If I had a working Ouija board, I'd contact Joseph P. Kennedy, Sr for his opinion. He played the deregulated 1920s market like a violin and was sitting pretty on 29 October 1929. Plenty of others are of course doing the same now, fully supported by the current administration. The rest of us can go whistle past the graveyard.
13
I don't believe you, you're just a mouthpiece for the industry that profits off of most investors.
19
@Chuck You don't have to believe them, there are a million studies and historical records that back up this advice.
26
It seems that the market masters overlook the fact that many that are invested in the markets thru retirement plans are NOT saving to buy tea plantations, yachts , develop new businesses or buy shoreline plots in Costa Rica. There are a lot of us that will need to buy food , pay utilities and keep good tires on the car and pay for medicine and dog food and laundry soap and repair older homes that are slowly coming apart. There will be no bold new world for many of us. Why do I say this ? Because I am tired of hearing about investing long and riding out charts that young guys in pink shirts with power ties say show the future. Why are "wealth advisors" still working ? No one knows what the roulette wheel of Wall Street is going to do until after it happens and then they pontificate as experts and have all the answers. It seems that the workers trying to have a little something at the end are getting the shaft. Cash may not be the best investment but maybe market investment is not the best way to have something at the end of fifty years.
The markets are not that old in the big scheme and the news is geared towards the big boys. Maybe us little guys need to realize that a dollar cash is still worth something after being told we don't know enough to call the shots on a game that has no fixed rules and lets others play on my dime.
Maybe I am wrong but I still need to eat and stay ut of the cold when I get old. That is pure fact.
38
You do not "lose" by not gaining, except to inflation, which occurs no matter what you do. And to the extent you do gain, that gain will be taxed, so you will not benefit by all of that gain at any rate. That may explain Warren Buffet, who says that the first rule of "investment" is: don't lose any money.
An increasing problem is not the degree of change in the markets, up and down, but the speed at which those changes occur, with "flash trading", etc., leaving only the fastest and best informed to benefit. At every major market movement, down or up, there are those few who really benefit, and the many that pay for that benefit.
The markets are, unfortunately, insufficiently regulated to insure real investment, rather than speculation. Our tax system and other legal incentives and disincentives could be established that would SLOW the markets, and return us to looking at only actual current and likely future VALUE, rather than predictions of what the "markets", i.e. the speculating traders, are likely to do.
24
NYT:
I want you to do more explanatory reporting like this.
Thank you.
18
GE is in serious trouble. Sears is bankrupt.
Based upon this article, Neil Irwin lacks a basic understanding of financial management. How can I write this because the NYTimes lists him as a Senior Economic Correspondent? There is no discussion of tactical/strategic asset allocation or portfolio rebalancing. No discussion of investing based upon an investor's risk profile. What about basic top down analysis?
At least he could read the chapters from CFA Level III before he writes such an article. It's a start.
The reality is many stocks never recover from a down turn. Take the dot-com boom/bust for example. Many portfolios end up being lopsided in terms of risk because they were not rebalanced. Ignoring what is in your portfolio because it will come back is just wrong. Portfolios need to be monitored and managed.
25
@Peter I think what Mr. Irwin is getting at is the broader market. If someone parks their money in ETFs and leaves their money there, they will fare far better than attempting to manage for the ups and downs of the market.
There are certainly lots of people that booked their profits in Apple, energy, cannabis stocks at the top of the market and plugged that money when they came back down to earth, but those people are few and far between.
12
@Zack I agree, but Peter does have a point.
Particularly if you are retired or nearing retirement, there is a need to shift assets out of IRAs and sell some of them to get the money. For that, the difference between 2006 and 2008 was massive. The difference between 2018 and 2020 may be equally life changing, and there are limits to how long many retired people can delay the process.
At minimum that required acknowledgement, and the article didn't have it.
33
Investors may have noticed that the USA is in the middle of a genuinely unprecedented national disaster. A relentlessly destructive fool in the White House is bound to deeply damage the economy, no matter how “pro-business” his party may claim to be.Who knows, perhaps there will be some surviving “bargains” in the wreckage.
48
It took 2 years for
Trump to destroy the
economy. We knew,
instinctively, that this
was coming. We knew
the tax cuts were for
the super wealthy, that
“trickle-down” was a sham.
It is so obvious that the
election of Trump was a
disaster. Is his “base”
still with him despite his
bashing of our military,
his inability to keep his
staff, his cavalier attitude
towards government employees
who work for our citizens and his
dismissal of the need for
health care and environmental
protection?
43
@Karen Unemployment is at a 50-year record low, inflation is at 2 percent, the Dow stock market is still thousands of points higher since the 2016 election, the U.S. produces more oil than any country. How has the economy been destroyed?
10
@Karen the economy is destroyed? Really?
8
@Karen
Trump's base is the low-information part of the population. They have no idea what is happening and probably many of them would be cheering that "the elite" are getting clobbered. They also have no idea that the next thing "their party" is going to do is get rid of SS and medicare and that as the economy tanks, if they aren't retired, they will be joining the ranks of the unemployed
sad
22
The S&P 500 index finished the 12/31/2018 year -4.38%
8
I never respected the so called "best and brightest" or "masters of the universe." To me they are just a bunch of cowards, no more sophisticated than a single celled organism that flinches when exposed to dim light. I could just picture these cowards thinking sell sell sell in their sleep. How could apple, a company that makes tens of billions of dollars a QUARTER get beat down $100 a share in a matter of weeks just because they miss by a few billion? I could probably sneeze and have one of these overpaid speculator cowards jump out of their gucci loafers. Apple has always come back for me and my cost per share is zero after splits, but it hurts to see the price of a mansion in 98% of the country or a couple of new Ferraris disappear from your account in a relative blink of an eye. Of course next time could always be different.... The bottom line is all you traders and quant hack algorithmic traders out there, calm the you know what down!! Why don't you leave the stock market to people who believe in growth and don't run the first sign of "trouble."
3
Everyone in the comments section: "But what if you're about to retire?"
My advice to those on the verge of "retirement" is to leverage your unicorn pegasus and the rainbow bridge leading to your house by hiring yourself out as an Uber driver. Now, as for you regular folks, the 99.999% of the population who have no hope of ever retiring and will continue working until you're physically incapable of getting out of bed, the falling stock market is nothing to worry about. No matter how far they fall, stocks will still be too expensive for you.
17
So who is currently selling? Somebody is.
I’ll have a cup of tea.
5
Why is it unwise for individual investors to get out of the market after an all time high when professional investors (and their algorithms) do it all the time. It's called profit taking. I ve been baffled by this advice my entire life and think it's highly suspect, particularly when more than 70% of all trades are electronic. Seems to me that this advice is for suckers.
22
@McDiddle Because you're not a professional investor, and history shows individual investors have no idea what they're doing. They make the best returns by buying and holding. Plus, 80% of actively-managed funds by "professional investors" underperform the market.
17
The reason your advisor advises against taking profits is extremely obvious: his company makes money on what your account total is, not on your financial welfare. Take money out, his salary decreases. Same, of course, with the bank you stash those profits with, but not nearly as crass. I’m thinking that many of us have noticed this dynamic recently!
19
@Marat1784, this is the weakness of the current fee-based business: your broker always wants you long.
When I started in '85 it was a commission-based system which encouraged both buying and selling. When you bought there was a commission and when you sold there was a commission: both transactions made money for your broker.
The complaint back then was "churning" accounts, a practice in which brokers encouraged excessive trading to generate a steady stream of commission income. The solution was supposed to be fee-based accounts - which as we see today have their own problems.
Unless you can afford to buy a seat on an exchange - $975,000 for a seat on the NYSE - you are going to need a broker to execute your trades.
(Or you can stuff cash under the mattress, as some folks do.)
1
I've only gone to cash en masse once in my life. When Bear Stearns went under. The mailbox told the tale - 5 offers a week for negative amortization loans for houses no one could afford. That was a structural train wreck in slow motion that had nothing to do with the underlying value in most assets. Regular investors will never beat the Flash Boys and their algorithmic trading. Always good to have some cash available if possible to buy sharp dips caused by fear or geopolitical issues. Investing needs to be ice cold and emotionless to the extent humanly possible. Put another way, "When everyone is greedy, be cautious. When everyone is scared, get aggressive"
3
Not exactly “nothing.” If you are at an age where you can afford to run with the down market, and you have something you want to buy (off the fundamentals), buy it. And don’t try to time the market downturn for the best price. Over the long term, a down market is an opportunity to make sensible investments at lower prices.
10
Doing nothing in response to a market drop is obviously far superior to selling stocks like many people do. It's still bad advice I think. Rebalancing your portfolio to keep the proportions in different assets classes constant is the right advice. Keeping the proportion of equities in your portfolio constant requires buying more stocks when their price falls (and selling when stock prices rise). One should sell one's winners and buy one's losers. Always hard to do psychologically but it certainly makes sense to add to equity holdings when the $100 of equities buy more earnings than previously.
3
@Loved It But ... That will decrease the variance of your returns (assuming you do this during good markets as well and aren't trying to time the market), but probably won't increase your returns, especially if you pay fees for buying and selling.
I need advice. 70 YO, held out for SS, first deposit will be this month, still working. Plan to reinvest RMD in a non-retirement account with Vanguard. Where should I put 2018 SEP IRA (about $5K) and Roth IRA ($6,500) money? A young kid told me to put it in money market to avoid what will be probably more losses in the market and later buy into total stock market and total bond fund. Or should I just throw the money in these two funds now? Any whizzes out there who can advise me?
@marge201 On average, your best bet is to put it into a total stock market fund like VTSAX right away. You could also put a percentage in a bond fund to lower your risk if you'd like.
But if you'd like to decrease your exposure to a downturn at the potential cost of returns, you could dollar cost average, which means putting the money in bits at a time, maybe a little each month for 6 months or a year. So for example, you could put a 6th of the money into stocks / bonds now, holding onto the other 5/6ths or leaving it in money markets. Then every month or so, regardless of what the market's doing, invest another 6th.
5
@marge201
Get on with living and start spending.
He who dies with the highest fund balances is still dead. That is based on fact.
9
@Dustin Thank you, Dustin. The three funds in SEP-IRA account are total stock (VTSAX), total international stock VTIAX, and total bond VBTLX. Roth and non-retirement accounts are both 100 percent in total stock VTSAX. Current asset mix for all 3 accounts is 72/28 stocks to bonds. I've been advised to make that 65/35. I very much appreciate your input and will probably dollar cost average. In 2008 I barely looked at my account, just contributed. In 2019 I'm looking!!
4
This was probably said somewhere in last night's comments, but a couple of things to keep in mind:
Even if you did perfectly time the market, the taxes and expenses would take a very large chunk of the gains. I chased that chimera 20 years ago...
People in their 60's now have a reasonable expectancy of increasing life expectancies, notwithstanding the disturbing prospects of some unfortunates revealed recently. I'm figuring on seeing mid-90's.
Even this president may decide to take yes for an answer... God help us.
2
Interest on the national debt on and off the books is call it $2B/day. Arguments over $5B “walls”, taxing us all at 100%, another $1T bailout are absurd. Nothing can defend against the interest accumulating from the debt we owe. This government, these companies are all run 1 quarter even 1 day at a time by scale managers (versus founders and owners). There is no leadership because nobody has a vested interest in leadership and indeed there is no real solution except for total commitment to doing what’s necessary and right. There was some fund manager on CNBC just yesterday saying the China trade was nothing, corporate earnings would be good and the market had hit bottom and 3 hours after she spoke another nail in the coffin. I don’t mind that she spoke her mind or that she was proven completely wrong hours later. I mind that there were and will be no consequences for her. She will be back on TV in 3 days explaining it. She will close her fund and raise another one.
At least the S&L guys went to jail. At least companies went bankrupt. At least politicians spoke of peace.
I’m younger, richer and happier than you might think. The solution is let everything go bankrupt that must. The solution is sell the Statue of Liberty if need be to pay off our debt. The solution is let China and Japan and the rest continue their gluttony in insolvency.
The solution is we do what’s hard the same way we did it on Dec 8, 1941 except this time we declare war on our own greed.
4
Due to job changing circumstances and intuition that the market was at the end of its cycle, I pulled my retirement investments out 6 months ago. Because of of laziness, I left it in cash. I met with an advisor three weeks ago and will be making dollar-cost-average investments over the next 18 months, with the option to accelerate if the market continues down.
Dumb luck? Maybe I can't time the market, but this time around I got out a little early and am getting back in slowly on the roller coaster ride down.
6
"Eat food, mostly plants, not too much."
"Buy the market and hold it forever."
13
This is a good opportunity for you to learn your real risk tolerance.
If this amount of volatility is too much for you, start to transition your portfolio to a more conservative allocation but don't just dump your stocks.
It is best if you just hold on because stocks have an underlying cash flow that has a history of moving stock prices higher.
If you don't sell, you only have "paper losses".
9
The secret is to get rid of monthly or quarterly statements (all that paper) go online and then, DON'T LOOK.
6
With this piece Irwin is treading very perilous waters. It’s nothing more than one person’s investment opinion, presented as factual analysis. His most glaring tell is the binary choice beteween selling out and staying in the market. He says nothing about reassessing, and if necessary moderating, the investor’s personal risk profile and the existing riskiness of the portfolio., which should be the basis of a rational investment strategy, long- or short-term. It is risk attitudes that change in moments like this, changes that are not well-served by do-nothing, head-in-the-sand bromides that are likely to provide false comfort in an undeniably changing world.
By publishing these generalities, particularly under the Upshot rubric, Irwin is doing a dangerous disservice to those who may be the most in need of useful investment guidance.
7
@James
for goodness sake, Irwin is a journalist so by definition he is not an expert on the subject he is writing about. People who go to the newspaper for financial advice are foolish
4
The article is definitely correct for those under 50 saving for retirement.
In addition, you should keep in mind that even for those between 50 and 70 you should keep on dollar cost averaging in stocks to buy as low as you can over time.
But the article misses one key point : dividends !
A successful buy and hold strategy includes dividends from companies that will hopefully grow their dividends over time. You can invest in individual stocks , in ETFs , closed end funds or mutual funds ....... dollar cost averaging will allow you to buy in over time without worrying about whether the price is high or low.
As you retire you will hopefully be able to live off your dividends or use them to supplement your income from pension or social security without worrying about the day to day price of the stock or fund.
If you are under 50 time is on your side to build such a portfolio.
I am 69. I worked for major banks over almost 40 years but only get a minimal pension - I live off my portfolio of dividend paying stocks and funds built up over 35 years of steady investing including 1987 and the Great Recession.
Finally ..... as the dividends rise on your portfolio the dividend yield on your purchases will also increase - so if you invest for example in a stock or fund today - assuming the stock price goes up over the long term your yield on the original cost to you goes up. This is called compound interest.
Compound interest is your best friend in dividend investing over time.
2
@Tom Cramer
We earned a quarter of a million from dividends this past year from our Vanguard money market fund. Not as safe as a can in the back yard, but almost
1
The idea that the ability to time the market has to be perfect or you should put your head in the sand is ridiculous.
There are times when the market is rational & stable & there are times when it's not. When the market has been irrationally exuberant for a long period of time it's not a bad bet to get out for a while. When the market is rising while a president is starting trade wars with allies & non-allies & increasing the debt for no good economic reason it's a good time to get out for a while.
You don't need to get out or back in at the exact right time to make more money than the people who just ride it out because they or their advisers didn't know the market was at risk or didn't care to tell them because of the resultant loss of fees.
In the case of the 2008 crash I got out 6 months before it crashed. Getting out included me having to pay $15,000 back fees on some mutual funds. My adviser told me I was crazy so I switched to an adviser who understood why I did it. I stayed out until after Obama was in & the turnaround looked real.
So I got out a little before the peak & got in more than a little after the bottom. Not perfect but I still more than doubled my money in very short order & then continued to profit from the rise. People who rode it out did not do nearly as well.
