grown by 109% or by $545,000 to $1,045,000 (not including contributions). Compared to Market Signals, the investment professionals would have cost you about $400,000.
But the investment professionals will tell you that you needed to be diversified via the Asset Allocation approach to protect your savings against the volatility of the stock market. Let’s see how that worked out in the last bear market of 2022.
The Target Date fund lost 33% at its low point (drawdown%) in 2022. You would have had to watch your diversified portfolio lose one third of its value – pretty painful.
The S&P 500 by comparison had a drawdown (peak to trough) of 25%. This is also a big loss but less than the supposedly safer diversified portfolio.
The other key element to consider in bear market collapses is the Time to Recover. This measures the length of time between the pre-bear market peak to when the investment gets back to even. Losses are much more bearable if they don’t last as long.
The S&P 500 took about 2 years to get back to even – from January 2022 to January 2024.
The “safer” Target Date fund took 3 years to get back to even having just reached the pre-drop peak in December of 2024. So, the safer Target Date fund lost more money (33%) compared to the “riskier” S&P 500 and it took 3 years to recover compared to 2 years for the S&P 500.
My Market Signals system had the smallest drawdown at -12.5% at the October 2022 market low. And it would have only taken one year to recover to the pre-bear peak. You would have been back to even by January of 2023.
Market Signals would have reduced your peak losses by 20% (from -33% to -12.5%) and you would have recovered your losses a full two years faster than the Asset Allocation method.
The industry says that your risk of loss is greater when you seek out higher returns. In some cases, this is true, but it isn’t always true. In this example comparing Market Signals to the Target Date fund, Market Signals generated three times the profit while losing 62% less in the 2022 bear market and recovering those losses two years quicker.
The industry is dead wrong.
This example shows you why I am always criticizing the investment services industry for having terrible solutions for ordinary investors. The industry has trained you and everyone else to use this outdated and ineffective investing approach.
Their dumb investing strategy caused me to create my Market Signals Investing System which mostly invests in the S&P 500 but rather than “ride out” the losses in bear markets, my system shifts money into safer assets during bear markets.
Market Signals gives you the best of both worlds – large gains when the market is rising and smaller losses when the market collapses. There really is no other way to invest.
Stop following the foolish industry strategies. It is costing you big money.
If you currently own a mix of bonds and stocks and international stocks and small cap stocks, you are losing out on millions of dollars in retirement. These are facts and not opinions. It is common sense. Bonds are a drag on your portfolio. International stocks are a drag on your portfolio.
Stop the madness. “Riding out” your losses in bear markets with their Buy & Hold strategy is stupid.
If your average annual returns for the last 5 years were less than 14% and you did not double your money (excluding contributions), you are doing something wrong.
Start using Market Signals today. Click here to learn more.
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.
What a year it has been for the stock market. The stock market has marched steadily higher over the past year. Both the S&P 500 and the Nasdaq are now up over 30% for the last 12 months. Twelve-month gains of over 30% are pretty rare for the stock market. Don’t get used to it.
Our investing system has had our customers fully in the stock market over the last 12 months so they are sitting on 30% gains over the last year.
Both indices lost some ground at the end of October heading into the election. The market spiked after the election and has now dropped back and is now in line with the 12-month trend.
Economic data has been mostly positive recently although inflation worries are starting to creep back into the picture. The Fed is hinting at a pause in the rate cutting. Interest rates have actually increased about a half a point in the last two months.
Despite the positive trend in stock prices, we do expect more volatility going forward.
Our models indicate that the S&P 500 is overvalued by 16% right now. See the graph below. Market valuations are now slightly above where they were in January of 2022 before prices fell by 25% to 30% over the following ten months.
When markets are overvalued, any negative news can cause a steep drop in the markets. If you do not have a strategy to protect your money against losses like our Market Signals system, you need to be prepared.
On the other hand, some of the biggest gains in stock prices come at the end of bull market cycles. The biggest gains happen before the fall. No one knows when the next bear market will hit, but you can be assured that it will hit at some point.
Our customers win both ways. If the market keeps rising, they get the full gains and if the worst-case scenario happens, they are protected. The key is to protect the terrific gains we have all realized over the last couple of years.
If you are concerned about a major decline in stock prices, now would be a good time to check out our Market Signals investment system. Don’t wait until it is too late. You will regret it.
Click Here to learn more.
