The equity markets continue to be strong in 2024. The S&P 500 and the Nasdaq continue to post all-time highs.
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. Since early November of last year, the S&P 500 and the Nasdaq (top two lines) have moved sharply higher.
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.
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 been mixed. The market is still expecting multiple rate cuts from the Fed this year, but the inflation rate seems to have stalled out at around 3%. Economic growth and employment data are still strong, but all eyes will be on inflation going forward.
Market Signals subscribers have all benefited by being fully invested in the S&P 500 since last November. And you remain protected against any negative surprises going forward. You can invest aggressively and fearlessly when you have protection against market downturns.
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.
Our readers learn a lot from the situations of other 401K investors, so we like to share actual case studies with you from time to time.
Daniel recently subscribed to our Market Signals investing service to fix his 401K. Daniel is in his late forties, and he is an educated investor. He has been making the maximum 401K contributions for many years and he has a very high account balance for someone his age.
He had historically been investing in index funds, but he changed his strategy in the last couple of years. Within the last couple of years, he sold his index funds and he build a portfolio of individual stocks. He did most of his own research to pick the stocks for his portfolio and he used some online investment services as well.
He read our book, FIX YOUR 401K, and learned that picking individual stocks was not a good idea. But he also came to us because he wanted the protection for his money that our Market Signals newsletter provides him.
I share this case study because it is a very common one. Daniel is a very smart guy. He is in excellent shape with his 401K. He has enough money to be able to retire before the age of 65. He had read lots of investing books and read many online newsletters about investing.
But he knew that his investing strategy was not as good as it could be. He knew he was missing something. He was also very concerned about taking another big hit to his retirement account in a future stock market collapse.
Market Signals customers get a free retirement planning session and a set of customized retirement projections. In one short session with Daniel, we were able to move his money back into large cap index funds. This change increased his projected retirement income by 30% in addition to saving him the large amount of time it takes to manage an individual stock portfolio.
He was already looking at a healthy retirement income because of his high balance and maximum contributions, but by adding in the bear market protection of Market Signals, we were able to triple his projected retirement income.
The key point today is that even highly successful 401K investors are missing out on a lot of money by playing around with many different investment approaches. I hate to see people struggle with managing their retirement investments. Significant amounts of time and money are wasted for millions of people. This is a real shame when simpler and better solutions are available to provide better investment returns, a more comfortable and secure retirement and the peace of mind that comes from knowing your life savings is protected from the wild swings of the stock market.
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.
Many companies now make financial advisors available to their employees to assist with 401K investing. Many of you have also sought out the services of financial advisors on your own for investing help. Our best customers have typically hired and fired one or two financial advisors.
Financial advisors are great at financial planning, tax issues, estate planning, insurance and complex financial transactions. But they are not highly skilled investors. They are financial generalists. Yet, they charge a premium price for mediocre investment advice.
Why do I say this?
Financial advisors rely on the “plain vanilla” asset allocation investment method. You can get similar results if you simply put your money in a Target Date fund.
I’ve covered the problems with the asset allocation method in many other posts, but the main problems with this approach are:
1. You will only earn about 6.5% per year on your investments, and
2. It doesn’t protect your savings from big losses in market downturns.
Most financial advisors, particularly the ones you access through your employer, provide a “set it and forget it” investment portfolio. They help you pick the funds and the asset distributions up front. Yet if you hire one of these advisors on your own, you pay them ongoing fees as a percentage of your account balance forever. They will tell you that your portfolio is built to weather all market conditions. Take a look at your results in 2022 to see how that worked out.
Some financial advisors do take a more active approach to managing your portfolio. They will attempt to make adjustments as market conditions change. But the kind of adjustments they make are not effective because they attempt to anticipate future market performance. No one can do this. No one has a crystal ball to predict which asset classes will perform better in the future. It sounds good but it doesn’t work.
They can’t match the performance of a basic S&P 500 index fund. All of the industry research bears this out. You’ll earn 9% to 10% per year in an S&P index fund and you’ll only earn 6% to 7% per year with your advisor’s approach. You don’t pay any management fees when you buy index funds.
Most of this issue has been created by the SEC regulations for investment professionals. It is not the fault of the advisors. Strangely, financial advisors are not able to compete based on their investment results – the thing you are paying them for. The regulations make it difficult for financial advisors to even talk about their results.
As you know by now, we recommend the index fund approach to investing. But we do not recommend a “set it and forget it” investing strategy. Market conditions do change. We do not recommend that you simply Buy & Hold & Suffer through stock market collapses.
We do not attempt to predict market dynamics in the future. But certain market cycles call for different index funds. And we feel that it is imperative that all investors have a proven system in place to navigate through difficult bear markets where stocks can lose 40% to 50% of their value.
You should definitely seek out professional financial advisors for all of you other financial matters, but you can save yourself a lot of money and get better investment results without their investing advice.
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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