Is a stock market crash coming?
A lot of people are either concerned about a big drop in the stock market or predicting a big decline. What does the data say?
There is no question that the stock market has been on an impressive run for the last 18 months. The table below shows the gains of the S&P 500 index for the last 18 months, the last 5 years and the last four decades.
Since the long-term average growth of the S&P 500 is about 10% per year, the stock market tends to correct itself with big declines after periods of above average performance. The 1980s and 1990s saw very high growth rates in the S&P 500 only to be followed by two crashes in the decade of the 2000s.
The market has been on a tear since 2010 with average annual growth of 15% per year. In the first four years of this decade (2020s), the market has grown by 13.4% per year despite the fact that we have had two bear market collapses in those four years.
Our proprietary Market Valuation Indicator (MVI) suggests that the S&P 500 is currently overvalued by about 6%. In early 2020, the MVI showed that the S&P 500 was overvalued by about 16%. In then proceeded to drop by 25% in the next ten months.
It is likely that we are due for a pullback in the markets. But will it be a minor correction or a big decline? And when might it occur?
Unfortunately, no one can answer these questions with any certainty. The market is fickle and irrational.
So, what is an investor to do?
The worst thing you could do is to sell stocks out of a general concern. Relying on intuition or guessing never works in the stock market. Also, the biggest gains in growing markets happen at the tail end of the cycle.
Most of you know that we recommend a disciplined investing approach. And it is important to stay disciplined now and at all times.
All successful investors need a methodical system or approach that provides above-average growth AND protection against market collapses. Our Beyond Buy & Hold system is built to give investors both of these things. It allows investors to be aggressively invested in the stock market BECAUSE it includes an automated approach to get out of the stock market when the risk of collapse is high.
If you don’t have a safety mechanism like this to protect your retirement accounts from suffering major losses, you are jumping out of a plane without a parachute. Or to use another analogy, you are walking on a tight rope without a net.
Why would you risk your life savings this way?
If you want to learn how to protect your investments this way, sign up for a free consultation below. Let us show you how easy it is to get higher growth AND protect your money against big losses.
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.
The average customer for our Market Signals investing service tells us a lot about our service and the investing journey for more sophisticated investors. Look at the highlights in the table below.
Here is what I take away from this data.
Our typical customer has been investing and managing their 401K for many years. At 49 years of age, they are not 401K rookies.
They have done a good job with their retirement accounts before they came to us for help. Their account balances are about double the average for their age.
Their previous investment returns were not bad but not great either. For the most part, they have followed the industry advice and have used a balanced or Target Date fund approach. As a result, they have been getting annual investment returns of between 6% and 7% per year.
Their investing knowledge and their investing experience are definitely above average. Most have worked with more than one investment advisor previously. This is why they have been getting the “best” that industry has to offer with 6.5% investment returns.
The most sophisticated investors recognize the tremendous benefits from our approach but the less knowledgeable investors need our services more.
The other characteristic that I observe when talking to our customers and FIXING THEIR 401K is that they are frustrated. They know that they can and should be doing better with their 401K investments even though their balances are above average for their age. They are frustrated watching their accounts grow by 6.5% while the S&P 500 index funds grow by 10%.
They are frustrated with the big losses they have absorbed during stock market collapses. Their investment advisors told them that their balance portfolios (asset allocation method) would protect their savings during bear market but that has not been the case.
I love all of our customers and I am very pleased to be helping them achieve the results that they deserve. But I must admit that it is a bit frustrating to have to wait for people to learn painful investing lessons over decades before they seek out a better solution with us.
Unfortunately, people need to learn from the school of hard knocks (sometimes for ten years or more) before they realize they need a better or different approach. I guess it is human nature. Those of you with children are well aware of this phenomenon. People have to learn life’s painful lessons on their own most of the time.
The frustrating part for me is that the sooner that people figure this out, the better off they will be. My dream is to be able to help younger people get the benefits of a better investing approach. The power of time and the power of compounding is in their favor.
Where are you on your investing journey? How many more mistakes do you need to make before you realize you need a better way? Hopefully, you won’t struggle for another decade or more.
If you want to make changes and FIX YOUR 401K sooner rather than later, schedule a consultation by clicking the link below.
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.
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
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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