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How To Steer Your Retirement Portfolio With The S&P 500 Near All-Time Highs

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How To Steer Your Retirement Portfolio

It’s time to start using your “risk-management muscles” again

I continue to be astonished about something relating to the stock market, and particularly the S&P 500 Index. Specifically, I am amazed at how much wealth aimed at funding people’s retirement is sitting in vehicles tied to the fate of the broad stock market indexes. Furthermore, much of that money is sitting around, as if the good times will never end.

In my ongoing effort (crusade?) to separate investing in the stock market from being dangerously complacent as you near or enter retirement, here is a view of the long stock bull market you probably have not seen. There is no hype here, just facts.

Just follow the captions below each chart. Frankly, if you don’t like charts, ignore them. Just look at the captions below.

The S&P 500 has gained a stunning 447% since early March, 2009. Awesome.
The gains were strongest during the first 6 years of that run-up
After that big move up, the S&P 500 spent most of 2015 and 2016 going nowhere. In fact, U.S. Treasury Notes (3-7 year maturities) outperformed the stock market during this time.
The 2016 U.S. Presidential election started a re-acceleration for stock prices. It continued sharply for about 15 months, through late January, 2018. Then it stopped.
From January, 2018 through the end of last month, the S&P 500 had total gains of about 5% over 19 months. During this time, 3-7 Year U.S. Treasuries beat stocks by about 2-to-1.

We we have here, is a failure to communicate

The scoreboard says “big, long bull market.” But that oversimplification may end up being THE primary source of overconfidence on the part of investors. This is no big deal if you are 24 years old and are perhaps 5% of the way toward accumulating the assets you will need to retire. The concern is for those who have not been forced to confront a stagnant or falling stock market for over 10 years.

I see something different

  • Since the end of 2015 (going on 4 years), nearly all of the S&P 500’s gains came in a 15-month period immediately after the U.S. Presidential election.
  • Since early 2018, a notable slowing in global economic growth and corporate earnings has started. At the same time, debt at all levels (consumer, corporate, government) is even more out of control than before.
  • There can always be another round of excitement and upside pumped into the market. Ending trade wars, more central bank stimulus, or anything else that prolongs animal spirits can keep this bull going.
  • However, those are all things that our out of our control. What IS in our control is positioning your nest egg to be ready for nearly anything.
  • With nearly more than half of the past 4 years being flat times for the stock market, and bond rates at very low levels, it is not enough to just rely on the old rules of allocating assets and counting on the markets to carry you.

Time to hit the weight room again

In one way, successful investing is like working out at the gym. If you have not had to exercise your “risk-management muscles” for a very long time, it may take some time to get back into it. My aim in chopping up this 10+ year bull market into 4 individual parts is to help you realize that if you have not been spending time at the “risk-management weight rack,” you may want to bulk up.

Regardless of what the market environment is going forward, here is what I think will be helpful in navigating your remaining path to retirement, or continuing through it:

Be willing to be more short-term oriented in your stock portfolio.

Sustainable gains will likely be tougher to come by, and risk of major loss is higher than in the past decade. As I have said before, the stock market is a tool to use for profit-seeking activities. It is not “the end.” It is the “means” to that end.

Forget what you know about bonds.

It all goes out the window. Bonds will be at best a tool to earn capital appreciation if rates go to zero. At worst, they can be the biggest negative surprise in your portfolio. I wrote a while back that a 1% rise in long-term Treasuries in a year equates to about a 17% investment loss. Long-term Treasury rates are near all-time lows. At some point, this will be a retirement-crusher if you are not in tune and ready to substitute.

Contrarian thinking can be your friend.

Don’t get caught up in the hubris now, and don’t get dragged into thinking all is lost when the stock and/or bond bear markets really take hold. In investing, the herd is often wrong…especially at the extremes.

The bull market has been great. And maybe stock prices can go still higher from here, at least for a while. However, that should not blind you to the fact that markets are cyclical. But hype about markets is not cyclical. It is always there, threatening to separate you from your wealth. Fight back, get educated, and manage risk proactively.

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Related: The Story Behind 2019’s Historically Deceptive Stock Market Performance

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