I am starting to field more and more phone calls from clients wondering whether they should sell their stock market portfolios in order to go into fixed income. Being down 53% on the Dow and S&P 500 indices, I am loath to do that especially if the investors are under 50 years of age. If we professionals have served our clients rightly (and I know that my people have), then as folks get older, their percentage in growth stocks decreases while their percentage in fixed income increases. But, make no mistake, whether you are 2 years from retiring or 50, moving to cash comes at a cost…and that cost is substantially augmented when the move is made out of fear.
The problem with being afraid is that there is no where to hide. Going into ten year U.S. Treasuries will yield you somewhere around 3 %. If you subtract inflation and taxation’s effect on your return, you are actually losing purchasing power. It is just not a good option and the reason has nothing whatsoever to do with the investment. The error occurs in the choice of the investment.
If you are fifty years of age or under, it is reasonable to assume that you are probably going to work for at least another 15-20 years. Everything is predicated on that assumption when it comes to retirement income. Social Security kicks in full at 66 years of age, for example. You can defer distributions from IRA’s until 70 1/2.; you see where I am going with all of this. With a 15-20 year time frame, this market has plenty of time to recover, and most likely will see 4 or 5 full business cycles before you are through.
So, far from selling at these depressed levels, you should be looking to buy at these levels. I recognize full well how difficult that is for most people. But underneath their fear is an irrational sense of loss that can only be manifested if the stock market goes to zero. Does anybody think that is in the cards? The true culprit in all of this is whether or not your fear gets you to forget your investment objective. If you are trying to create a nest-egg for retirement, you are not going to maximize your returns utilizing fixed income vehicles.
Well, it’s good advice (thank you very much), but it is not much comfort. The sad reality is that we are going to be in the doldrums for awhile yet. The news, while getting better, is still not great and we have a media all too willing to trumpet the bad news and fan the flames of your fear. The intrepid amongst you will see the opportunity for what it is and shun the notion that the United States of America is going to cease to exist. That simply is not true, and truly successful investors understand opportunity. I have frequently said that stock markets by and large do not ring a bell at the bottom and say, “yoohoo, go ahead and buy me now.” They don’t ring bells at the bottom or tops of markets. But, I gotta tell ya, folks; both now and if we continue to go down further, methinks I hear the dulcid tones of bells.
Have PoliticalMavens.com delivered to your inbox in a daily digest by clicking here