I got out again 12 months ago and will stay out now. Once again my timing wasn't 'perfect' & once again it was still a better move than staying in.
8
If you are already in retirement this is very scary. I have tried to figure out what to do and I got nothing. So stay put it is and figure out how not to take any money from your fund.
3
@Sandy Olson Right next to you, Sandy. Right next to you.
1
Moving all your assets in and out of the market is a bad idea, but events like this are a good reminder to rebalance and make sure that the ratio of stocks to bonds to cash in your portfolio is where you want it.
7
Same issue same solution. Investing (not trading) is based on your time horizon for your investment. If you are 30 years from needing access to the investment, do nothing. If you are 5 years from needing your investment, you should have done something earlier if this market drop bothers you. Market timing is for fools.
9
@tom
While I don't disagree with your general philosophy one can't entirely dismiss timing. I bailed in mid 2007 when it was obvious a major smash was around the corner and jumped back in again in the spring of 2009 not long after the Dow bottomed around 6350 and was obviously mispriced when the US government and Fed were obviously not going to let the US economy implode. I wouldn't characterize myself as a fool. We're not looking at a major smash right now but it wouldn't be surprising to see the markets move into correction territory and this is going un-nerve a lot of people. Basically they should as you and Irwin say and sit tight. If you didn't do some profit taking and re-shuffling last September you've missed the boat. If you're a retiree IRA distributions should be absolutely minimized and highly selective until the period of extreme volatility has eased. If you have cash there are some bargains out there right now.
6
@John correct. How we do it is rebalancing either quarterly or semiannually. My rebalance in the 3rd quarter last year achieved what you did (and I took profits on individual stocks)but I stayed invested anyways. In 2009, my march rebalance was fine, although that one, I did move more to safe havens just like I did in 1999/2000. I did nothing during the 1987 flash crash but did move money out of the way of the Reagan crash. The market is in correction territory already. Each individual case is different
2
@John
I don't consider you a fool but I do consider you 1 of 2 things a liar or a really lucky person. It was not obvious in 2007, you only say that because you got lucky and happened to be right (hindsight is 20/20). You are foolish to think that your success was anything other than luck.
7
I don't know about everybody else, but I've been doing some selective buying. I had been accumulating cash while prices were too high, but now there are some attractive issues. Some of the REITs and preferreds are very favorably priced, and you can find good deals in beaten-down oils and financials.
You should always look at the price of the individual company you are thinking of buying, and not worry about 'the market'. This is what Warren Buffett does - and it works.
4
- The person who eats their own principal winds up destitute. I live off my dividends and interest, not on the principal, which stays invested according to my current asset allocation.
- The primary driver of asset allocation is future financial need. I run annual Monte Carlo simulations on my portfolio to quantify future needs. When it comes to asset allocation, market timing is secondary to long-term needs.
- It's easier to call tops than bottoms. I called the top in 2007 and this one some months ago. But I'm never "all-in" or "all-out". My market timing moves are incremental, not wholesale. The front pages of the Wall Street Journal are littered with market stars who made a few prescient calls, then bombed-out 5 or 10 years later.
- The long-term driver of capital growth is demographics, not politics. Worldwide demographics through 2050 are sound, i.e. still growing.
- The men in my family tend to die at 90, and today I'm 71. I no more want to sell my stocks than I want to sell my house. When I pre-decease my spouse (most likely), she gets the house, some other real property, and the stocks. When she dies they go to our son. This is how multi-generational wealth is built.
- Many different strategies can work, but you must have a specific strategy, a discipline...and you must follow your discipline with rigor. I was blessed to be born with a brain that has always been twenty years older than my actual age. You can see from this post that I'm already 90 in my mind.
18
@Lance Jencks
You are privileged to be able to live off your dividends etc. but your comments don’t apply to the majority, so it’s not advice, but self-satisfied bragging. Unhelpful and useful.
6
@Anne Dewolf, thank you. I apologize for sounding braggadocious, which is not my intent. My intent is to share what I learned while working as a financial advisor at a large Wall Street firm.
My educational background was in theater, and my professional background was in sales. I'm most fundamentally an educator. When I was hired by the brokerage in 1985 I literally didn't have two nickels to rub together, nor did I know anything at all about finance. I was 38 at the time, and was hired by the brokerage for my sales skills, plain and simple.
Because I knew nothing of money and investing, I listened to what the firm told me, and passed these teachings along to my clients. I also followed the firm's advice in my own 401k. After 26 years I'd finally saved enough to fully retire at 65, which was six years ago.
Anne, over those 26 years I saw many people lose money, primarily through short-term thinking. No matter how forcefully I'd tell clients that the mutual fund they were buying required a minimum five-year hold, they'd call me in a year or two with an order to sell.
The advice I've shared is traditional, time-tested procedure passed-down through many generations. As my Regional Director once told me, "Lance, you don't have to reinvent the wheel!"
I apologize again for coming off as an arrogant swell, Anne. I was supposed to be a college professor, but when I finished my degrees there were no teaching jobs available. So I had to try something else.
8
@Anne Dewolf. It's helpful to the extent someone is willing to have an open mind and use Mr. Jencks' comments/methods as something to aspire to.
4
Neil Irwin,
I noticed one thing you glossed over was what folks do who ARE near to or in retirement. What gives?
Fortunately, I have my own less scientific though reliable method...
I find the best predictor of the direction of the stock market is keeping a careful watch on our psychologically (or is it psychiatrically challenged president). Trump volatility equates to market volatility. The more unstable the self-proclimed “stable genius” becomes the worse stocks perform. I got out just before the drop thus holding unto all the gains I made during highly stable President Obama years.
13
@BMUS
That is a terrible way to determine the direction of the markets.....
3
In my 70's, not planning to buy a yacht, and assigning higher valuation to a good night's sleep vs any stock, I don't regret having bailed - 2 years ago - out of the market (despite having missed out on the last couple years' market run-up).
3
Wonder how all those companies who bought back their shares at the top of the market with the tax cut are feeling now, when their money would go much farther!
6
@ACS
They would have realized a better return if they had invested in their employees.
2
When the value of a stock drops 50%, it would need to rise 100% to return to its prior value...
7
@EW Brilliant observation... That's just how percentages work. The only important fact is that stock market makes about 7% a year after inflation on average.
2
Those of us 65 or over are not long-term investors. We eye the very real potential for a coming recession with dread and dismay, as it will most likely decimate the retirement we've spent a lifetime planning.
13
@Sunny - first of all, someone over 65 can be a long-term investor at least with some funds which are not needed in the next 8-10 years. Many retired folks have money in stocks. Many are now living into their 90s, so being 70 offers 20+ years of living yet to come.
Second, if the money is needed in the short term, e.g., for living expenses, then it should not be in the market. If it is not in equities, a downturn should not "decimate" your retirement.
19
I agree in principle with this advice about not trying to time the market. Most of us want to think we are of above average intelligence. But this is not Lake Wobegon. Mostly we are near the mean.
That said, there is something missing in this article that is almost invariable missed in "financial" advice columns, which too often seem to be focused on getting people to buy stocks (and pay brokerage fees).
Pay off debt.
So here's a thought. Pay off the mortgage on your primary residence. Yes, I know. It's only at 3%, but paying it off is a GUARANTEED, return on your investment FOR LIFE. In terms of risk/reward, it is ZERO risk, and 100% reward. At a risk like that, the reward can afford to be modest.
Approaching retirement years with ZERO short term debt and a home that is mortgage free does not only provide peace of mind (what is the financial value of the related stress reduction?), it also means far less income is needed to provide a comfortable retirement.
I love blue chip, dividend paying stocks. Who doesn't? I have plenty. But diversification is an excellent idea as well. Real estate rental income? Why not? Depending on the extent of your willingness to be involved in the management of it there are several different approaches.
11
@J Jencks Paying off debt is a different topic, out of the scope of this article. Unless you're saying people should sell stock during a downturn to pay off their mortgage, which is a terrible idea; now's the most attractive time to put money towards stocks instead of paying down debt. Of course, it's always recommended to pay off high-interest debt before investing, but 3% isn't high-interest debt.
2
One aspect that seems to be ignored in the article is one's life expectancy. By all means stay in stocks if you have thirty to forty years to recoup. If you have ten or less good years left then worrying about what has happened to your portfolio may not be worth it. I suspect that many of the boomers may not be sufficiently risk averse at this stage in their life cycle
3
@ian stuart - I have no crystal ball with which to know whether I have 30 years or "ten or less good years left." I have only my current good health, current financial situation, and hope. I make my decisions based upon the first two & hope for the best. That's all anyone can do.
6
@ian stuart
If you plan to live to 73, but end up living to 93, things might get tough. Therein lies the dilemma.
2
@Spankygalt That's not a dilemma you need to have; always plan for living a long life so you don't run out of money.
3
I agree that timing the market is mostly a fool's errand, but there are times when it's possible:
In the last cycle, the Fed made their final increase in June 2006. By the summer of 2007 there was talk about a cut and in September, they made their first one. Stocks topped out about a month later.
The bottom was reached in March 2009 after Bernanke went on 60 Minutes and announced the Fed was 'electronically' printing money, which in my view was the biggest Fed 'put' in history.
3
Possibly good advice for those still saving for retirement, but what about all of us who are in our 70s and invested in the market? Should we just pray we live long enough to see our hard-earned savings and investments recover?
5
@Bocaboy - These days, people in their 70s in good health can reasonably look forward to another 15-20 years.
Personally I'm not there yet. But my stock portfolio is gradually shifting towards more and more blue chip, dividend paying stocks, with the focus being less on appreciation and more on income. My goal is to reduce my daily living expenses (home mortgage is now paid off) so that I can live off the income and place the capital assets in a trust for my descendants.
6
@Bocaboy, statistical expectations are linear in nature. You can in some cases "beat the odds" if your risk/reward curve is highly nonlinear. I think that most people in retirement have a well-defined idea of how they want to live and what that will cost. Being forced to live well below that level might be very painful, but having extra funds might be almost useless. Also, retired people don't know how long they will live nor how healthy they might be. Experts often say that the greatest economic disaster for a retired person is the possibility of living well into their 90's. So, if you are in your 70's, it might make sense to optimize the chance that your portfolio will look good 20 years from now. Or, maybe not. It depends on your own situation.
1
"Nothing so far in either the economic data or the market indicators that most reliably predict economic swings suggests there will be anything worse than a modest slowdown in economic growth in 2019." It is not the way the stock market operates. Money is moved based on greed and fear, and each dictates self-fulfilling prophecy. If the collective investors' wisdom anticipates "recession" in the near term, it is bound to happen for sure.
5
@Matt I couldn't agree more. Dart throwing monkeys can produce results that are as good the the best advice from financial advisers, brokers, traders, etc. If anyone could accurately predict the market, there would be no market.
4
@Matt - Yes. This brings to mind George Soros' book, "The Alchemy of Finance", an excellent read.
1
While I agree with the general assessment, I do think there is a glitch in this instance. Trump’s politics generates new problems that didn’t exist and fails to address core systemic problems, even moving in the opposite direction (climate change being the most evident). The failure to address core issues like those, and the social injustice of the widening financial gap between the richest and the poorest, is unfortunately a worldwide trend and not limited to Trump. Until we actually do something about these things, my feeling is that we have a huge Damoclese’s sword over our heads. I mostly pulled out of stocks in June when I felt that the general inaction and complete lack of judgment of Trump is moving us toward the cliff and all but certain to backlash sooner than later. I can’t claim to know for sure, but the current market is not proving me wrong for now.
6
I disagree with Irwin. My wife and I moved to fixed interest accounts and bonds in early September when too many indicators looked sketchy to us. We have prevented several thousand dollars in losses so far.
12
@civiletti - Care to share what kind of "indicators" you are referring to? I'm curious to know more.
@civiletti Looking forward to your update in a year or two on how you missed out on on several thousand dollars in gains by getting back into the stock market too late.
4
@civiletti Good for you for seeing those indicators. Now, when (or will) you jump back in?
3
I'm pushing 70, and I've done well the past couple of years. No reason I "shouldn't have been in stocks to begin with."
At this point in my life, however -- given the political and structural realities -- it makes no sense for me to ride out what's likely to be a very deep bottom. I suspect this is true right now for lots of Boomers like me (and that's likely only to make the bottom even deeper).
So what if I leave some ostensible future gains on the table, or miss the rock-bottom before I get back in? As my mother would say, "I should live so long!"
If you don't want to lose your life savings, the trick is to know when to take your winnings and get out of the casino.
22
@Mitchell - Statistical theory says that in any series of many like gambles over the long term you do best with 25% of your money invested. More and downturns will wipe you out less and you under perform.
Here we go again with the cookie cutter MBA nonsense. This stay in stocks argument is babble that is repeated over and over again by the so called wise professional money managers who act like sheep and get slaughtered.
While much of what is written in this piece about current conditions is true and fundamentals and even technical analysis indicate that equities should continue to be a strong part of a portfolio, this piece does not emphasize that not all stocks are created equal and that tough choices have to be made about indexes, sectors, and individual companies. Nor does it stress that there are other choices beyond stocks, bonds, and cash. Finally, it ignores that while precise timing is impossible, general timing related to huge geopolitical or economic events is possible and is wise because while stocks plunge there is some place to often make money elsewhere before engaging back with stocks. Some of us did get out of stocks before the Great Recession and gold was one place to make big returns.
Investors who pay attention to the details and don't just follow the old line "Don't time the markets" will be better off.
Countless museums and symphonies that depend on income from endowments invested in stocks listened to this horrid advice about riding the bear down leaving those of us who didn't to try to help them recover.
Riding that bear blindly is to be avoided. Greater returns can be had by avoiding needless huge losses when stocks aren't the place to be.
14
@BruceE
It's not the managers who get slaughtered. It is their clients.
2
You DO know, however, that when the the Shiller CAPE (price divided by 10 year averaged earnings) is over 25, the next 20 years will be miserable for you, based on over 100 years of market history.
When CAPE is less than 16, stock market profitability is average, and when CAPE ls below 12, the market is a bargain.
CAPE is now about 27. I bailed out, and will buy back in below 20.
I've done simulations, and this strategy is better than blind buy and hold.
7
People need to decide if they want to invest or want to gamble.
If you want to gamble go to the horse race track.
If you want to invest commit money you will not have immediate need of so you can ride out fluctuations.
Choose a NO LOAD [why pay brokers' commissions] index fund.
Very few people beat the averages and trading frequently chews up money in brokers' fees.
5
@david
You are really not correct on this. A no load fund does not have an up front fee, but the fund does charge a % based on assets under management. This may be very small as in the case of S&P 500 index funds or it might be rather large 2% as in the case of high yield bond funds. Morningstar will tell you what your fund charges in annual fees.
4
Are the management fees of load funds less than those of no load funds.
Are the performances of load funds better than those of no load funds.
The main difference is that load funds siphon off your investment money to pay exorbitant commissions to load funds salesmen.
If a load fund charges 8.5% sales charge [load] and you invest $10,000 you lose immediately $850 .
Your actual investment is $9150 instead of $10,000.
What is "long term investing" anyway?
The earth has like 40 years of hospitability left, and the only hope we have to extend that is to fully dismantle our current udeas of capitalism and production and literally stopping the ever-worshipped growth. How's that going to effect my 401k?
Be cool if any economist had, you know, self-awareness and could mention that this is an unavoidable reality and that the only long-term bet is to regulate things like the rentier-parasite stock market out of existence.
13
The “TARIFF MAN” single handedly destroys American values, economy and turns allies into adversaries.
If he was gone the economy would take off and slow down in time gracefully.
Markets dislike uncertainty, that is all we had since our newly elected “STABLE GENIUS:)” took the office.
21
@Mark - Before Tariff Man entered the scene the economy and the stock market experienced many less than graceful slowdowns. Trump is not the only irrational actor.
Good reading on the subject:
George Soros' "The Alchemy of Finance"
Is that what they do on Wall Street? Sit there and watch it fall doing nothing? I think they hired all the best mathematicians for a reason.
