COMPLACENCY is not a strategy…

I’m posting about what is happening in the markets and economy to try and warn people ahead of time

So they have the time and wherewithal to make potentially life-changing decisions while they have time

(For example, if you’re within 5-years of retirement you need to take a serious look at the risk in your portfolio)

I’ve been seeing investment professionals post charts about how ‘there’s always a reason to sell’ showing the long-term performance of the stock market as a justification to just ‘shut-up and hold’ despite everything going on

I’m the first person to tell you that the stock market is an incredible engine of wealth creation over the long-term

In fact, most of the time the stock market does go up…

But that doesn’t mean there’s NEVER a time to adjust your portfolio, change the risk level, reduce your allocation to stocks, invest in other asset classes, better diversify, etc.

Every once in a while, a combination of headwinds in the stock market such as: extremely high prices compared to fundamentals, a weakening economy, and the continued lag-effects of high interest rates (sound familiar) creates an environment where the odds of poor market performance from here are MUCH higher than normal

There’s also the potential (I’m not predicting this and certainly not hoping for this) for a major downturn in the stock market as it typically falls ~35% in a recession from peak to valley and can sometimes take years or even decades to fully recover on an inflation-adjusted basis (see chart below)

In fact, as shown in the chart below, at turning points in the economic cycle the Stock Market has historically taken DECADES to recover (when adjusted for inflation).

And as investors (who can DIVERSIFY into other asset classes), risk / return ratios and odds SHOULD BE the most important element of our investment process

Fortunately, There are a number of other asset classes that have much better risk / return ratios right now than the US Stock Market (based on their fundamentals)

Instead, many investors today have this religiosity to never sell stocks regardless of anything going on in with the economy, the markets, or their life or goals (which is insane and speaks to the level of complacency today)

Warren Buffett certainly doesn’t follow this approach (he’s been selling core positions like Apple and has built-up the largest cash pile ever)

Investors had this same level of complacency around Bonds a couple years ago when they were yielding close to 0% with huge interest rate risk (and got crushed when rates rose)?

Now is the time to take ACTION… not be complacent

Even if that action is just making sure you’re ok with the risk in your portfolio in relation to your goals and understanding how a prolonged market downturn could affect you

When we are in the heat of a big market downturn, AFTER the market has corrected adequately…

THEN I will welcome the ‘there’s always a reason to sell’ chart and I will be recommending holding or maybe even increasing stock exposure when prices are low (buy-low sell-high…)

In fact, in the depth of the market crash in 2020 due to Covid, when stocks were down 35% in 2-weeks, I was posting and talking to clients about staying calm and kept many people from selling at the bottom. Same thing in 2022.??

But most major downturns are not so short-lived…

Again I can’t stress this enough… there are OTHER ASSET CLASSES that we can invest into that have already adjusted to the current environment and can make great returns without nearly the same risk as the stock market at this time (REIT’s, Gold, Bonds, Private Equity, Private Credit, Cash, etc.)

I’m not suggesting NO stock market exposure, but please take the time to really understand what is going on now while you have the chance.

I don’t have a crystal ball (and I don’t know if, when, or how much the stock market will be impacted) but I’m rarely this concerned about what I see and my goal is to help people with this information.?

Please let me know if you have any questions.