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Don't Listen To Anyone Who Says To Be Fully Investing In Stocks At All Times

It is often observed that the point of maximum extreme in a volatile market is the point of greatest danger to an investor. Market extremes may trigger emotional decisions that often prove harmful to the investor. This is true both on the upside - when investors put too much money in telecom, technology and internet stocks during the late 1990's - and on the downside, when investors panicked and sold their investments at the bottom during the financial crisis of 2008.

Interestingly, the same can be said about times when there is extremely low volatility for stocks. Investors get frustrated when stocks move sideways for an extended period of time and stock returns cannot beat returns of bonds and cash. In such environments investors may purchase high yielding stocks and bonds that may not be suited to that investors risk profile. Or investors may seek funds from hooligans who promise high returns in gold or some exotic trading strategy.

In fact, 90% of the time the markets move sideways deciding which way to go and only 10% of the time do markets move up or down in a meaningful way. The table below shows what happens if you missed days with the biggest gains. Notice this if investors just bought and held and index fund of the S&P index for 20 years their portfolio would have risen 383%. If investors just missed just 1% of the days with the biggest gains, investors would have lost 33% of their investment! This illusion is why most financial advisors advocate avoiding market timing.

Source: Yahoo Finance historical date of the S&P 500 Index

On the other hand, if investors missed just 1% of the days with the biggest losses, investors would have gained 5,401%!

Source: Yahoo Finance historical date of the S&P 500 Index

The second chart above illustrates why strategies that seek to avoid the biggest declines like our method, has much more historical significance than the simple buy and hold approach. We marry buy and hold with our stock portfolio, but layer it with a hedging strategy used to avoid major market declines

I am sure you are interested in how the election may impact your portfolio. The short answer is we don't know. Historically stock markets do better under Democrats than with Republicans. The exception is when Republicans have been successful in changing the tax code to dramatically reduce taxes as was the case with Ronald Reagan. But, even with Ronald Reagan, the stock market did not react positively and remained in the doldrums until legislation was actually passed in Congress and approved by the President.

We continue to appreciate you continued support and we will continue to seek the best returns at the risk that is right for your portfolios. If you don't make money we do not charge you a fee!