6
@Martin Greatorex Are you one of the best mathematicians and have a winning algorithm? No? Then the next best thing is to do nothing.
1
The "stock market", like the "economy" is a social construct, not a supernatural machine.
For it to operate effectively, there must be trust, transparency, and confidence.
What makes this time different is that our Federal government is being run by a Party intent on destroying every social institution in our society by undermining trust, truth, and good will - instead trading in fear, anxiety, and suspicion for their own narrow political interests.
The advice is this column ignores the elephant in the room - we are in the midst of the greatest destruction of American society in our history, and it is being conducted not by a foreign power but as an inside job.
With this backdrop, Irwin's purportedly sage advice sounds hopelessly naïve and out of touch with the moment.
19
I totally disagree with this article. 13 Sept I made a graph of past stock market declines and pulled all my money from the stock market and put it in bonds. my last year performance is 10.5 percent positive. 13 Sept the market was on a rise. when it falls 40 percent more I will move the money from bonds to stocks. sell high. buy low.
7
@Brent 40% down is about right; this will give Schiller CAPE of about 0.6, which is the historically normal value of the market.
I'm doing the same (and I'm even short).
3
@Brent It won't go down another 40%; you'll just end up waiting while the stock market recovers and missing out on returns.
2
@Alfred Uh, it's spelled "Shiller", and it's never been to .6. The lowest it's been is 4.5, and the average is around 16.
1
As Warren Buffett says, be fearful when others are greedy and greedy when others are fearful. Just like a house, you want to buy in a cold market and sell in a hot market. Also, Buffett said that the time to sell is when cab drivers start telling you how much money they are making in the market, and buy when your cab driver says he is completely out of the market.
I remember exactly 10 yeas ago January 2009 when I said I had just gone all in on equities being told I was out of my mind. I remember telling folks that we may never see such great sale prices ever again, a once in a lifetime investing opportunity. All I know is the best time to buy anything is when everyone else is selling. But, most people have no stomach for this and instead follow the herd.
10
Neil Irwin clearly displays limited understanding of financial planning or sequence of returns risks, which impacts many of whom have already started withdrawals from a retirement portfolio.
As others point out, there is a clear need to make periodic changes to your investments based on a regular evaluation of one’s risk tolerance, age, life expectancy and retirement date.
For example, as one enters into retirement and begins to draw income from your nest egg, the consecutive order of investment performance, either experiencing poor returns early or for a long period of time, could dramatically affect how long your money will last (otherwise known as sequence of returns risk).
Moreover, how much you withdraw matters. In general practice, an average 4% withdrawal rate is often quoted in the industry. However, many clients seek higher levels of withdrawals, which in turn, will dramatically shape outcomes as much as sequence of returns during a falling market in earlier years.
6
@Mr. Magic I agree. The author seems not to have heard of dollar cost averaging (for either buying or selling), instead he focuses on how bad it is to try and time the market.
1
@Leslie Dollar cost averaging is fine if that's the strategy you like to use in the long run to lower both your average returns and return variance, but if you're suddenly taking it up now as an excuse to not buy stocks right away, that's just timing the market with a different name.
2
If you own solid companies, which pay consistently higher dividends, stay the course, as you will do better than those who jump in and out of the market. Jeremy Siegal estimates that 40% of all historical stock market returns are from dividends, which are still higher than bonds.
5
@Ask Better Questions
Siegal's analysis is questionable. First, it suffers from survivor sample bias. That is, firms that went backrupt (you lost it all i.e. Sears) are not in the sample. Second, dividend paying stocks were the standard norm up, say into the 80's. After that many more stocks, notably tech/biotech did not pay dividends or only started to pay after they were
very mature companies with slower growth.
2
Stay the course? Not if you can't stomach it.... Doesn't make sense if you are not willing to lose half of your money in a short time. This market is a reminder to take profits and losses too. Rebalancing is healthy and also is proactive. Im in my 50s...
I sold stocks this December, many at a loss. Even with the losses, I feel better about my rebalanced portfolio ,and I have more cash for a gradual reentrance to new market positions. It's a reorientation of perspective. Standing still may be good when confronted by a bear, but not in front of a bear market.
5
There may be an underlying perception that the stock market decline isn’t just an instance of the business cycle (although we’re due for one) or a rate setting mis-step by an overly conservative Fed — instead, there may be perception of more fundamental problems such as a dysfunctional federal government, a trade war, months of societal muttering about a possible breakup of the US, plus Mueller’s Sword of Damocles hanging over the President’s head.
9
Unless there is a depression, which I do not expect, an average investor like my self who is well into retirement and senior life would best follow the advice given. A few companies may not survive in a major recession but a diverse portfolio will cut risk and reinvestment at market low will give highest rewards. At least that has worked for me. Don't expect to become a millionaire, just a return better than cash. Remember diversification is what counts, stocks, bonds and cash according to YOUR RISK TOLERANCE
10
While it is true that markets are difficult if not impossible to time, it is also ridiculous to believe that we can't see situations which are extremely threatening to economic success. We have a president who is largely unpredictable. We have been awash is cheap money for 10 years. The Fed is tightening by raising rates. China is holding a lot of US debt. Russia is expanding military bases in Latin America. We have a huge population bubble retiring or about to retire. How long can we reasonably expect a bull market to last and is it wise to give all your market gains back when the market tanks. Is that what smart people do? How many people rode the crash of '29 all the way to the bottom. When Mr. Irwin shows me how his portfolio is invested I'll be a lot more trusting of his advice.
29
The next global depression will make the 30s look like a mild recession. There is no one imaginative as FDR. No, our leader is unimaginative. He is singularly faceted; the Wall. His idea of improving the infrastructure of our country deteriorating at an alarming rate.
9
One big lie: Neil Irwin is not a senior economics advisor, because he is not a senior.
What his column obscures is that your investments should change according to your age, life expectancy, and retirement date.
His advice is good for someone who will not be retiring for another 10+ years. Stock losses will then have a chance to recover. But for the rest of us, it could be dangerous advice.
No one can predict the future. But more realistic advice would be along these lines:
If you are under 50, plan to retire at 70, and likely to live to be 90...don't sell, keep buying with every paycheck.
But if you are 60, plan to retire at 65, and likely to live to 90...you should sell until your portfolio is more like 40-50% stocks.
And, if you are retired, then you should not have more than 25% in the stock market right now.*
(*Numbers very imprecise, but I am trying to suggest what would have been much more useful advice from Neil Irwin on how to change investments in times of great risk.)
Volatility does matter. It will take longer to recover if we are currently 8% down and another 25% to go over the next 12 months.
30
@priceofcivilization Those are all (valid) reasons to have your investment mix set based on your investment goals; in general, investors closer to retirement should have a lower percentage of their portfolio in stocks than a younger investor. But that is not what Irwin is talking about. He’s talking about the best response to the recent stock market behaviour; he’s right that nothing about the last month should change your portfolio allocation. Maybe rebalance (which will put more money into stocks, not less), but don’t change your allocation unless your allocation was not appropriate for your circumstances in the first place. If you can’t tolerate this volatility, you shouldn’t have a stock-heavy portfolio.
2
@priceofcivilization - Hmmm....I know guys who are retired who have $20 or $30 million in the stock market. I don't think they'll be selling....
1
@priceofcivilization I agree that the article seems written for the group of people with 20+ years of investing in front of them. Sine he was so focused on timing, I was surprised he never mentioned dollar cost averaging, either in a 401K or when selling.
If you like playing the roulette wheel we call Wall Street and enjoy the highs and lows of being right or wrong, that's great. Gambling is fun for a lot of people. But personally I don't think about my retirement accounts other than glancing at statements once a year.
Am I getting cheated by the system? I'm sure I am on some level. But I also might drop dead tomorrow and all the fretting I ever did over "my money" would have been a complete waste of precious time. You can't outfox a random number generator. Focus on enjoying your life.
13
@Turgidi just bought a lovely bag so when my portfolio gives out, I'll be deserving of the position of bag lady. When one guy -- our Lunatic in Chief -- opens his mouth and can spread global fear, it's either time for a new competent chief or a bag that can hold all your belongings.
Understanding that the vast majority of trades are generated by computer programs, it would be helpful to see an article about what it would take to have the threshold of those programs dialed down so that we see less daily volatility.
At a political level we know the market does not like uncertainty. All the more reason to put a more sensible team into the white house and to streamline the congressional budget process.
And for those of us individual investors we can listen to Jerry Garcia sing this couplet:
Check my pulse, it don't change
Stays seventy-two, come shine or rain
3
This is a fallacy. There are those who grew up in financial privilege, in finance families (if that’s a privilege), whose money got them tutors and schools and therapists and economics degrees, who’ve devoted their lives to earning money above all other interests, who’s network of friends all work in financial institutions, and who spend oogobs of money to predict the market through employing researchers and using statistical modelling, who have a much better idea of when to hold and when to fold. The rest of us provide atmosphere for their run of the stock market. Then these people retire and horde all their money for themselves, or they can’t stop the addiction and die gazillionaires. Either way they all express the unwavering belief that they earned their money by being smarter and they owe society nothing for it. I know because I know some of these people. They’re idiots, leaches, the lot.
23
@George - Actually, wisdom and good judgement is far more important than mathematical analysis. How often do we read about a librarian or a gas station owner who died and left of fortune of $20 million? These people just read the financial books and newspapers, and learned how to invest. Anyone can do it, if you are reasonably intelligent and willing to put in the time.
I'll admit, spending hours reading 10Qs on the SEC site is not many people's idea of a good time, but there you go.
2
If you own a stock that is worth less today than when you bought it, you have to ask yourself, "If XYZ was a good buy at $100/share why wouldn't you buy it at $90?"
Someone bought AAPL at $232 back in October and today it's almost $90 less. I'd call that a bargain. BUY.
8
Agree. Don’t do nothing. Buy while the market is down.
2
As the saying goes, stocks are the only thing people won’t buy when they are on sale.
10
@G Childress They're not on sale yet. Still 40% more expensive than historical norm.
1
@Alfred - Some are on sale right now, in the sense that they've gone as low as they will go. Others, like utilities, are still way too high. You have to evaluate each company and industry.
'Dumb money' advice, as they call it. We're entering a bear market, which means a very high likelihood of a further 25-35% drop. Why would you keep your money in? Take it out, and then put it back in later. No, you can't time it perfectly of course, but some calm and rational contrarian thinking will serve you very well.
I called up my 401K manager in July and told him to move everything out of stocks and in to a fixed 1% return. Wasn't perfect timing because the market continued rising quite a bit until Q4. But it turns out it was an excellent decision, even though I didn't time things exactly which, as the author points out, is pretty impossible.
After the market has dropped another 25% or so, I'll transfer the money back in to equities. Sure it may go further down after that for a while before going up, but I'll be sitting far more pretty than if I'd just done nothing, like the article suggests. Happily, when I get my quarterly statement in a few days it will not show any losses. None of my 2019 statements will.
13
how did that strategy work in 2008...go ahead im listening..
@Cziffra I did the same in June- shifted 50% of my IRA to a money market. I don’t follow daily market shifts at all but it was clear by then that the pigs have been at the trough for long enough, and this pig decided he was full.
I probably will buy back in within the next weeks, because I agree with the article’s premise that no one can time the best times to buy and sell. But last summer even this fool could see that the music was going to slow down.
Good article. Plus if you were doing any reading you should have been in cash a year ago with most of your portfolio. Something needs to be done about personal and government debt. It may happen when you get a fiscally responsible government.
5
So some air went out of your shares? Don’t panic and pop the balloons. You Still Own The Shares. I invested a large inheritance in stocks in 2009. I kept adding until I retired 2014 I left it in stocks and lived carefully and am now living the retirement I wanted.
My (now ex) husband moved his money into bonds and cash in ‘09 and went to hide under a rock, missing all the growth. When we went to divide marital assets he was furious “How did You get to all that money?”
The secret is I paid for good advice and listened and followed the advice I paid for. Thanks to my advisors at PNC for talking me back from the edge several times.
Remember you own the shares and there are investors licking their lips waiting for you to unload them so they can make the gains you left on the table.
15
One of the important factors in the 2008 debacle is that both President Bush and Obama allowed the people with the knowledge and skill to pull the Gov and Fed levers to stave off a far larger crash. The flip side of this is that these same efforts just re-inflated the credit bubble. Now the tools they have, cutting interest rates, quantitative easing, Fed money creation have been played out and will be of limited help. China, the EU, Japan, Australia, NZ, Canada all have credit bubbles of some type. This downturn will be global, bigger and longer than 2008. Take measures to protect your nest egg!
6
Ridiculous how many "investors" do the exact opposite of the basic rule:
You need to move money out of stocks when prices are rising (sell high) and move money back into stocks as prices fall (buy low).
Every time the Dow has a great surge up I move a portion of my portfolio out of equities, so by the time the market broke 25k I was mostly in cash equivalents. And now with every big sell off I put a portion back in.
10
... and this method does not require predicting the top or bottom.
3
@Celeste
Exactly.
Buy when there is blood in the streets, even if it is your own blood.
This is the best advice I've seen in print. Don't listen to the prognosticators -- they know absolutely nothing. If they were that savvy about the market, they'd be on a yacht in the Mediterranean, not slaving away at their keyboards, prognosticating.
7
This is nonsense. I pulled all of our money out of the markets three months ago, because you could see this particular crash coming a mile away.
To say one cannot foresee things like this -- with the end of a ten year boom cycle, a trade war, tariffs destroying the American economy, a leader with the economic sense of a gerbil, people fleeing his cabinet, Brexit an incoming train wreck, charges being filed against government officials, and now a government shutdown -- you'd have to be willful to ignore the confluence of things coming.
Yes, if you missed all of this and you are in the markets, you probably shouldn't pull your money out now. But please do, because I'll be putting my money back in in three months, once the President resigns.
26
@Ben True, but it will be more than 3 months, and I'd still take my money out now, even after the drop, because stocks are still historically expensive at a time of increasing stress.
2
I lost all my money in Madoff after bing with him for 17 years. These gyrations are children’s play.
2
What the world needs is a global superpower that knows what it is doing and is not shifting around day to day. Once that problem is fixed, stocks will go back up. Markets are not just priced on earnings. It is based on an assessment of risk. When you have idiots rocking the boat, it just creates a larger risk premium.
The market P/E in the U.S. is now lower than the 40 year average. In Europe it's 13. In Asia and emerging markets some market P/Es are as low as 10!
The problem isn't our economic assets. The problem is the politicians. It's time for DC to wake up and do its job!
4
Yes, there were people who did not panic in 2008, and who made out pretty darn good. That crisis was managed by the Bush and Obama administrations.
Now we have Trump, a lack of professionalism and experience, and bad karma.
Hence, we just might experience 1929. Stay in cash.
7
That's nonsense, Irwin. I went all cash months ago, and I've saved 15 to 20% of my liquid net worth. Even if I get back in too early, or too late, I'm almost assured to be ahead of you and those who take your advice.
10
What person with any hope for the future wants to put their money into garbage like Facebook and Coca Cola? I recently inherited a small portfolio, and started looking around, and what's called social investing is pretty much still more of the same corporate garbage. Find something real to do with your money.
3
There is a currently a government shutdown and incompetent and corrupt President, a Democratic House of Representatives with a strong desire to investigate this President, a trade war with China, etc.,etc. These are not normal times! I for one, will put my money in cash until "normalcy" returns.
4
Yes I don't know when the market will bottom out, but I know it's not today nor tomorrow.
(I have an Honors in Economics.)
Ever heard of Business Cycle? After going up for 10 years and with trade wars going where do you think it's going?
No one is clairvoyant to time the market perfectly, but it's also been proven (mathematically not just figuratively) that one should manage risk by shifting between "risk free" and "stock index" over time also.
This piece is just garbage that mutual funds push so people don't pull their money.
Thanks for keeping more dumb money in the market though.
6
I did quite well using that strategy in the equities market when I was younger, but now I’m 70 things are different. The markets are much more volatile due largely to the pontifications of an economically illiterate buffoon.
