It seems that Trump and the Federal Reserve are looking at a reduction in interest rates, which I believe will extend the bull market in both the stock market and real estate. I'm guessing they're going to try to keep it going until after the US elections in fall of 2020, to keep the illusion of a strong economy going, as this is such a cornerstone of Trump's platform.
We have moved into a cash position, and are being pressured by financial advisors to take advantage of the year and a half of growth to invest the money for higher returns. We are feeling foolish for being cautious, like maybe we should work with this change. At the same time, it feels like a house of cards and there are so many variables that could knock it down, despite the interest rate issue. How significant is the interest rate benchmark, and are we unnecessarily losing out on growth with them backing off from increasing it? Are we wise or foolish to remain on the sidelines, patiently waiting for things to play out (especially given a short time line to retirement, thus having a short time to grow it)? It is hard to be confident in our choices when things are all so uncertain!
Signed, Under Pressure!
Dear Step Out of the Show Room:
First off, you are quoting a sales pitch as if it were truth, when the truth is that you’re quoting a sales pitch. The Feds and the White House are not colluding to win an election. In fact, if you’ve been paying close attention, then you’ll recall how absolutely apoplectic #45 is that the Feds aren’t playing his game. The Administration has even looked for ways to replace Federal Reserve Chairman Jerome Powell. The truth lies in the Asset Bubble chart below.
The Federal Reserve Board governors know that they kept interest rates too low for too long. Low interest rates create bubbles. Now, if the economy weakens, as it is forecast to do this year, the Feds don’t have enough room to lower interest rates sufficiently to help boost economic growth. So, there is a majority on the Federal Reserve Board who are interested in keeping rates as high as they can for as long as they can. That’s why this week has been so weak on Wall Street – because Jerome Powell in his speech on June 25, 2019 said that “Monetary policy should not overreact to any individual data point or short-term swing in sentiment.”
As to the other idea that you are missing out on gains, that is why we use a pie chart rather than market timing. You’re never all in or all out of the market. You’re always in at an appropriate level based upon your age. You should also be diversified and have exposure to some hot industries. In a normal world, your safe side would be invested in bonds, and that side would earn a decent return. We’re not in a normal world. We’re in an over-leveraged world. The Bubble Chart above shows you that in black and white.
I’m not sure why you have so much cash on the sidelines, however, I’d be more concerned about buying into losses than missing out on gains. As you can see from the charts below, most people lost more than half of their investments in the last two recessions. This was with bonds making money. Bonds lost money in 2018, and due to the amount of high-leverage and low interest rates are too vulnerable to be worth the risk, when you are getting such a low return.
4.5% yield is $4500 on $100,000. If you’d invested in General Electric to get that kind of dividend, you would have lost more than half of your principal. General Electric is not the only company borrowing from Peter to pay Paul. In fact, according to Howard Silverblatt, the senior index analyst at S&P Dow Jones Indices, one out of four S&P500 companies are buying back their own stock to make their earnings look higher and their share price look lower (i.e. financial engineering). Financial engineering is not real growth. Investors were livid when they learned that GE was doing this, but are unaware that it is absolutely rampant on Wall Street these days.
Things are always uncertain. The one thing that is certain is that when the markets are at an all-time high, the broker-salesmen get desperate and the sales pitches get more urgent. Your own desires try to push you to believe them because you want to join the party.
At the depths of a recession, the broker-salesmen are all jumping ship, and at a loss of what to tell you now that they’ve lost more than half of your assets. The turnover of financial advisors in Great Recessions can be 90%! Your stomach acid is keeping you awake at night. By the time things look the worst, it is usually the time when the economy starts to turn back on track. However, you’re tempted to sell low because you’re not reading data, you’re still reading headlines and looking at a sea of red on your brokerage statements. In other words, listening to salesmen and stomach acid is a losing proposition that tempts you to buy high and sell low. Time-proven systems are always a great plan, and work the best by avoiding losses in recessions and outperforming the bull markets in between. The pie chart system, along with annual rebalancing, pulls the red and green lights out of the planning and encourages you to do what you are supposed to do without the emotional attachment.
So, the real question is: why are you listening to salesmen for your information? Isn’t it time to be the boss of your money, and trust data, information and time-proven systems?
The Bottom Line
If you wait for the headlines that the economy is in trouble, it will be too late to protect yourself. The December drop (which was the worst December since the Great Depression) is a warning shot that now is the time to be sure that your exit strategy is based upon a time-proven system and not Buy and Hope.
If you'd like to learn time-proven strategies that earned gains in the last two recessions and have outperformed the bull markets in between, join me at my Wild West Investor Educational Retreat this Oct. 19-21, 2019. Click on the flyer link below for additional information, including the 15+ things you'll learn and VIP testimonials. Call 310-430-2397 to learn more. Register by June 30, 2019 to receive the lowest price and a complimentary 50-minute private prosperity coaching session (value $300).
I'm also offering an unbiased 2nd opinion on your current retirement plan. Call 310.430.2397 for pricing and information.
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Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.