Stay Disciplined My Friends,
Phil McAvoy
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 Rational Stock Market theory states that the experts have already incorporated all the relevant information into stock market prices. If there is going to be a recession next year, they are already including that impact in their market values. If inflation is going up and down, they have that covered. If the global economy is slowing down, that too is reflected in the current prices for stocks.
If the market makers are really that good, why does the stock market move up or down by 5% on a given day when an economic report comes out only to be followed by a drop of 4% the following day? If corporate profits grow by an average of 8% per year, why does the market drop by 40% in a matter of months only to reverse course upwards by 50% or more over the following years?
All you have to do is look at charts of stock prices to see that emotions and the herd mentality move the market in the short term, not reason. For centuries, the stock market has been the best place to invest your money compared to just about every other investment. But it can be painful to invest in the stock market. The stock market is not rational in the short term. Investing in the stock market can be maddening but the volatility of the irrational market presents a big opportunity to make higher returns.
In the chart below, we compare the actual performance of the S&P 500 for the period between 1995 and 2021 to what a “rational” market would look like. For the rational market, we smoothed out the chart by using the average annual return of 8% that the S&P produced over this time. The orange line represents a market that produces steady returns. The blue line is the actual stock market performance. Over the long term, the S&P consistently produces average annual returns between 7% and 8% excluding dividends. This period was no different. When the blue line is significantly above the orange line, the market is irrationally bullish. When the blue line is significantly below the orange line, the market is irrationally bearish. This illustrates perfectly how people are constantly over-reacting to news and events. Corporate profits grow by 8.7% per year over time which is consistent with the growth of the stock market over long periods of time. So, in the long term, the stock market is rational. But in the short term, the market is anything but rational.
Look at how overvalued the market was in the late 1990’s and early 2000’s. A rational market would have valued the S&P 500 at $709 in March of 2000, but the irrational investors valued the S&P at more than double that amount - $1,499 at that time. This was during the height of the dot-com bubble when everyone was saying things were “different” this time. The collapse of the housing and mortgage markets in 2008 sent the S&P well below a rational valuation. A rational market at the beginning of February 2009 would have valued the S&P 500 at $1,437 yet rampant fear created an actual value of the S&P that was half that level - $739. We moved from a market that was overvalued by 100% in 2000 to a market that was undervalued by 50% in 2009. Even though the market experienced strong gains between 2009 and 2021, the blue line stayed below the orange line until the end of 2020. A chart like this one gives you an indication of whether investors are overvaluing or undervaluing the market.
So, we are left with this awful Catch 22. We have the stock market that is a great place to invest (annual returns of 9% to 10% with dividends reinvested) and we have the stock market that can drop by 50% or 60% in a matter of months and stay in negative territory for six years or more. If the market were truly rational with market values closely following the orange line in the previous chart, using a Buy & Hold investing strategy would be just about all one could do. Investing would be easy and painless. But because the market is irrational, a Buy & Hold strategy is painful.
The next chart compares the price of the S&P 500 to a “fair market value” or rational market value from the middle of 2021 thru November 2024. Notice how the market was significantly overvalued in January of 2022 and that the bear market of 2022 brought the market to under-valued territory in October of 2022. You’ll also see that the large stock market gains since October of 2022 until now have created an overvalued situation. The stock market has not been this overvalued since 1999 during the dot-com bubble. When looking at these charts, does stock market pricing look rational to you? Are your investments protected against big losses if the market drops significantly from it's current overvalued level? Hopefully, this information helps you understand why you need an investing strategy that deals with the irrational financial markets.
There is a better way. We don’t think it makes sense to watch your investments get cut in half during one of these downturns that happen every six to seven years and then wait four or five years for your investments to get back to even. The wild swings in stock values present an opportunity to make more money in the stock market. It is emotional human behavior that creates these wild swings, and that irrational human behavior is something that is very predictable.
We figured out a way to exploit the volatility. You can reap the rewards when the market appreciates excessively, and you can sidestep the irrational bear market collapses. In a truly rational market that steadily climbs by 8%, you could only make 8% per year. Because the market is not rational, you can make much more than 8% per year. The trick is to ride the wave of the long, high growth bull markets and to avoid most of the pain of the bear market collapses. If you believe in market cycles and you are worried about how your investments will get crushed in. the next bear market, you need to get Market Signals. We created our Market Signals newsletter to show you how get the high growth of the stock market and to avoid the bear markets. You can subscribe by clicking here.
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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