The markets react to his every tweet.
Not only the US markets but world wide markets in general.
Combine this with all the instability in the world and there’s a much greater chance of equities tanking than continuing to rise.
In any case much of the recent bull market was fuelled by the present US administrations deregulatory philosophy - both in the financial industry and regarding the environmental.
Any of the past three administrations could have done the same thing but refused to do so because they actually believed in the future of your country. ( Yes,yes, I know they made mistakes in other areas)
Personally, I’m not interested in my retirement fund being enriched by selling the birthrite of future generations for immediate gratification so a bunch of irresponsible hypocrites can hold on to power.
12
Every time the market tanks, some schlub steps forward to write this exact article:
- Look long term
- Stay the course
- It's still better than a savings account
- Blah blah blah
Two questions: Are you simply attempting to prop up the market so you can sell on a bump? And, once people have surfed down 20%, precisely what alternative do you have but to hold on - sell the bottom?
9
@Mtnman1963
Exactly how I feel when I read this type of article! I often feel like these "experts" give great hindsight advice. Then point to a one day rally after a slaughter (which is irrelevant if you are holding long term). I also think it boils down to what people want to hear. If a sports announcer told you the game was going to be terrible would you keep watching/reading? Probably not, so to keep a job market pontificators need to tell people everything is awesome. Be lazy and listen to us. If we tell you the sad truth you will leave in search of unicorns.
I shifted my entire 401k from stocks to bonds in 2016 shortly after Trump was elected. I wanted no part of what he or the business interests that were salivating over his deregulation and tax cuts had to offer. I missed the entire DJIA run-up from 18k to 26k, and have settled for ~2% annual return since then.
Stupid? Maybe. But I've been able to sleep at night. And I've put my money where my mouth is.
I look forward to reallocating back into stocks shortly after the Brexit crash happens a few months from now. I've long anticipated that as my bottom, and I'll grow my funds as the market recovers from its stupid, self-inflicted wounds.
12
Earth to most investors: you really don't have any power other than to just ride it out. I learned that from 1987 and 2008. Power is never in your hands, it's just a good selling tool for 5.95 trade companies. Just hang tight and life gets better.
6
“Just take a nap”. And dream about your retirement savings being gobbled up by “the market”. Thanks for playing, suckers.
7
Prez is using Spiro Agnew's playbook for his investigations and Smoot/Hawley as guides for his tariff strategy. Everyone should indeed be frightened, but there really is no place to go. Keep your job, work until dementia causes the kids to come get your car keys and thereafter take your walker to the lounge every Wednesday for the ukulele concert. We'll all be dead soon enough. Just an attempt to cheer all of you up.
3
Only an idiot does nothing.
If you haven't sold just about everything then you're going to loose just about everything.
Turning investments into cash will at least allow you to reinvest when things quite down, but allowing them to dwindle down to nothing makes no cents.
3
Are you crazy! Have you seen what the market is doing right now, only a fool would be in equities!!!
2
Bull markets end when the best future can already be seen. Bear Markets end when the worst that can be seen is vividly seen...
4
All the quantitative easing money that was printed, the real estate bubble reinflated many places, pushes for $15 per hour wages, spiraling government debt leads me to believe we're headed for quite a bit of inflation. Cash is the last place I would want my money. (Disclaimer I am about 20% cash because I have always had a diversified folio. But the cash is just to have in case I need. It's insurance not an investment.)
2
One doesn't need perfect prescience. Even skewing the odds from 50/50 to 60/40 makes it worth betting on coin tosses. Just because the average person doesn't have a chance of breaking 1400 on the SAT, it doesn't mean no one can or that it's not worth trying to learn how to improve your chances. The second point is that one doesn't need to be moving 100% of ones money around to make a difference. If you adjust your asset allocation 2x a year based on shiller PE quintiles you have an edge and vary it between 60/40 and 80/20 you are doing better than randomly guessing every answer on the SAT based on what the majority has chosen. The point is to have enough cash to take advantage of what is coming. Ask Warren.
5
I know I do not have the perfect ability to time the market. I do however have the ability look around and gauge the general upside or downside risk. A few months ago I started feeling like I did around 2007. It was different factors then, but the same type of irrational positivity. I didn't listen to my gut back then, I listened to talking heads and hung in there. Sure I came back long term and rode a decade of gains. If I would have taken profits when my gut said there was little upside and got back in when there was little downside I'd be a lot better off. So I bailed out this time around in November 2018. Why did I see no upside... The US government has been at an epic level of chaos for months and nothing points better. The Fed is getting blamed for raising rates, really! If the economy can't handle a 0.25% rate hike from historically low cheap money the problem isn't the Fed it's the economy. The sugar rush of corporate profits from tax cuts. Companies are not going to build and invest because the have more profit, the demand isn't there so they don't build. If demand was there they would borrow to build. Instead they buy back shares making stocks look good without adding physical value. High debt levels everywhere, coupled with more shady loan packaging. The rest of the worlds economies trending down. I'm out of room but I could go on. Ask yourself where do you see real upside! I'll get back in the market when it looks really ugly and be further ahead long term.
13
And in the fine print, all investment firms place:
“Past performance is no guarantee of future results.”
Uncertainty and large debt loads are very much in play in the current economy; and the anecdotal numbers in the article are not future data. The next recession could be on the horizon and it could be deeper than the last one.
There are people that can time and analyze the market well…Buffett.
And some that can’t…Trump with multiple bankruptcies and Bear Stearns and AIG and Lehman Brothers etc.
3
In 2008 the Fed had room to slash rates to inject some liquidity in the markets. The Fed in quick time slashed rates from 5% to 0.5% which was the interest rate for several years. One current cause for concern is can the economy sustain interest rate rises despite record levels of government, corporate and household debt? Well then, if that is the catalyst for a crash, can the Fed simply slash rates again and repeat the same cycle? The USA is currently climbing out of the low interest rate cycle but what if you don’t make it? What if the economy goes bust & the Fed has to lower interest rates again? A decade of low interest rates may become two decades & what would that mean 10 years down the track? If this economy cant bear a 2.5% cash rate then all the value created in equities may be artificial. If you do a discounted cash flow for 10 years, start with $100 in value, and go up by $2 every year (a proxy for 2% GDP growth). Add the sum of those values with a discount rate of 0.5%, the value is $1,059.81, if you change the discount rate to 5%, the sum is $835.48, representing a difference of 27%. This is a very delicate economy and if it fails then all that QE & low rates will have been a failure. So what next time round?
6
These kinds of articles simply restate conventional market "wisdom". I'm not certain whom they're written for, but it clearly isn't me or those like me, who've been dismissed with a few chastening and faintly disparaging paragraphs at the end of this piece. As a person who has no choice this year but to be retiring into this volatile, difficult climate, including with a loss of value in a 401K, I'd hoped for a better and more original perspective. Why not some research on the fate of the 401K? Or a discussion of the effect of low savings interest rates on the financial prospects of those saving for retirement. Anyone who was hoping for growth that kept pace with inflation had little choice but to be in the stock market. I'm old enough to remember when savings accounts and other very conservative investments offered returns of 5% routinely; they provided a measure of security and stability for middle-class savers. How about an examination of how unbridled, under-regulated capital markets destabilized retirement savings for an entire generation of workers?
126
@Maggie Mae Then you must be old enough to remember when the market broke through 1,000 in 1981. Find a graph and read it. Safest and best long-term investment available anywhere. If you want to be a "winner" every day, but Scratchers.
2
@Maggie Mae, you're correct that this article isn't meant for people on the verge of retiring. Mr. Irwin should've located that caveat closer to the top of the article, but he does say that "the equation changes" for folks who need money immediately. This article is recommended reading for those annoying co-workers who constantly check the market, dabble in day trading, and react daily on the fluctuations.
6
@Maggie Mae what you say has a flaw. With current low saving rates is also low inflation. The Fed figures inflation in decisions to adjust short term rates.
In effect, what you are saying is don't worry, everything is going to be okay, not unlike the phone calls the Trump administration made to business executives over the holidays. That is enough to make people worry.
15
No it’s not like that. If you have a long time horizon let your equities grow albeit with volatility. If you have a 5 yr or less horizon, don’t take the risk.
2
@Just The Facts
Are you claiming all 5-year horizon returns beat cash? Do you know the odds? Do you know the odds conditional on shiller PE?
1
Excellent and sage advice. In investing in equities, I follow the slow-cooker approach - set it and forget it, until long, long time passes. However, I do look at what the market does way too often than I should.
11
This is a super article and I'm surprised that many of the responses make political or time horizon arguments. If you can time the market, yes, you can make heaps of money. But can you? The honest answer is no. For investors that are retiring, or are already retired, you should have less invested in equities-period (in general, unless you are rather wealthy in which case it may not matter).
10
@Dieterhansi. OK I'm retired, I don't have a long-term view , I'm over 70, I want a nest egg, not a long-term bet I will not outlive....so, I"M OUT. That makes sense for my generation. I wish this could be broadcast more generally.
29
@kdmcgann. It sounds like given your age/profile, you aren't the main audience for the article, and the author addresses this (4th paragraph from the end).
"If an 18 percent drop in stocks is enough to cause you to change your entire investment strategy, that money shouldn’t have been in stocks to begin with."
1
Simple, get rid of Trump, his tariffs, his ""wall", and his cabinet. A plus, get rid of Pence. While one person cannot create a world wide recession, Trump has been doing his best to create one. He has created as much uncertainty, as it was during the early days of the Great Recession.
While today, the US economy is sound, though has issues, Trump is creating fear, which is causing a drop in both consumer and business confidence. Effectively, every time he opens his mouth, he creates more uncertainty and fear. And, it doe snot help, when he flip flops, some times hour by hour, on what he wants or his intentions.
Two years, 17 days is just too long to wait for the end of the Trump administration. Something must happen soon, else this may be the first recession created by fear, ineptitude, idiocy, ignorance and incompetence.
134
The experts always say that you should invest "for the long term". At some point in life, that term changes and comes to an end. In particular, those that have money in 401(k) or IRAs will come to such a point in their 70th year. At that point, you have to take out according to a complex formula but you don't really have a choice. That said, if you have a chance, convert it to (or invest in) Roth IRAs instead. There is no Required Minimum Distribution and you can leave it sit. If you really need the money you can take it out as you wish and only as much as you might need. That way the government doesn't determine when to take the money, your needs determine the timing.
15
I was newly widowed and had just entered the financial market as a newbie when the market tumbled in 2008. I followed the "hear not, see not, and learn a lot motto". I've done well over the past ten years but have no idea if I have the time left to rebuild if the market tanks again which it well may under our bankruptcy king.
I'm very diversified so hope that helps . I have a good team but as the article says you can't predict the market so I'm hoping for the best without ignoring what is happening.
32
"But you have to ask yourself: Would I have also had the courage to put money back in while the economy was still in horrendous shape in 2009". Yes, as a matter of fact. The market is still in bubble territory so I'm all in cash. I will wait until stocks 'go on sale'.
We have had a 10 year economic expansion which is the second longest in history. It doesn't take a Rhodes scholar to predict that will be coming to an end. Recessions aren't surprises, they are normal patterns of the business cycle and winter is coming. Given this, the old wait it out strategy seems irresponsible to advocate.
36
Exactly right Dustin.
It’s amazing that we could be having another discussion about market valuation without any mention that massive monetary stimulus has come to an end and is reversing. It’s all about QT now, just as it was all about QE over the past ten years, which drove investors into risk assets. Just as surely they’ll be driven away. The fiscal stimulus of the tax cuts is built in to prices by now. US stocks still seem too pricey to me. I’m with you — willing to wait for the discount. I use TMC:GDP to judge value.
6
@William Ankenbrant
Sadly, neither Mr. Irwin nor any of the other NYT readers have acknowledged QE's massive impact on the surge in stock prices over the last 10 years, and on how they anticipate the market will behave with the Fed's liquidity spigot (hopefully) turned off.
4
@Dustin From your comment: "Would I have also had the courage to put money back in while the economy was still in horrendous shape in 2009".
2008/2009 was when one needed the LEAST "courage" to put money into the stock market. When the market crashes, there is more "room" for stocks to move in the UP direction. If anything, LESS "courage" is needed after a crash, not more.
1
Every one of these "don't panic, don't move" articles says, "if you are a long-term investor." Well, plenty of us aren't long term investors, we're baby boomers, and you are talking about the retirement income of a fairly large group of people. So for those of us who are more afraid of volatility and risk, what's the plan?
93
@paula Being a baby boomer and looking at retirement, most of your investments should pay dividends. Over the years, your dividends should have been reinvested. Cost-price averaging is part of increasing the value of your holdings.
You have to keep in mind that it is difficult to make an income from your investments of more than 3%. The income would be generated by dividends and if you have bonds, by the bond interest.
Just keep in mind, it's not the value of your investment that provides you with income. It's the amount of income your investments can provide you that makes a difference. There is a difference between investment value and income form investments.
12
@paula Mine? Currently treasury bills, high quality municipals for the next year or so. By recognizing this is a bear market and not a correction, I am definitely timing the market and certainly could be wrong. Expecting to get in lower is historically quite a foolish attitude...I'm quite old.
1
Diversify. Hold money in bonds and annuities.
1
Tariff Man is a dangerous menace to everything in America. The sooner he is removed or resigns the better off we all will be
82
Tariffs are taxes, especially painful for those who spend most of their income or retirement savings.
The uber-wealthy are less effected.
We can hope Tariff-man will listen to good advice, but the track record on that score is very poor.
I am worried for our country, this cannot end well if Tariff-man continues on his destructive path, twitter rants and all.
Where are the adults in the room?
Great article. Could have been written by Bogle or Buffett. Like Bogle says, invest early and then don’t touch it. Believe me, 99.9% of investors who get out and try and time the market will do much worse. Market timing is the best way to blow up your retirement dreams. We couldn’t have a better example of this than the last 10 years in the market.
32
@SandyS passive investors are like lemmings. They will all jump off a cliff together. It's unprecedented and it's dangerous. Buffet's advice holds true for the past, and the distant future. Not now through 2 years out. This is different. Dare I say that a financial crisis that dwarfs 2008 will happen by the end of 2020. I GUARANTEE IT.
3
No one has mentioned that, after you retire (65, 70 , whatever, ) you still have another 15-25 years to add to your retirement horizon; so to say, “get out of stocks 100% by retirement age “ really doesn’t make sense. Still have something in stocks for the long term— diversify, include a mix of stocks, bonds, and money market, and gradually over those added years grow more conservative. Pick a target date fund if you will with a target of your life expectancy. And pray Trump gets out soon, as he is inflicting a certain instability into everyone’s plan, with no sense of “creative destruction, “ only demolition.
44
Just remember:
"He who panics first- panics best."
:-)
19
To all those who did well after the 2008 crisis, please consider who we have as president and what you think he would do in response to something like that. As reported, he now has the "B" or "C" team working for him. We had the very best people responding in 2008. It will not go that well. Think more of Hoover's response to the great depression.
31
@RAH more like the D- team.
1
@RAH And the B and C team are mostly former lobbyist who still have corporations interest at heart.
2
OK, this writer is right, for the "long term." But what about people near or at retirement now who can't wait long term? They're going to see losses when they start to cash out. Gains on the stock market for 2018 were just wiped out. Do you take a chance and retire at 70? Will you be physically fit to wait that long?
10
@Scott This is the problem with having non-savvy investors who are in anything other than "target date" funds. People who were in that situation should ALREADY have been somewhat out of the market. Depending on the vendor, with those target funds at your target retirement date, you'd be 40-50% invested in the stock market, 50-60% invested in bonds and cash, with market exposure shrinking over time. People who are 70 shouldn't have the majority of their funds in the market in the first place.
9
@Scott
72, still working, 403(b) in cash (actually, treasuries), and always has been. Everyone advised me that this was pure idiocy, but it let's me sleep at night.
1
I explicitly herein stated the market would slide from mid October, for months. The problem is only crazy people say these things.
