More than Money with Gene Dickison
“Is the Stock Market Ready to Tank?” Should You Stay or Should You Go?
It seems that every voice on radio and every talking head on TV is saying the stock market ‘sky is falling’. The fact that the market is finishing its second straight year of strong gains isn’t – in their minds – a good thing. They want you to believe that the longer this ‘bull’ market goes up the more ‘tired’ the bull gets. First, do they know that there really isn’t a bull? It’s just a metaphor. Second, the stock market bull only gets tired when the companies it represents do poorly. As long as companies continue to increase their profits they will continue to increase in value and their share prices will go up. So we can conclude that there is some bull going on here – and it’s not all on Wall Street.
So why all the talk of doom and gloom? Primarily the scary talk is coming from folks who want to sell you something. Gold and silver salesmen. Annuity salesmen. Life insurance salesmen. Real estate salesmen. Tax lien certificate salesmen. They all know that if you become fearful enough you may leave your stock market investments and look for some place ‘safer’ to invest. They all want to be your ‘someplace safer’ – whether they are or not. I wish that these hucksters were required to meet the same standards as required of financial advisors when communicating with the public. They are not. They can pretty much say anything they want without let the facts get in the way.
However, to be fair, there are some well respected names in the financial arena who are also warning about potential weaknesses in the equity market. They each have their own analytically based reasons for believing the stock market is poised to tumble. I have reviewed a number of these and found them quite credible. Not hype. Not fear mongering. Reasoned analysis that leads them to believe we should expect a significant (20% +/-) correction. These individuals are sharing their interpretation of the facts as they see them. It doesn’t necessarily make them right. It also doesn’t make them wrong.
Is the stock market going to correct? Yes. I don’t know when and I don’t know how deep, but I know the market will correct. It always has. It likely always will. Since we know that stock market corrections are a given, what is an intelligent investor to do with that fact and all this talk of doom and gloom?
You may very well benefit from doing nothing. If you have a solid plan in place that meets you needs, your timeframes, and fits you tolerance for the ups and downs of the market – do nothing.
Use a Dimmer Switch
Being ‘in the market’ is not an on-off switch. It should be thought of as a dimmer switch (my engineer friends assure me the proper term is rheostat). Your current portfolio allocation may call for a 60% stock market segment. If your heart/stomach causes you pain, consider dialing that back to a lower number until your flutters subside. Is that 50% or 40% - it’s your call. We aren’t trying to time the market. No one can do that. We are simply trying to keep you in the market to the greatest extent we appropriately can and still have you sleep at night. Remember dimmers can and should go both ways.
Secure Your Next Three Years
The fear most people in or near retirement have is a stock market tumble will crush their retirement income. Understanding that the key to riding out a market down turn is to have enough time for the market to recover from a correction. If you remember 2008, the market went way down and come way back over the course of about three years. You might consider building a shock absorber into your investment portfolio by carving out three years of income and placing that into any number of secure (not stock market) positions. This will allow you to live off your security and not be forced to sell stock assets when the market is at a low.
Grab Those Big Company Stocks
All stocks carry risk. Not all stocks carry the same risks. In general, larger companies are more resistant to down turns in the market than small and medium companies. If stocks are appropriate for your long-term plans, but you’re feeling the fear – consider reducing or eliminating your small and mid-cap assets and push those dollars into larger, more established companies.
Taste Bonds in Lots of Flavors
All bonds carry risk. Not all bonds carry the same risks. During market down turns bonds tend to protect principal better than stocks. However, some bond types are very protective and some not very protective at all. Government bonds, corporate bonds, municipal bonds, high yield bonds, floating rate bonds, inflation adjustable bonds, and foreign bonds are just some of the many flavors of bonds you might employ to create some level of stability outside of the stock market. Be sure to be as appropriately diversified in your bond portfolio as you should be in your stock portfolio.
Lock In Guaranteed Lifetime Income
Many people think they can only get guaranteed lifetime income though social security and pensions. In truth, many types of annuities (fixed and variable) offer investors the opportunity to lock in guaranteed lifetime incomes. In some cases you can even lock in guaranteed lifetime income for the two lives of husbands and wives.
These guarantees come at a cost. In some cases, as significant cost. If you think a guaranteed lifetime income would fit you, you must commit to doing your homework. You must understand the differences between types of annuities and the costs involved. These are not simple products. If you are not comfortable that you can effectively evaluate these issues yourself – be sure to seek the counsel of a trusted and knowledgeable expert.
Employ Fixed Index Annuities
Sadly, there are too many FIA salesmen selling FIAs as super simple – ‘Go up with the stock market and never lose money.’ There is nothing simple about FIA. They are complex products. They require some really work to understand. They require even more work to determine if they fit your needs. This doesn’t make them bad. But it does make them significantly more challenging than simple minded salesmen may want you to believe. Again, if you don’t feel comfortable that you can evaluate FIA yourself – and it’s highly probable you should not feel comfortable - seek the counsel of a trusted and knowledgeable expert.
A Tanking Stock Market – A Second Opinion
I’ve offered you seven options for how to respond to the current doom and gloom view of the stock market. There are many more. Please do not take any of these as a recommendation for you specifically. But I do have a specific recommendation for you – now’s a great time to get a second opinion on your investment strategy.
A second opinion meeting will review your personal goals, your current financial structure, and look at ways that might improve it. You may find you’re in quite a mess. You may find your current financial advisor is doing a wonderful job and has you right where you should be. You won’t know until you take the first step.
Second opinion meetings are available at the More than Money World Headquarters (doesn’t that sound cool? A little over the top, but cool) and they are free. There is no cost, no pressure, no obligation. Just an opportunity to meet with an experienced advisor who will provide you a solid evaluation of your investment picture and answer your questions about any part of your financial life. All you need do is call.
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Words are Powerful Tools for American Freedom
The great American philosopher, Yogi Berra (not Yogi Bear – he’s the ‘other’ one) said:
“Predicting is really hard. Especially about the future.”
Don’t base your investing strategy on a premise that is inherently impossible.
YOU CAN’T PREDICT THE FUTURE! And neither can anyone else. If someone tells you they know what direction the stock market is going and when it’s going to happen, you can assume one or more of three things:
They are or should be on drugs.
They are deeply, deeply delusional.
Or . . .
They are criminals trying to steal your hard-earned money.
Don’t trust your financial future to the medicated, the delusional, or the criminal.
Please allow us to serve you and those you love.
P.S. What does your financial future hold for you?