STOP Timing the Stock Market – 5 Better Solutions for Retirees
Timing the stock market sounds good.
Invest when it is going up and get out when it’s bad.
But, no one can predict what the market will do with consistency. So should retirees just set and forget it?
STOP Timing the Stock Market
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Full transcript:
SPEAKERS
Alex Okugawa 0:00
Timing the stock market sounds good invest when things are going well and get out when it’s bad. But no one can predict what the market will do with consistency. So should you simply set it and forget it? Hey there, it’s Alex and Anthony from One Degree Advisors. If you’re new here we are Certified Financial Planners who help folks with all things tax, retirement, and investment-related Anthony, people love the idea of perfectly timing the market, but in reality, it’s impossible to do with consistency. That’s what the data shows. But investing and then never looking at your investments, again, is not a good idea. Either. Good investors are okay with the fact that we cannot perfectly time the market. But today we’re going to discuss five solutions to consider instead of, you know, again, trying to perfectly time the market.
Anthony Saffer 0:53
Yeah, let’s first show why timing, the market is next to impossible. The lowest point in the market does not come with that all-clear sign like hey, it’s ready to go. Because usually, that’s when the news at us is at its worst. Here’s the front page of Yahoo Finance, March 23rd, 2020. Right in the heart of COVID. At this point in time, the news was was terrible, all the bad unemployment numbers were just starting to come out, no one was predicting that the market would bounce back from there. And in fact, the stock market returns 67%, from that low point in time, through the end of the year. And here, we’re going to put up a chart here to show you the full year of 2020. And just how dramatic the decline and then the recovery were.
Alex Okugawa 1:36
Okay, for people who are still not convinced. Let’s go through a couple of reasons why timing the market is difficult and potentially harmful.
Anthony Saffer 1:43
Number one is that you need to be right twice. Okay. It’s great to get out. And sometimes people will brag about that. But we hear so often, well, I don’t know when to get back in and things are starting to recover, they’re probably going to come back down again, I’m afraid to get back in after 2008. This was a great example of it because we heard it all the time you had that deep decline start to come back. And years later, the news was always talking about a double-dip recession. That was the terminology that the news was using.
Alex Okugawa 2:11
Our neighbor got out a little bit before the dip. And then he kept telling you see I told you, I told you, and then it’s 567 years later, and they’re still sitting in cash, right? And that in itself is very harmful. And a problem.
Anthony Saffer 2:22
Yeah, Greece was defaulting on their debt. And for years, you know, the market was recovering in the midst of bad news. Here’s the second thing is that missing the best days in the market can be costly. I’m gonna put up this chart here from DFA. And what it shows is that if someone had invested the Russell 3000, it a stock market index of $1,000, over a 25-year period from 97 to 2022, that $1,000 would grow to $10,367. Well, missing just the best week out of that time period, would bring it down to $8,652. That’s a dramatic decline for missing just the best week. I mean, take another example, the best six months. If you missed those best six months, it goes down to $6,700. You’ll notice if you look at the graph here, all the dates that are shown for these best periods are right after dramatic declines mean telling us that often the strongest part of the recovery is nearly the bottom.
Alex Okugawa 3:22
Yep. Okay, and thank you. So if we can’t perfectly time the market, let’s go through five solutions of what folks can do, especially during times of distress, like we’re seeing right now. The first solution here is diversification. I
Anthony Saffer 3:35
I like the way that Nick Murray says that he says diversification is the conscious choice not to make a killing in return for the blessing of never getting killed. It’s about spreading your risk.
Alex Okugawa 3:44
And the second thing here is the inside of your portfolio, including a tactical/trend, risk management strategy.
Anthony Saffer 3:53
It’s a way to diversify your risk management from just bonds or cash using a data-driven strategy.
Alex Okugawa 4:00
Now, so far this year, our trend following tactile strategy has worked really well. So a lot of folks are like, Well, why don’t we put you know, more of our portfolio in this? And of course, we have to remind them with discipline, there’s a reason why it’s just a piece and not the whole pie. Because when there’s a clear trend down or a clear trend up, this strategy works really well. But when things get choppy, and there are no clear trends, you know, it won’t look that great. The third thing here is rebalancing your portfolio.
Anthony Saffer 4:26
Markets cycle up and down, it’s getting back to your target position so that you can optimize risk and return.
Alex Okugawa 4:32
The other thing that folks can do this year, especially with markets down is looking at tax loss harvesting, especially if you have like a taxable brokerage account. You can also look at repositioning some holdings that maybe you’ve never really wanted, but now could be a good time to do so.
Anthony Saffer 4:48
Use the market to your advantage if you have some positions with losses, maybe selling something and moving it into something similar so you can still participate in the recovery.
Alex Okugawa 4:57
And then the last thing here is to focus on stabilizing your income.
Anthony Saffer 5:01
Yeah, they could be direct income sources like Social Security, and rental income pensions, but also have enough in short-term conservative investments. So you can take income from that and wait out the stock market.
Alex Okugawa 5:13
And the main thing here is to focus on the things that you can’t control. Nobody can perfectly time the market with consistency, but with a good plan and following these basic principles, you can set yourself up for long-term success. Once again, this is Alex Ogawa from One Degree Advisors. And if you’re interested in learning how we help our clients, especially retirees develop an investment plan for both the up and down markets, visit our website at onedegreeadvisors.com
Transcribed by https://otter.ai
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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures
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