4
So when does it start going up?
2
The big shots are telling us to stay in the market while all of them sell that way they can sell high and buy low and we sit here letting them take our money. It's probably Trump saying I'm going to sink the market with a tweet so sell today and buy it back tomorrow, I'll do this three times a week soon I'll have another billion off the back of the working man
23
@Fred Johnson, yep they tell us to sit tight while they trade billions of shares each day. It is a casino where they call the players investors to keep them at the table.
23
@MEH here's a fun thing to think about - share buybacks. Read about why they happen, their mechanics, when they're good, and when they're bad. My theory is that since 2008 a lot of CEO/CFO long term incentive plans became tied to share price. To keep share prices high, companies used excess capital to buy back shares. This keeps valuations high, but provides no value. If the share price drops after the share repurchase they're going to look pretty stupid. Keep an eye on Apple. I'm waiting to see how they're prior share repurchase plans amplifies the pain they're feeling right now.
1
@Fred Johnson Exactly how I feel sometimes - that I'm being manipulated to stay in as a small investor in a rigged system with articles like this. Yes I think that advice is paranoiac for a young investor, if I were 25 I'd just woop it up, ride the coaster and buy more stocks. But for now, BYE.
The market only moves down because people are selling. This advice seems to benefit the high frequency traders on Wall Street who benefit from taking their wins while the IRA and 401K owners keep the bottom from dropping out.
9
Evidence shows it’s entirely the opposite. The little guy panics, buys high and sells low.
Wall Street makes most of its money from volume trading, they love it when people panic!
4
I agree that attempting to time the market is not wise in most situations. Guessing the exact locations of peaks and valleys is impossible. However there are some metrics that do a decent job of predicting long term returns. The Shiller PE ratio has done so for a long time. It has also been predicting that ten year returns on the market are likely to be much lower than historical returns. It should not be used to to attempt to one the market, as it makes no prediction as to when or how severe or even if a crash will take place, but simply estimates future returns. However, Shiller PE predictions analysis 10 year expected returns are expected to be in the range of 0-2% annually. This won’t change back to historical levels of 7-10% unless corporate earnings rise or stock prices fall substantially. If you have an alternative investment that can get you decent returns without too much additional risk, and you don’t need the money for ten years or so, it’s probably not a terrible time to consider that alternative.
5
@Maxwell Briggs
Maxwell, there is one way to get a guaranteed 8% per year, and that is to defer taking one's social security payments after one's full retirement age. It works out for people whose life expectancy is high and who have enough savings to tide them over for awhile without taking SS. If you can afford to do this for three years, from age 67 to 70, then your social security monthly check is over 24% more for the rest of your life.
7
If by Rudyard Kipling should be read by all investors. "If you can keep your head while all the rest are losing theirs."
5
But to do it before (other) people lose their mind is smart.
What you quoted apply to crash panic sell and we are nowhere close to that (yet).
1
Finally... a reporter with brains!
I’m a long term, buy and hold, Vanguard/Fidelity index fund investor who has been ignoring the day to day financial “news” and putting money in, and only in, to the stock market for the past 23 years (since 1995. I appreciate someone with the same wisdom and financial discipline.
I hope the market drops some more so I can buy more bargains. In the meantime, (yawn), you’ve inspired me to take a nap. All this stuff in the news has been exhausting. Entertaining, but exhausting.
40
Bad advice. I am a commercial real estate broker (therefore I have skin in the game). My phone started ringing just before New Years Day with folks who have decided to DIVERSIFY part of their portfolios into commercial real estate and from business owners who have decided to transfer some of their retirement funds into commercial real estate through a "Self Directed IRA" account. Another way to protect funds if there would be a significant amount of capital gains is to transfer the gains into a fund specializing in investing in and/or developing in Opportunity Zones.
High net worth individuals can also borrow from their own securities holdings to invest in real estate. Those loans do not appear on their credit reports and the earnings from a real estate investment can be used to pay back the loan (which are usually made at around 3% interest). Because the investor might have paid cash therefore having 100% equity in the property, at a certain point, s/he can also easily replace the funds borrowed from him/herself with a commercial mortgage loan where the income from rents/leases will cover the debt service. First time real estate investors need to locate a commercial real estate broker who will take the time to coach them through the entire process, help with property/project evaluation and due diligence, and make referrals to a selection of other professionals such as an appraiser, real estate attorney, escrow/title company, etc. Don't try this on your own first time.
2
Because it will be the last time
2
Great article--very appropriate for the moment.
2
Isn’t it great how good 3.0% laddered cd’s look!
15
@Kevin Bitz
Who woulda thunk it?
2
Today I bought more shares of AT&T, the company I love to hate. Cheap stock price; good dividend. Too big to fail. I figure they're getting so much of my money every month, they should give some back.
10
Every time the market crashes the experts advise us to stay in. If I'd listened to them instead of my gut, I'd have lost everything by now. With Trump in office, all bets are off. As long as he tweets every morning, we are all in peril. The average working guy or gal is not going to get rich off the markets. It wasn't made for us. So, follow your gut. And, as long as Trump is in the White House, there is no way to plan for the worst. Save and invest wisely but you will never be able to save the millions the experts say is possible. To quote our illustrious leader, its all a scam.
15
@LMarie: "I'd have lost everything by now." If you'd invested in a low-cost mutual fund that tracks the S&P 500, why would that be the case?
5
This is what people who are heavily invested in the market always say, "Ignore the ups and down and stay in for the long haul" — but who's got that kind of time?! I got out of the last boom at 18000; bought rental property .... all those folks who are losing their homes are going to need places to live. Greed is a monster and too much is never enough. I figured Trump would help to blow up the market but I missed the run to 28,000... tho, it looks like it'll be back to where Obama handed it off by the end of 2019. Tough game. Wear a helmet. Breaking even is winning in Trumpland.
9
@Patrick Hasburgh So true
@Patrick Hasburgh
i also completely pulled out in september - and purchased another two family house for student rentals...i'm working on it now, and sleeping soundly at night!
1
Lies, pure lies. The evidence will arrive soon enough, and then stocks will be MUCH LOWER.
You are ignore the message of the market at your own peril. This plays out the same every time.
When EVERYONE is saying GET OUT - that's when the bottom is near. There is a long way to go DOWN yet.
10
@Shut up and sell. I was told by Edward Jones when Trump started killing the market that we should change everything around and make two percent until Trump shuts up, but no he says the economy is doing great hold on that was two months ago last week I called and said it doesn't look good we should put it somewhere safe, he says hold out for a week. Now I have lost 97,000
It’s tempting to buy stocks when the market is going up, but it’s best to buy when there’s blood in the streets. 5th Ave. is kinda bloody now a days. I’ve got some dry powder, and I’m waiting for the blood to start gushing. Buckle up folks.
9
This article has all the usual flaws make it useless for real people. Real people don't sell ALL their equity mutual funds and go to cash with the thought of reinvesting at some unknown future bottom. Instead real people might rebalance which would be selling bond funds and buying equity funds. Or they may increase their 401(k) contributions. Doing nothing is missing out on the Buy, Hold, and Rebalance thing they should be doing.
11
@Jim
Sensible real people - especially in retirement - will generally put enough of that retirement savings into cash vehicles - enough for a couple of years - and bonds, say for 6-8 years, to keep from having to sell in desperation at the wrong times. For those of us who can't outwit the market ( no one can for long, and no one can tell you exactly when to sell or buy), this is a little insurance for the inevitable rough times. If the market tumbles and hasn't recovered in 8-10 years, we're in very deep.
2
I've been out since February, when the 1% oscillations began. They are now at 2.5%.
I'm one smiling guy, waiting for the full 30-35% drop.
8
What will you do if the market goes back up 20?
1
I would agree with Neil Irwin's theory, were Donald Trump not in office. He is doing his very best to create turmoil in any area, in any country in the world, where he can manage - sometimes against all odds - to turn a challenging situation into a disaster. After many months of market volatility and increasing economic downturn, he will loose his presidency, one way or another - adding to the political instability. The 1930's style tariffs, the badgering of the fed, the deficit exploding tax cuts, U.S. removal from international treaties, possible impeachment - it all spells market disaster. If you made a bunch of money during this Trumpian sugar high, take your profits and wait a bit, I'd say.
16
I was a broker for 26 years. I lived through the Black Monday crash of 1987, the Dot Com crash of 2000, and the Subprime Mortgage crash of 2008. I lectured on money and markets during my tenure, and wish I could tell you all that I learned.
The five basic asset classes are stocks, bonds, real estate, commodities and cash. How you apportion your assets among these holdings - your asset allocation - will be the strongest determinate of your long-term results.
(By long-term I mean 10+ years.)
To overcome inflation we must become owners, and this is the most difficult aspect of investing because ownership, by its nature, involves risk. The worst thing to do is read the market value of an equity or other portfolio as if it were cash, because it's not.
All owned assets fluctuate in value, sometimes dramatically, and if you can't stand the heat it's best to stay out of the kitchen.
16
@Lance Jencks when inflation is barely registering, I am not sure the argument holds anymore.
4
I am not selling one share of anything I own. I went through the financial crisis without selling anything also, and made a ton of money. That being said, Trump did us no favors by starting an "easy to win" trade war with China. Today, the Dow is down more than 600 points because Apple says the trade war is hurting sales. Thank Trump, for a giant unforced error.
49
No, don't try to time the market as in day trading, but do make sensible macro-level decisions. I looked at my 401(k) this time last year, mostly in stocks at the time - it had gained something like 25% in one year. Those are gains that would usually take years. I was also concerned about Trump and the fact that the stock market was/is overvalued. I pulled all out to cash/bonds/stable value, deciding to forego any gains this year for the security of locking in the unusual return and to re-evaluate at the end of the year. Made 3.5% last year. Still Ok with my allocation, will see where we go. (In 2008, my 401k was pretty measly but I also pulled out and got slowly in over late 2009-2010).
6
When the market is down it's time to buy, buy, buy! I am shifting to only buying stocks with dividends. Buy enough and this can provide significant income. Buy Apple; who cares that the stock price is down; it pays a good dividend and is a great company. I absolutely hate selling stock: all those capital gains taxes. California is a high tax state. Ouch!
8
In the long run we are all dead.
57
@Josiah
So... You're saying?... people should not invest for their financial security for the time period of "today" till death? Yes, we will all die. But why not engage in wise financial planning for the time period during which you are alive? Not sure what your point is. You think people should spend, burn or flush down the toilet 100% of their money today???
1
They'll always tell you to stay in. My father-in-law did just that on the advice of some young buck at ML before the dot com crash. Never recovered anywhere near what he had. Yet he always believed them. Over and over. When the shift of generations occurred and the current Dick Chaney generation took over handling people's money, all presumption of care-taking other people's money went out the window in favor of seeing people as a resource, a means to their end of getting themselves and their wealthy clients richer. Think about it. If you had a million 40 years ago you could put it in the bank and live off the interest, if you so desired. That is not possible today. Banking is not for you, the little guy, with your paltry million.
15
@Jay Sonoma
40 years ago we had stagflation. It was horrible - and the stock market was moribund. Yes, you could get astronomical interest on CDs. At least 2 of the banks I had (alas, very small) CDs with went belly up as did hundreds of others. The home mortgage we celebrated securing in late 1979 carried a terrific low 10 1/4% interest rate.
If you had a million in 1979 (about $3,376,000 in 2019 dollars) you could have earned about 13% interest( it maxed out around 15%) back then - for a couple of years. The CPI was over 13% - so you needed to earn 13% just to avoid losing purchasing power. But you would have done better, 1979 to 2018, in stocks.
Today we have cheap, small-investor-friendly options for investing that make doing this easier. Expenses are transparent. Target Date funds offer a conventionally allocated portfolio in a single fund where no decisions need be made beyond how much to invest, if that is what you choose.
Some stock advisors - then and now were true fiduciaries who kept your interests paramount; but most were guys looking to make sales, and collect commissions - from you. They weren't expert analysts, they were only experts at parroting the sales pitch of the day. Now -you can do as well or likely better on your own, with just a little education, just by containing expenses.
Some mutual fund companies - especially Vanguard - are very responsible, consumer oriented partners. Better for little guys.
2
Neil Irwin looks to be about 35 years old. He appears to have a very good job. If you're like Neil Irwin, by all means, follow his advice.
Earlier this year, I started selling some of my IRA mutual funds and putting them in T-bills. Instead of 75% stocks/25% bonds (via mutual funds), I'm now 75% T-bills, 25% stock funds.
I didn't sell at a loss; I sold at the top of the market. I beat the market in 2018 (well, any gain is beating the market).
I guess what I'm saying is listen to yourself. Listen to your gut. I don't advocate panic selling after huge losses, which makes little sense, but I do advocate assessing gains, and thinking: do I really need more, or would I prefer to sleep at night?
I feel sick when I look at the stock portion of my portfolio, as I'd like to retire in 4 years, but I'm committed to the funds, and am sure they'll bounce back at some point.
91 day T-bills are paying nearly 2.5%. I buy them without a commission through my mutual fund company.
A 35-year-old guy with a great job and likely a family inheritance coming his way is not someone I look to for financial advice.
20
@dga I am retired and am 68, but I am not worried about a 10% or even a 20% correction. It will come back. It always does. I don't need the money today or even next year. This correction can correct back in a couple of weeks, once the news changes. The worst think you can do is get out of the market long term. No other investment can top equities, not bonds, not T Bills, not Gold. The name of the game long term is stocks.
15
@dga
Irwin earns enough to live off. But newspaper reporters don't make big $. What makes you think a family inheritance is headed his way?
1
@Jeffrey Bank But hey. You have had a 15% correction between February and now, so do you have a percentage point where you call it, reallocate and/or sell, and reenter as you plan?
Investing, speculating, and trading are not interchangeable terms but a lot of people with holdings in stocks (and other financial instruments) think they are.
There is nothing wrong with any of those approaches so long as you realize which strategy you are using.
Investing is that long-term, exciting as watching the grass grow thing that we generally know we should do but there isn't any adrenaline rush. It's as boring as Warren Buffet at a Dairy Queen. You have to know these companies inside-out and be able to make sense of their financial reports. Decision to buy are carefully made and unless something drastic happens you hang in for the long haul.
Speculation is the high risk and high adrenalin part. You are placing a bet on minimal information, working the market like a casino table. Be prepared to lose big.
Trading is a tactic based on knowledge of industry movement and you look at the peaks and valleys and try to time the peaks to sell and the valleys to buy. In again, out again, back again getting small gains over time.
The market has corrected: the investor hangs tight, the speculator licks his wounds, and the trader probably got out at the peak and is now ready to go back in for another round.
10
@George N. Wells The market has corrected? What soothing words.
The trader may think that knowledge of industry movement has something to do with an ability to foresee the price of a stock, but these days, we all see that there is a new component before unseen - a president who deliberately drops tweets to influence the markets.
@George N. Wells, the trader trades every day - look at the volume traded each day. They call the little guy an investor to keep his stake in the game at the respectable casino (the Market) while he gets fleeced by the pros
This is pretty standard "Boglehead" advice. True, you don't want to try to time the market, but you can soften or dilute your stock positions when it's pretty clear which direction the market is heading. For example, Jack Bogle recommends a more "defensive" strategy which means shifting allocations from a 70/30 to a 60/40 stock/bond split for 2019. You need not pull out of the market, but annual readjustments should be considered.
11
get out now...back in (or not) when DOW hits 18,000...
4
@Jim. But... what if the Dow never drops t 18,000... and climbs back to 27,000 and beyond? By declaring this purely artificial "bottom" of 18,000 as your point "to get back in," you may be shooting yourself in the foot... such that you never get back in and never see upside... as your money just sits in cash at virtually 1% (or less) of annual growth.
I think most people believe we have an unstable, erratic President who we will feel fortunate if he doesn’t end up ruining our economy and more. In that regard, it made sense for me to take money out of the stock market and put it in Bank CDs paying about 3%. When we get a new hopefully sane President, I will rebalance my investments and put more money in the stock market for all the reasons you state in this article.
10
For people in their mid to late 50’s (like myself),who thought they could retire at the traditional age of 65, the current losses may wind up foiling those plans for several more years.
But the problem with putting off retirement for too long, is that like the market your life span is unpredictable.
So, do you retire at 65, start to relax and enjoy life at a slower pace and hope your meager 401k sees you through the next 15 years or do you put it off another 5 years and wind up too sick or dead before you can get some R and R and me time?
30
True. But so sick. THIS is a life???!!
1
@Issy
Anyone 65 years old should have more than a meager 401K
That all makes good sense. So why does the news media, including the NYT, so breathlessly report on the hourly and daily ups and downs of the stock market?!? Especially given that most of the major short term variations are driven by speculators, who may sell in the morning hoping to buy low in the afternoon, and whose buying and selling tells us nothing with any meaning, unless we happen to also be short term speculators.
I'd like to see a tax on stock purchases. And a minimum holding period on every purchase.
And don't bother responding that a tax on gains at the time of sale is a tax on the purchase.
6
While I agree with Mr Irwin and have stayed in myself. And I may live to regret it. Trump, at any level unfit for the job, he has the power to make us all poor. On the plus side he lacks political ability and that may save the day. If as Harold Wilson said, two weeks is a long time in politics. Multiplying that to two years or even six and with all the grownups in the white house gone, my crystal ball is glowing red. On the other hand the democratic congress will repeatedly stick a broom handel in his spokes and that's one reason I'm staying in.
5
Stock Markets typically bottom when the P/E ratio falls to between 6 & 7. By that definition the last bottom was in 1980 right after Business Week published its Death of Equities cover story. None of us has seen a true bottom in our investing life but we may soon find out what it feels like to live through one.
9
The only guaranteed way to make money in the market is to manage the money of other people, so I have always focused on low fees. Pick the sectors (e.g. small cap, utilities etc.) you want to be in and buy ETFs. Saving a 1% fee over many years will be worth thousands later.
6
Long term investments are great for the young. They can outlive the inevitable crashes of the market. For older investors like me the timing of this market crash is painful. Even the most secure stocks like banks are down fifteen per cent. Our generation is too old to invest long term. And yet inflation erodes shot term cash investments. This is perplexing. And painful. And there is no answer right now.
14
Everyone's investment horizon and tolerance for risk varies and so should their response to a more volatile market.
3
I'm in my 60s and don't have enough time left in my horizon to make up for this market turmoil. I have never done this over decades of investing, but I pulled some money out of the market last year. This president's erratic behavior, the government shutdown and the trade war with China were enough to push me to do it. That said, if you have at least five years before you'll need your money, follow this columnists's advice. Don't panic and stay the course.
18
If you are currently mostly putting money into the market (e.g. saving for retirement), then a downturn is like putting stocks on sale.
If you are currently mostly taking money out of the market (e.g. are already retired), then the money you need for the next year should not be mostly in stocks.
12
Per Mr Irwin in today's discussion: "Businesses are still expanding and adding jobs." The ADP jobs report released today shows that a surprisingly large, 271,000 jobs were created in December, 2018. With the DOL's jobs report due at 8:30 a.m. tomorrow (Friday, Jan. 4, 2019), the ADP data release was very good news. With the DOL's national unemployment rate at only 3.7% for Nov., 2018, meaning about 96.3% of the active labor force was employed in Nov., the disagreements between President Trump and Fed chair Powell, become more understandable. For Dec., Trump, fearing a slowing national economy, wanted no increase in the federal funds rate. While the Fed pushed through a 25 basis point increase in Dec because it fears not only a slowing economy; but, also increasing inflation from tightening labor markets.
Economic expectations and policy for short-term time horizons must be melded with intermediate-term ones, and finally longer-term ones. Are changes in data trend slopes reflecting an inflection point, or merely static, the cause of misinterpreted cues?
If Trump and Powell and Mr Irwin are unsure of underlying economic patterns for major trends like unemployment, inflation, and GDP growth, what options does the average investor have but to "freeze." With this seemingly irrational data drop, a squirrel's scurrying rightward or leftward in reaction to an approaching car may model an amateur investor's behavior with their 401k.
[1/3/2019 Th 2:45p Greenville NC]
1
@John Joseph Laffiteau MS in Econ
"If Trump and Powell and Mr Irwin are unsure of underlying economic patterns for major trends like unemployment, inflation, and GDP growth"
Really! You actually think Trump has the attention span and intellectual depth to analyze major trends and come up with a rational strategy to address them. Keep dreaming!
8
@John Joseph Laffiteau MS in Econ
Friday's (01/04/2019) December DOL jobs data showed that:
1) The total number of jobs created in December was +312,000, including +301,000 new jobs in the private sector.
2) The unemployment rate rose from 3.7% to 3.9% in December, for a gain of +0.2%. This gain in unemployment partially arose from an increase in the labor force participation rate, which rose from 62.9% in Nov. to to 63.1% in Dec. Also, the number of people not in the labor force shrank by -237,000 individuals.
3) Importantly, there are about 156,945,000 total employees in the US per the DOL's December 2018 household jobs survey; and, about 150,263,000 nonfarm employees per its employer or establishment survey.
[JJL 01/04/2019 F 12:23pm Greenville NC]
Excellent advice. The only thing I would add, if you have investable cash available, is to buy in on as many 4-500 point down days as you can. Buying after 3:30 EST often works very well because that's when program trades can kick in big time.
6
Well I need to do something because I have to start withdrawing in 3 yrs. I sold everything at the end of 2018 and will try to recoup my 9% 2018 loses through a series of CD's, a total world stock ETF, and a short term bond ETF. Got rid of a fee based managed portfolio which will also save me a good amount. Wish me luck.
13
The writer is 100% correct. If one is going to invest in equities, one has to expect volatility. If one is in for the long term, then buy some stocks cheap now. Sell a few losers for tax loss and buy them back 30 days later if you still like the stock. But panic will get you nowhere.
6
This market plunge beginning last October is on Mr. Trump. “Mr. Tarriff Man’s” ill-conceived and dangerous trade war with China has. created 1) chaos and uncertainty in the markets and (2) rising costs for everyday goods and services for already hard-working Americans and those of us who’ve made it to retirement age.
10
Thanks! I needed this! I so want to retire and was beginning to panic! Are the losses tax deductible?
3
@Imohf Yes, fortunately.
Only if they're in a taxable account.
I have a simple but effective plan for investing. Keep away from the stock market. All investments are in my own business, or personal improvement.
4
People worry about "the Big One" meaning something akin to 1929-1938. You really can't ride out something like that very easily. What happened in 2008-2009 had people believing that something similar to the Great Depression might actually happen and perhaps it nearly did. Now 10 years later none of the systemic issues that caused the last financial crisis have been addressed.
Even a lesser crash could be tough. Imagine you just retired and over the next 3 years the market dropped 30%. That could certainly happen and would cause a lot of anxiety to say the least.
Not sure what the answer is but there are no guarantees. The writer seems to imply that every time the stock market has a major dip it bounces back relatively quickly.
12
@Tim Couldn't agree more. I was lucky enough to read a 2007 article by Paul Krugman talking about adjustable rate mortgages and the risk. He said paraphrasing "I think it is going to be bad, I don't know how bad". I went to cash. Then when Buffett said, "Now is the time buy" I waited a month a bought back in. We were close to a disaster, and we all know the gov't had to bail out the capital markets.
I got out in early 2017.
The writer is correct. You can't predict. I watched the market continue to go up but my FOMO was low. I'd prefer to missing out on some gains and safety as the systematic factors have not been corrected and Trump is a wild card. Not sure if another gov't bail out is really the right course of action again. Just passing the buck to the tax payer again while no behaviors are changed.
7
As someone who took the "don't get out at the bottom" advice twice already (after 9/11 and in 2008), I am now nearing retirement and that strategy is not looking so good. I might be a bit more willing to endure my chattering teeth if the current resident of the White House didn't have two more sure-to-be terrifying years to bring doom upon us. Ack.
93
Me too! I was so wanting to retire! What’s taking Mueller so long?
6
@Exiled in St. Louis But are you planning on needing your entire equity portfolio all at once when you retire ? Or do you have some income from pension/social security/dividends and interest ? Most folks fail to realize that they will have many years in retirement in which to recover losses from down markets. Long term charts of equity markets show repeatedly that market downturns are followed by longer term upswings which more than offset losses. Key is to make sure your allocation to stocks is at a level that you are comfortable with.
14
@Jeff. Thanks for that but in case you missed it, it's not the market I'm afraid of.
3
"Just behave" The two most important words in investing.
Excellent article and excellent advice.
Like everything else in life.The trick is in the actually doing.
Investors are usually their own worse enemies.
Just for fun, look at the research regarding investment returns vs. investor returns. It is almost comical how much they diverge, and not just in equities. Way too much time and effort is spent on investment behavior and not investor behavior. Investing is boring. Unless of course you have to sell advertising minutes. Then it's like calling a horse race. There isn't much that you and I can do to affect how the markets behave. How we behave is a different story.
Go read some books by Dan Ariely, Daniel Kahneman and Richard Thaler. There are others. Find out why the chances are very good that if you bailed out of the market with the intention of getting back in at lower levels, you most likely will get in but only when the prices are higher then when you sold. Find out why you insist on holding on to investments that have proven themselves to be poor. Find someone you trust, family, friend, etc. and help each other see your blind spots. You can't see your own. That's why they are blind spots. If you don't have someone like that that you can team up with it's OK to hire a good adviser. Look at it like hiring a personal trainer or a coach.
Best piece of investment advice ever. Mike Tyson said it. "Everybody has a plan until they get hit"
3
Placing the list of volatility antagonist('s) aside, if you don't need the cash for 10+ years staying in equities is a possibly a safe strategy. But even still, I can't imagine how you could not question the ridiculous value of equities these past two years. Hadn't the market been goosed far beyond normal sense!?
Age matters. Future income matters. And more importantly, especially for long term investors, is that your countries future stability matters.
14
To answer what to do with your investments in these turbulent times you have to ask how long it is before you need your money. If you're retiring in five years or less, you should be out of the market. With a predicted recession coming this or next year, your timing will most likely coincide with a loss of assets. If you're in for a long haul. more than 10 years, you should do nothing. Anything in between, it's a hard call. Good luck!
9
I think the following quote by Ray Dalio of Bridgewater can apply to the Chinese economy today. And then this Chinese effect is being transmitted to the US and the rest of the world (which have their own issues/imbalances), resulting in a circular, self-fulfilling prophecy of sort.
"In the immediate postbubble period, the wealth effect of asset price movements has a bigger impact on economic growth rates than monetary policy does. People tend to underestimate the size of this effect. In the early stages of a bubble bursting, when stock prices fall and earnings have not yet declined, people mistakenly judge the decline to be a buying opportunity and find stocks cheap in relation to both past earnings and expected earnings, failing to account for the amount of decline in earnings that is likely to result from what’s to come."
5
It’s so refreshing to see sound financial advice from a major non-financial publication. Then disappointment sets in as the top rated comments parrot the siren calls of the future regretful: “it’s different this time” and “these aren’t normal times.”
10
No one past, present or future was or is able to be a stock picker. Stock market is a future game. What will the companies do to keep profitable? And it is all an opinion. How many times do you have to be told that the market is not the economy.
Look at Bill Ackman....all luck. One win and many losers. Another genius picker?
Most investors buy at or near the top and ride the market all the way down and sell at or near the bottom. Bottoms don't really occur until there a final bout of mass panic selling where investors dump the last stocks in their portfolio at throwaway prices and swear to never buy stocks again. You know the bottom has arrived when people stop watching CNBC, newspapers stop printing market advice columns, investors stop taking their brokers calls and account statements are thrown unopened. You will know that the true bottom has arrived when you hear your financial adviser is driving a cab just as your realtor was doing in 2009.
8
Think of it as a sale. Time to buy!
2
This time it’s different, and that difference is Trump. I pulled all my stocks on the eve of the China tariffs, and missed the big decline. I’ll buy back in when Trump is gone. This may be crazy, but I can’t see investing in America as long as a monkey is in charge. IF he makes an actual deal with China in March, we may well see the best day in stock market history. I fully expect him to declare such a deal, in any event. But I wouldn’t count on anything with this guy. He’s just poison.
114
@pretzelcuatl I did almost the same thing. I sold all my stock a year ago, and plan to wait until we hit rock bottom, then put it all in again. While Wall Street locks in all their profits during the sell off, the average individual investor is left holding the bag with the patronizing advice from the " experts" that " it will all come back ". The hell with that.
4
We sold our stock the day after the 2016 election, somehow knowing that things might not go well for us with the king of bankruptcy and his democrats in charge. Seems like it was a good decision.
1
@FarmCat
SP500 is up 14.4% since November 8, 2016.
So you missed 14.4% gains since.
2
Sell the Trump stock
Buy Democratic stock.
10
Facebook has a P/E of 20.
Amazon has a P/E of about 85.
Apple has a P/E of 12 - and about 250 billion in cash.
Does Amazon have seven times the upside of Apple?
It will be fun to see.
2
@RLS NONE of them have any upside from here.
Just watch......
1
What is so funny is that all of the financial firms were wrong about 2018. Most made very bullish predictions with corporations getting massive tax cuts. The deficit ballooned as tax receipts declined due to this corporate free ride. Does anyone still listen to financial firms. the FANG stocks all got hit hard. Now the line on Wall Street is that this is s good time to nibble on stocks. What is evident after the last twenty years is that bonuses should not exist on Wsll Street jobs. Goldman Sachs stock is approximately down by 50% caught in corruption in Malaysia and Singapore. Why would anyone at GS get a bonus. Trump just keeps talking about friction in his negotiations with China. The game goes on even with poor results.
3
- and Mr. Irwin sounds a lot like the Investment bankers who told US -(in Sept-Oct) when we ordered them to turn all of our Stocks into cash and move them into CD's -(until Von Clownstick has been out of the US Presidency) -
And our Investment Bankers hilariously told US ''don't gamble with Stocks - as if US Stock market wouldn't be the YUUUGEST Gambling Casino on this planet.
Haha!
5
pieceofcake,
If you know what you know, why are you bothering to listen to (much less pay) investment bankers?
One big thing not mentioned, what is your timeframe and can you stand to lose the money you are investing. There were at one times caveats addressing these things, indeed reputable brokers will tell you keep you cash if youdon5 have a certain level of income, net worth and a good number of years to ride out ups and downs, it’s not so simple to buy and hold as this article implies k it’s a very personal thing that needs to take into the persons overall financial, age and health picture, to not address these issues when offering investment advice is disingenuous at best.
2
@Ted
"This equation changes, of course, if we’re talking about money needed imminently as opposed to longer-term savings, such as for retirement."
The generalized recommendation I've read is - if you calculate that you might well actually NEED the cash within five years then you might well keep that amount of $ out of anything volatile - like the stock market. Otherwise (statistically) you're better-off invested there, over the long-haul.
5
No pain, no gain.
A prolonged stock market collapse, in combination with Mueller's efforts, provides us with our very best chance of getting rid of Trump.
19
I stuck to my guns through the economic crisis and averaged my costs all the way down and all the way up. I also sold into rallies after Trump was elected President instead of buying the dips.
We have terrible leadership in the US, China and with Merkel leaving potentially in the EU. That shouldn't be discounted in the equation of risk tolerance and time horizon.
8
Listen to all the investors doing exactly what they've been told to do for decades. "OMG! Don't sell! You can't time the market!"
And so they followed the market all the way down and lost 50% in 2001 - and 50% (again!) in 2008. That's their winning strategy.
As the market recovered from 2001 to 2008, and from 2009 to now, these Rubes congratulated themselves on their Buffett-like investment acumen, not realizing they were just getting back to even.
Traders know that investors are sheep to be sheared.
When talking heads and brokers say, "Don't sell!" their own market-makers and traders are selling. When the market hits bottom the smart money buys in cheap and there's a massive transfer of wealth from Main Street to Wall Street.
And that's why the average Wall Street income in 2017 was $422,500 - seven times the Main Street income.
Actually, it's quite easy to time the market. Furthermore, those in cash sleep well and are ready to buy the bottom.
3
@Fourteen: "As the market recovered from 2001 to 2008, and from 2009 to now, these Rubes congratulated themselves on their Buffett-like investment acumen, not realizing they were just getting back to even."
How do you figure that? If somebody bought an S&P 500 index fund at the peak in August 2000, they would be well ahead of "even" today (though they would have done just as well with intermediate Treasuries).
"Actually, it's quite easy to time the market."
How?
2
@Mark
When you lose 50%, you have to make 100% to get back to even.
There is one big fallacy about investing in bonds that this article fails to mention... again. That the returns are both due to interest payments and movement in the price of the underlying asset. The yield bonds changes because of that movement. So a decrease in rate from 2.5 to 2.25%, while seemingly trivial from interest payment viewpoint is equivalent to 10% appreciation in the price of the underlying asset. Investing in bonds during the great (and uninterrupted) bond market rally from the late 70s till a couple of years ago would have been far more lucrative than an equivalent stock investment. Yes, this is a bit tricky concept to grasp, but that does not mean than the Times should dumb things down for their readers.
4
@Groovygeek: Do you have some data to support your claim about the appreciation of bonds vs. stocks since the late 1970s? It is easy to find data that show that for many periods stocks outperform bonds (such as for the last 10, 5, and 3 years).
Also, you should note that an increase in interest rates from 2.00% to 2.25%, while seemingly trivial from an interest payment viewpoint, actually represents a greater than 10% *decline* in the value of the underlying asset. With interest rates on bonds rising today, are you saying that investors should now be buying bonds instead of stocks?
1
Yet another “don’t panic!” article that ignores the clear evidence: the stock market is steeply overvalued and needs to fall another 50% to reach normal valuations. It’s true that timing the market is difficult, but it’s going to take many many years for it to get back to today’s levels. Plenty of time to get back in after the major damage is done.
16
Great common sense. Too bad the majority of investors will ignore it.
4
Throughout 2009, My wife and I continued to buy stocks. I wish we'd bought more.
"Stocks are the only thing Americans won't buy on sale". Warren Buffett
11
The problem with the "in the long run" POV is everyone's definition for it may be different. My experience is that the time to take risks is when one is young and has enough time to recover from mistakes; however, not necessarily in the market. In the long run it's making good bets on career choices, embracing change with a willingness to move for opportunity, living within one's means, and socking away set amount of earnings and all bonuses, etc. that made the difference for me. Finally, after I made much in the market only to see it fade away following two major downturns I decided "enough was enough" and, under the guidance of my licensed financial advisor, moved my hard earned money into variable annuities with AAA rated companies that, while not providing the great upside available in a bull market, guarded against the downside with guaranteed minimum returns or a more positive variable upside.
Working together we created a "dreamscape" that showed me when I could retire (59) based on what my guaranteed distributions would be. Gone are the nights of laying awake fearing for what tomorrow will bring financially and six years post retirement things are working out even better than hoped for.
I'm only saying, if you want to bet big you had better be willing to lose big...and there may be only so many opportunities to start over. "Plan your work and work your plan". Good luck!
5
Mr. Irwin:
Technically, your advice to stay in the market and knit a sweater makes good sense.
But when you're 71 years old like me, one can't help but wonder, will I be around long enough to endure the next steep drop and then a long recovery?
If I do live long enough for my retirement plans to recover in the next cycle -- without having a nervous breakdown -- I will GET OUT of the market as soon as I can. A simple schmo like me just can't compete with institutional investors who manipulate markets and flash-trade algorithms that buy and sell faster than I can blink my eyes.
Call me emotional and foolish, but I'd rather lose 2% of my cash to inflation than 25% - 50% of my investments to immoral people and amoral machines that are ultimately the ones in control.
224
@Know/Comment
See my reply to Ted.
2
@Know/Comment
ditto
2
@Mike
Good sense, thanks.
2
Markets dislike uncertainty. And bull markets rarely last beyond 10 years.
I don't know exactly how far or when the market will fall. But a crash is coming.
1
Listen to all the investors doing exactly what they've been told to do for decades. "OMG! Don't sell! You can't time the market!"
And so they followed the market all the way down and lost 50% in 2001 - and 50% (again!) in 2008. That's their winning strategy.
As the market recovered from 2001 to 2008, and from 2009 to now, these Rubes congratulated themselves on their Buffett-like investment acumen, not realizing they were just getting back to even.
Traders know that investors are sheep to be sheared.
When talking heads and brokers say, "Don't sell!" their own market-makers and traders are selling. When the market hits bottom the smart money buys in cheap and there's a massive transfer of wealth from Main Street to Wall Street.
And that's why the average Wall Street income in 2017 was $422,500 - seven times the Main Street income.
Actually, it's quite easy to time the market. Furthermore, those in cash sleep well and are ready to buy the bottom.
5
Funnily, this is exactly what Bitcoin HODLers were professing as the bubble burst.
1
Has there ever been a consensus on the casual definition of long-term?
Or is it as opaque as what is casually referred to as middle-class?
Wonder why economists and stock market experts have a very bad name t for the past 130 years?
This writer and most commenters obviously don't have access to the Investech newsletter produced by Stack Financial Management. It is not market timing per se, but it is smart shifts in defensive vs. growth stocks and overall exposure to equities based on cyclical technical indicators and economic fundamentals. He had me in mostly cash and a bear fund in the fall of 2008, and my father-in-law in cash in 1987. I am a client only and do not stand to gain from this comment.
1
A general tendency of the increasing abundance of capital will not determine variations for wages and profits in general.
Anticipating markets or keen observation needs an inciviness envied by even the most shrewd and experienced in financial matters.
Even though it's investing 101, the advice to avoid trying to time the market is still ignored too often.
The only ones making hay by timing the market are the high-volume, computer-driven traders who make money buying and selling in the fractions of a second.
The rest of us had better learn to sit tight when volatility sets in.
4
The other thing to keep in mind is that if everyone removes their money from the market, it could help to make the market fall even further. You would have cash and the Trump administration and the perspective on the economy would be sorely disrupted. Trump and his attitudes have got to go.
You can vote at the polls and you can vote with your investments. We have another opportunity to set things straight.
3
Thank you for the insightful article as it confirmed for me that I have to just stay the course and I will. In 2009 I invested in Microsoft. I did not have a lot of money but I bought some shares, thinking that computers and Microsoft were not going to be annihilated by the recession. It is only in the past few years (since 2016) that I have seen a marked increase in MS and it has paid off. But it is a lesson learned and confirms the adage: buy low, sell high. And just take a nap to weather the storm. (I crochet).
6
Wait i should only be investing money the the stock market if I don’t care what happens to it?
Even if the market nosedives i shouldnt care because I should expect these things from the equities market.
Because at the end of the day all that share is worth is what some else will pay for it?
Oh. No one told me that.
If you know how to read stock charts using moving averages and a few relatively simple technical indicators, an investor can get an idea of when up trends or down trends are more likely to reverse. Nothing involving stocks is a sure thing but historical trading data and common trends in investor behavior helps a lot. I don’t think it’s a bad idea to learn a little about technical indicators and what they say about how particular stocks may perform.
5
The second-best best investment decision I've made in my lifetime so far was to continue to invest through the great recession. Those dollars, which I pulled with great pain from my slender paycheck from 2008-2010, are worth a multiple of what I paid and have laid the foundation for retirement security for me, even if the markets were to drop by 50% tomorrow and stay there.
But to continue doing that, I ignored all news about the market. I didn't even log in to my retirement account except to rebalance for 4 years, because it hurt so much to watch the volatility. I just kept investing, knowing intellectually that it was the buying opportunity of a lifetime, even though emotionally it was agony.
But the best decision I've made has been just to save & invest as much as I can. Don't rely on extravagant stock market returns for your retirement security. Save til it hurts. If you can't stomach the volatility & will be tempted to move your money when the market drops, you should not be in the market--or else you could well end like the many people who lost their life savings in 08-09 when they pulled out too soon.
67
@Aly I held on through that recession also. Crucially for me, the great companies maintained and raised their dividends even through the recession. (Of course there were the banks, but that's why you diversify). I aim for a steadily increasing dividend cash flow, so share price fluctuations don't upset me too much.
4
@Aly
Excellent advice!
I take a chart of the DOW going back to the 1920s and shrink it real small, and the line goes from lower left to upper right of page, you cannot see the downs and ups, just a steady rise over almost 100 years. No reason to think "it'll be different" this time.
Proof that watching every day is pointless.
I did what you did. We were so busy at work in 2008/2009 that I really never looked at the balances, just kept investing each month into 401K and IRAs.
I am going to do the same thing now, even though I am retired. I am fortunate to have a pension that covers all my expenses and still allows me to save something on a monthly basis. I also have retiree health benefits til 65,( 63 now) and I know that could change on a corporate whim tomorrow, but for now, it's OK.
I retired at 57, and it's been a blast. Market could go down 50%, and if it does that, so be it. You only live once, and it really doesn't count til you take money OUT to live on.
11
Although Neil Irwin brings up some good points for the uninformed investor, he misses the major issues that face the stock market. They involve manipulation, regulation and transparency. Anyone who has looked closely at the 2008 financial crisis realises it is a rigged game.
1. Stock market valuations (even after the current drop) are unrealistically high ( ie. we are in a bubble)
2. The financial crisis of 2008 was 10 years ago, plenty of time to create a new "bubble" for unsuspecting investors.
3. High volatility in the markets is preferred by hedge funds, "insiders" and the profiteers that manage (yes MANAGE) the stock market. This collusion started in the 80's. There was very little volatility in the markets before hedge funds and "insider trading" became the norm.
4. No regulation of markets. The SEC is universally considered a joke and Trump has gutted any remaining controls. Wall Street has 100% of control.
5. The media always presents an overly optimistic picture of the market's health. The realistic "dark side" of market manipulation is always squelched.
61
@Paul Robillard
Absolutely correct on every single point.
The market is very easy to manipulate. That's what traders are paid to do. They're not paid to "trade;" that would be too risky. Big Money is big because it leaves nothing to chance. And why would they?
Google: "Cramer manipulation" and watch the short video of Cramer detailing how he did it. This vid was supposed to be for a private audience.
2
@Paul Robillard
I agree there is manipulation of the stock market but believe that corporate stock buybacks have been the biggest factor. This practice was outlawed until the Reagan administration (see SEC Rule 10B- 18). Instead of investing in their workforce, or more efficient machinery, or research and development CEOs have decided it is easier and more profitable (for them personally) to repurchase company stock—in many cases with borrowed money. This will not end well.
11
Have stocks.
Have enough cash for a year or so.
Own real estate.
You may not get rich, but one or the other will allow you to eat through any upheaval.
52
i pulled out some tech stocks in November (wish it had been June), but kept most in.
the big difference is that I'm putting no more retirement savings into the markets. I'll wait until Trump is out of office before i risk any more in the markets.
10
@paul - Now is the time to buy.
2
We had assets under management of over 1 million in 2008. Our financial advisors were charging us 1 percent which seemed reasonable at the time. But they panicked and pulled us out of the market costing us way more than 1 percent. They were as blind sighted as we were by the Great Recession. We now manage our own accounts through Vanguard and only look at them once a quarter to see if they need to be rebalanced.
122
@gourmand
Quarterly rebalancing is too frequently. Annually is fine.
11
@gourmand Your advisors were morons. They need to go back to Investing 101. Buy low and sell (or better yet, hold) high. They did the opposite. You should advise them, not the other way around.
The article states "you would have saved yourself from steep losses in 2008 and early 2009. But you have to ask yourself: Would I have also had the courage to put money back in while the economy was still in horrendous shape in 2009?"
Yes, in fact that is exactly what I did, on both ends (though only incremental adjustments, not getting out and then in entirely). Not timed perfectly, but better than no precaution at all (what this article advocates). I did the same in late 2017 - early 2018, when it was obvious to anyone with a basic understanding of economics that the tax cut was just creating a "sugar high" near the end of a VERY long run. I agree it's impossible to time things optimally, but one should at least hedge your bets. For example, though I fear there could be more downside (and there has been!) I started moving some cash back in starting last month. One should at least have SOME focus on fundamentals (earnings multiples) and adjust accordingly -- at least the article got that right. If the point is that now is not the time to look at adjusting, it's too late, then I agree. The market has more reasonable valuation right now in historical terms, and it's much more uncertain where it will be a year from now, than what it was (IMO) exactly one year ago, when I was reaping my final "dry powder."
Guaranteed returns of ~3% with ladders of some short term instruments is nothing to sneeze at in times of massive unpredictability (financial and political) like these.
15
While the overall message is sensible for the general investor, it should be recognized that there are indeed methods -- some fairly elementary (based on simple moving averages) -- that can do better than the buy-and-hold method being advocated here. While no method can predict market highs and lows "perfectly", various methods can, on average, provide useful signals with benefits over buy-and-hold. But for the unarmed general investor, this a minefield best avoided, as rightly suggested by the author.
6
@PT
Buy-and-hold worked prior to 2000, but volatility changed the game after. People have slow IQs so they are easily manipulated by brokers who continue to sell them the old "Don't time the market" line.
The break of a simple 50 moving average is a good signal to get in cash, as is the break of an LRC. Even a 5 year-old can do it.
For fundamentals, just ask, "is it more likely to go down, than up," and then "is it more likely to travel a farther distance down, than up?"
Don't let greed cloud your judgment.
1
Fourteen,
We don't hear much from those five-year-old traders, do we? I wonder why.
1
@Barry Ancona
Here's a secret from the top traders. If you find yourself wondering which direction the market is going - up or down - just show the chart of whichever timeframe interests you to a five-year-old. They get it right every single time.
1
"Suppose you were clever enough to recognize at the start of December 2007 that a major recession was about to take place, and you moved your money out of stocks. Yes, you would have saved yourself from steep losses in 2008 and early 2009. But you have to ask yourself: Would I have also had the courage to put money back in while the economy was still in horrendous shape in 2009, with double-digit unemployment and a banking system in tatters?"
This argument makes little sense. It *assumes* you need to buy back in low.
Suppose you did nothing but sell in December 2007 and simply waited until the market was back to that level before buying back in. You would have done no worse than those that stayed fully invested rode out the full downturn and rebound.
If you bought back in when the market had been rising for several months but was still lower than when you sold in 2007 then you would be better off than those staying fully invested.
The real question is what to do now? My advice is that if you did not sell last summer then you might as well ride it out. The market is already down about 15% from the plateau last summer; maybe it keeps going down, or maybe it rebounds and you miss the recovery and lock in a loss by selling now.
6
"You would have done no worse than those that stayed fully invested rode out the full downturn and rebound."
No, you would have paid capital gains tax (and state income tax?) on the sale, and you would have missed out on any dividend income from your sold positions.
4
We have weathered the market drop when the dotcom bubble burst and again the Great Recession in 2008-09, leaving our investments untouched. Since inception our equities account has had an annual appreciate after fees of 6.3% through ups and downs. All dividends have been reinvested in additional shares. Ditto for our IRA accounts invested in mutual funds with an annual average appreciation of 4.3% after fees. The point is that in the long run our investments have done much better than cash in a money-market fund or in CDs or Treasury bonds. A second point is that we haven't needed to touch the money. Now, in retirement I must take the annual mandatory minimum withdrawal from my traditional IRA. I reinvest it in the equities account.
Our son has also pursued a similar strategy and has seen his retirement account appreciate steadily despite downturns. We advise all investors in retirement accounts to stick with it and not to withdraw money (and pay a fine and taxes on the amount withdrawn).
7
Tremendous article. Thank you. I’m 63, retired and living off 100 percent of my savings (eventually to be supplemented by a decent pension, social security and, later, a deferred payout annuity). I found myself way too obsessed in 2018 by the machinations of the market and non stop news, almost to the point of unhealthy high anxiety. In the quiet of the Christmas week period, I committed myself to no trades in 2019, trusting that my asset allocation was appropriate for our short and medium term cash needs; living within a slightly reduced budget and enjoying where we live (Colorado); and eliminating all news and financial headlines sent across my smartphone and iPad. I also deleted all financial apps from my phone (credit cards, investment accounts, banking etc). There was a time in my life in which I paid bills once a month, never checked my 401k or other accounts, and, seemed to do just fine.
While it’s impossible not to know what’s happening since my gym blasts the news channels and the headlines scream across the screens, I can do my part to reduce my stress and ride it out. Otherwise, I should just cash out now and buy a bunch of CDs. I knew several people who panicked in 2008, cashed out, locked in losses, and proceeded to be gun shy, missing the greatest run up of the stock markets, maybe in their lifetime. Maybe there will be a pain point where I capitulate but I am trying to reduce the noise in 2019, so I don’t panic and join the capitulating herd.
62
My biggest regret of the 2008 recession was to stop contributing to my 401k. I didn't pull money out that was already in, but I panicked about the steep drops and thought I was throwing good money after bad. After the dust settled and the market picked up again, I realized I missed the boat on low stock valuations. Needless to say, I will not make that mistake this time. Fortunately (unfortunately?) I won't retire for another 25 years, so I can afford to watch my 401 take a beating.
11
''What Should You Do About a Falling Stock Market? Nothing''
No! -
Most of my family and friends moved completely out of the Stock market in Sept-Oct right before the YUUUGE Nov-Dec drop - or let's call it ''the correction'' - as -(like in 2008) it was pretty easy to predict the correction before.
And we predicted ''the correction'' on Dean Bakers ''Beat the Press blog'' - and hopefully everybody who read it - followed our example?
-(as the ''correction'' kind of proved)
5
@pieceofcake Bully for you. Millions don't have brokerage accounts and can't easily shift their work 401K funds around like some kind of shell game.
2
Unneeded trade wars along with the lack of stability ( looking at you, Donnie) in Washington will fuel another recession. A TV anchor is in charge of the counsel of economic advisers. The treasury secretary calls the banks to assure everyone they are stable, which then creates the perception that they are not stable. The tax cuts for the rich and corporations have fueled a gigantic deficit . Come April 15th, regular folks will see the tax cuts did nothing for them.
Add to this the government shutdown, no wonder there is fear in the markets. I don't have 10 years to have my retirement accounts come back like the last time.
Face it America, the stable genius is ruining this country on every level. Assuming we survive this and he doesn't get the urge to push a red button, it will take years for this country to recover, financially and emotionally.
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@Slr
" I don't have 10 years..."
Then you should not have positioned yourself in stocks. The farther your retirement horizon, the riskier your investments may be. As the retirement horizon draws near, your investments should become more and more conservative. This is Investing 101. Blaming Trump for your own retirement mistakes is pointless. Did you think a bull market was forever? Markets don't care about your partisan rants.
9
@Slr
What on earth do you thing a government shutdown means? Some bureaucrats not pushing papers is not the end of world. And slow down in economic activity will create pent up demand.
No matter how many experts say "don't try to time the market", a significant amount of people think it doesn't apply to them. The best evidence I have seen against timing the market is that missing just a few of the market's best days over multiple years can cut your returns by a significant amount. Then consider the fact that the market's best days are often the day after one of its worst days. If you think you can time the market, are you really willing to put all of your money back in after a bad day to catch those good days?
35
@Mike
Dollar-cost averaging is the best thing a small investor can do. When markets are down you're getting more shares for your buck, and when markets are up, well, markets are up! There is no downside to this strategy as long as you're patient and you don't overreact to the inevitable fluctuations.
11
Yes, investors tend to sell when prices are low and buy when prices are high. It will always be so and it cannot be any other way. Why? Turn it around and realize that when most investors are selling prices are lower, and when investors are buying prices are higher.
Now, for the futility of timing the market. Pundits point out that the best strategy for US investors has been to stay in the market, ignore the swings, and rebalance periodically. The data shows that this is the best strategy. But that data is the US stock market for the last many years. This is the greatest economy and the largest production of wealth in the history of the world. Is that cherry picking the data? Ask the folks from what was once the world's second largest economy, the Japanese
15
The best time to buy is when other folks are panic selling.
I look at this as a buying opportunity.
Dollar cost average in.
31
@confounded The best time to buy is when most people are selling. Good advice, but somehow most people don't follow it. Why?
3
@confounded Note: people do buy when others are panic selling. Otherwise, the sales would not happen.
5
@TonyD Exactly. A sale implies a buy.
Never listen to Street recommendations like take your age subtracted from 100% and put that in Equities not while Donny from Queens is at the helm. Read Ben Graham's Art of Investing from Columbia not Art of the Steal from Mortimer J. Snurd of Trump U. And you decide what your risk tolerance is and then enter or pull out.
4
Yesterday I moved all of my 401k to the most conservative option my company offers. My account lost 6% last year. Also, my stupid firm puts the corporate match in four days before the end of the year, instead of all year as I contribute--thus robbing us workers of the ability to have that money work all year.
Assuming I can even afford to retire, it will be within the next 6-8 years. I will never make that loss up. And I can definitely not afford to lose anymore.
Ignore this column. These are not normal times.
13
@green eyes
Thanks for this. I am 62, likely 8 years or so from retirement. I recently left my old job of 20 years, left my 401k (tied to retirement in 2 years, so very conservative now), sitting there, and started a new job. I'm debating whether to invest my new 401k conservatively or aggressively. On one level, I don't have lots of time to weather the storms. But on another level, I have an existing conservative account, and could risk more with the new one. Hmmmm......
1
@green eyes
I don't think there are "normal" times, but I get what you mean. "
1
Greeneyes,
I am little confused. You wanted the corporate match to lose 6% this year?
It might also be interesting to add up all the corporate matching contributions over the years along with their accumulated gains. Depending on how long you have been in the program, the total sum very well could be double or triple the original corporate match.
This is a great column with simple words of wisdom. Your comment illustrates what the article points out; folks get nervous and sell when they shouldn’t.
It’s understandable that we have an emotional attachment to our retirement years, but knee-jerk reactions serve to take away from the exact goal the action is intended to achieve.
Best,
6
I don't think it's a leap to say, get rid of the volatile president, volatility of the markets would calm. Our king of gross incompetency talks bigly, and bankrupts everything he's given charge of.
388
@Fromjersey
Since Trump emits a lot of meaningless hot air maybe those who take it seriously and clutch their pearls and run around like chickens with their heads cut off are the volatile ones.
2
@Fromjersey Did you read the article?
1
First, what is good for the goose is good for the gander, so just like the market maybe getting ahead of itself when it comes to a possible downturn, it is very likely to have gotten ahead of itself in the euphoric outlook of what a Trump administration would do to profits. Second, your advice of doing nothing is very good advice for those who have plenty of time (I am on that boat). But for those who have a horizon for retirement in the next ten years it may well be bad advice, and I would give the period from 2000 to 2010 as an example. Finally, the notion of timing when to buy so that you can get back into the market and catch the hypothetical gains is a very typical gambling mentality (very similar to those who think they have been working a slot machine and don't want to leave now that it is "ready" to give money). I would say that right now you could take the view that getting out of the market (or only partially leaving) only erases some of the gains of the last two years and gives you risk prevention, and that missing out on gains in case of a big rebound is not about what your money is doing but what it could have done. Of course that may well turn out to be advice that leaves you without big gains, but the opposite outcome, prolonged stagnation, leaves you with a serious risk of significantly loses.
3
It's hard to get rich quick, but almost anyone with patience and a decent job can get rich slow. I used to dread downturns (and at my age I've seen a few). But they are actually huge opportunities. While other folks are losing their heads, keep yours screwed on tight. If you have a 401k, you can rebalance (likely the last couple years of gains have biased your portfolio to equities and you may want to go online and check the optimal balance of stocks and bonds for your risk tolerance.) Also, take heart because if you have a 401k you are now buying cheap, and over the coming months you may be buying cheaper. Buying low is the key to investing, and downturns give you that opportunity in spades! When the market rises in a year or three, this will act like a multiplier.
Hopefully during the past couple years you took some gains and converted to cash. If you have done so, you really should be licking your chops. It's a wonderful time to be sitting on some dry powder.
62
I understand the broad picture, and I get it. But I don't like market volatility as my time horizon towards retirement is narrowing. And I get a little tired of this stay the course argument when it's pretty easy to jump in and out of the market nowadays. We can't predict millions of things about life, but making preventative choices is normally deemed wise except in stocks. Really? We've got Brexit, trade uncertainty, our government shutdown, the Fed, and first quarter returns in front of us. I'm struggling to save and lost my 2016 gains, so my choice is to let things settle a bit now that the tax cut sugar high is wearing off, the Fed is out to cool the economy, and Trump is trying to have it both ways about "we have to bite the bullet on trade but the market shouldn't crash" - yeah right. Here's another piece of advice I hear frequently - fgure out your comfort zone, and cut bait ion your losses after a set amount. I have only index funds, my loss comfort zone was 15%, and I hit it and lost 2017. Fine! I'll take a break and move back into individual stocks as their prices decline closer to their earnings, then rejoin the index.
If I heard there was both a lot of political violence and heavy plate tectonic activity that might or might not cause a tsunami in Thailand, I probably would unbook my vacation and look for something else.
7
@ann I'd suggest minimizing stock exposure as you get closer to retirement. It's simply too risky and volatile to depend on.
11
@ann The point of the article, and it’s a good one, is that you are exceedingly unlikely to be able to properly time your reentry into those index funds. By missing even a single key day’s rise, you could potentially do far worse than if you just rode out the trough. And you’re likely to miss more than one key day of the recovery.
I saw this very scenario play out myself with friends who just had to get out in the aftermath of 2008.
14
@ann
Consider a target-date fund (Vanguard and some other large mutual fund companies have these). They maintain a fixed ratio of stocks to bonds over most of their lifetime, automatically rebalancing as needed, but as a "target date" is approached, the ratio of bonds to stocks in increased to make the portfolio less volatile although the expected returns will be lower in the future since as the article points out, expected returns over the long term for stocks is better than that for bonds.
So you can set the target date to correspond with a retirement date, or the date kids will go to college and need college funds, or for any other need whose date can be roughly predicted.
5
A good poker player raises when the odds are in her favor and folds when things look dicey but, like the stock market, there’s no crystal ball.
With stocks, it’s quite possible to buy low and sell high without knowing when the exact peaks and valleys will occur. The problem arises when investors get too greedy.
9
@Barb Campbell . @Barb Campbell Yes, it's certainly possible. It's possible that I will write the great American Novel, though the chances would be greater if I could at least pick a title.
3
@Barb Campbell
Know when to hold them. Know when to fold them. Know when to walk away and know when to run. Trump’ s tariffs and tweets directly affecting the market? Fed signaling rate increases? Credit problems and political turmoil around the world? If one were sitting high when the rumbling started, I considered that time to RUN.
This all makes sense in a “normal” America. Do the 10,000 Monte Carlo simulations take into account a completely unpredictable and unreliable central actor like Trump, a once-in-243-year event? I fear not. And with a huge deficit precluding stimulus spending, extremely low interest rates already precluding significant stimulant rate reductions, fleeing allies with whom we might have planned a global response, I fear the coming winter may be long and cold indeed. I can better tolerate missing the 10-20% rise some forecast than the 50% loss I sense around the next curve.
147
@James Hiken Trump is actually in a trade war with the whole world; it won't be good for any of us...!
I would not, and have not taken this writer's advice in the last year, or would for the next several years.
This is not a normal situation, at all. The president is a loose cannon that is the chief driver of the volatility (never a good sign) in the market. Just look over what he did in the past year. He will continue in an even more erratic way this year, without Mattis and Kelly to reign him in.
I lost $8k in stocks that should have returned at least $15k. No biggie. I am now completely out and feel much better. When I thought about it, I see nothing good that is coming. Yes, your money will recover, but why take the losses that we know are coming in the next several years?
38
@RAH Interesting. If you have certain knowledge about stock that "should have returned" a certain amount, I'd love it if you could pass it on. I've been in the market for many decades and don't have suck knowledge. My knowledge is that the market is risky and capricious, though profitable in the long run.
9
@Ernest Montague . Yes, you are correct, what I expected was just a daydream, evidently. I think you are right about the market being profitable in the long run. As others are commenting, until Trump is out of office, the risk is just too much.
1
@RAH. This article is for you and for people who think like you do on this topic. You should read it again. There is solid advice in it for you.
1
Yeah sure. It's in the interest of the 1% that the rest of us suckers ride it out, while they fritz with things, bribe the government, and short sell the rest of us. Reflect on those near retirement before they lost half of their savings a decade ago. "Ride it out."
Tell you what I do. I listen to Bloomberg and when I sense the inevitably perky guest analysts are in denial-it's pretty obvious-I put my money in cash.
Guess what, they're in denial again.
104
People could spend 10 minutes reading this resoundingly wise article or weeks and weeks listening to the noisy and clamorous financial media. I don't need an I-phone 10 to tell me which is the better choice. Thank you, NY Times!
19
Got laid off fall of 2008 with a year's severance and found a new job in less than a month. Maxed out my 401ks into S&P index funds and similar for the next several years. Best money I've ever invested. I've always kept a 65/35 stocks/bonds mix... although slowly moving closer to 60/40 as I age. If you want to trade, take 5% of your portfolio and consider it play money and have at it. Leave the rest invested in a long term plan.
165
Sage advice! Get rich slow!
24
The buy-and-hold strategy that the author advises has worked well for long periods where the market was affected mostly by normal business, technological, political and economic cycles.
The extraordinary political turmoil now rocking the nation -- caused by a dishonest, corrupt and incompetent administration -- is a different kind of market risk.
I'm not sure that the same investment rules still apply.
290
@Josey
Anyone who thinks that the last 50 years or so (during which I have been investing for my now retired situation) was "normal" hasn't been paying attention. There is no such thing as "normal".
39
@Josey: Even if you are right (we all agree Trump is completely out of control), you still will not be able to time the market properly. There is tons of evidence that no one (and I do mean no one) can beat a general index of the market as a whole (e.g., the S & P 500) over any considerable period of time. Some people can do it for short periods, but not over a long period.
Thus, you are better off following Irwin's advice. Leave your money invested and go do something else.
33
@Josey
If you think Trump will cause the collapse of civilization, pull your money out of stocks and put it into canned goods and ammunition.
Otherwise, when we again have a sane President, you'll wish that you had kept your money in the market.
30
This is only partially true though. Market research for the companies you invest in exists. There are millions of data points to analyze. Noone invests in "the stock market" as a whole, they invest in parts of the market. A solid understanding of your investments, while not fool proof, is a tried and trueish way of identifying when to pull and when to push.
2
@Mas9n Index investors do, indeed, own "the stock market." Vanguard's Total Stock Market Index Fund is a prime example of you can do so.
15
@Mas9n
"No one invests in "the stock market" as a whole.."
Index fund (or ETF) investors may disagree with you.
15
Exactly right. And I had forgotten about the part of continuing to buy during 2009 through regular 401k contributions and matching funds. I didn't touch anything during those years, other than continuing to contribute and ( since I was old enough ) moving money out of the 401k into IRAs in lower cost funds ( Vanguard )
3
It seems that it doesn't take much these days to cause people to panic but maybe that has more to do with the erratic behaviour of the current occupant in the White House. He is scary.
220
@Steve
Tax cuts and reevaluating trade deals is the kind of behavior we need. As well as scraping excessive regulations. Thank you President Trump!
Perfect advice for almost all people.
If you are speculator, wheeler dealer you may not want to follow it but your chances of getting burned is good.
You can nibble around the edges, ie when the market is way up, build a little cash nest eggs to protect when it goes down or end of year loss trades for tax purposes but the advice given here is basically right.
21