When Erma Bombeck found she had a fatal disease she wrote a column, “If I had my life to live over” which became quite popular. Being an ice cream lover, I always preferred Nadine Stair’s version.
The old saying “hindsight is 20/20” – is not reality. We factor in the potential for risks, most of which never come true. If I knew I would not have an auto accident or fire for the next 20 years, I could save a lot of money on insurance. If I knew exactly how long my wife and I would live, I would not be so hell-bent on making sure we have enough money to last until age 120. You get the picture!
I prefer reality
The life we live in is full of challenges, uncertainty, twists, turns, emotional highs and lows – that is what life is all about. When the Cubs won the World Series it went into extra innings in the 7th game. The Indians had the tying run on base when the game ended. We were on the edge of our seats. It would have been boring if we already knew the outcome. The thrill of victory and the agony of defeat is what make the game of life interesting.
I feel a lot of people miss the real message. You don’t have to be dying from a fatal disease, or 85 years old to look back and say all the “should-a, could-a, would-a” things you wish you had done. Life is a continual learning experience, learn as you go and apply the lessons in real time. Don’t lament over the past, you can’t change it; however you sure can apply what you have learned to make the future brighter.
If I knew in 2008 what I know now
In 2008, the real estate bubble burst, the Federal Reserve stepped in and bailed out the banks with the first Troubled Asset Relief Program, followed by their Quantitative Easing programs that have driven interest rates to the lowest we have seen in our lifetime. A lot of friends took significant losses when the market tanked and they sold their positions.
If I knew the major central banks around the world would all inflate their currencies in harmony I would not have bet so heavily on inflation in the short-term. With the trillions of Yen, Euro and USD all created out of thin air, (and the Swiss pegging their currency to the Euro), where is the “safe haven” currency that investors normally flocked to in the past? If I had known how many trillions of dollars would have gone into the stock market looking for the yield I would have allocated my capital differently.
Instead, I was more conservative and slept well at night feeling I had taken reasonable precautions. Perhaps someday I will write how I would have done things differently, but it would be wishful thinking. It’s easy to write cool stuff wishing you had taken more time to smell the roses along the way when you are approaching the end of the ride. For most people life is a trade-off between time and money and we have to find a personal balance that works for us.
The real issue, regardless of our age, is a simple one. Tomorrow morning we begin the rest of our life. What should we be doing in the here and now to protect ourselves and our nest egg for the future so we can enjoy the rest of the ride?
Here is a snapshot of the investment world today:
- CD rates are currently 1.25%, 2.4% and 2.8% for 1-5 and 10 years respectively. Investing heavily in these vehicles presents high risk if we have any kind of inflation in the future.
- The dividend yield for the S&P dividend aristocrats ETF (NOBL) is 1.85% and 2.02%. These are a select group of companies that have increased their dividends each year for the last 25 years. Stock prices have been driven sky high with money seeking decent yield. While dividend yields are generally lower that FDIC insured CD’s for example, investors are sacrificing yield for liquidity.
- The last stock market correction (10% decline) happened in May 2011, almost six years ago. The stock market has gone over 1300 days without a major correction and is due. When the market downturn finally happens, the goal is to get out before the other guy. Good luck with that!
- The Federal Reserve is raising interest rates and discussing reducing their balance sheet holdings which will also increase rates. As that happens the bond and stock market will adjust, generally downward. With programmed trading systems reacting to certain “triggers” the market correction could be sudden and significant.
No one knows for sure what will happen – or when.
What should investors be doing?
If you invested in the market over the last few years, there is a good chance you have some nice gains. It’s time to lock them in. That does not mean you have to sell all your positions, just lock in gains and reduce the potential for a catastrophic loss.
If there is one lesson to be learned from the 2008 downturn, it would be the value of setting stop losses. They can be done with your stock broker, either by entering an order, which triggers a trade; or setting a stop loss alert. When the stock drops to a certain price, you get alerted to it.
I recently reviewed each of my positions and set some stop losses at 10-20% below the current market price. If a stock trades several hundred thousand shares a day, I normally just enter the stop loss directly. If the issue is thinly traded, I prefer to use a stop loss alert.
In some cases, I also enter a “trailing stop loss” which basically raises the stop out price each time a stock hits a new high, locking in even more profit. I look each individual investment and decide the best approach.
When the inevitable market turn comes, we can always look back to see what we learned and should have done differently. Last time around a friend told me he knew he should set stop losses but he just didn’t get around to it. That was an expensive lesson, not to be repeated.
And Finally…
“A government big enough to give you everything you want, is strong enough to take everything you have.” – Thomas Jefferson
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Until next time…
Dennis
www.MillerOnTheMoney.com
Can I set a stop loss on my 401k?
Hi,
Check with your financial advisor or plan administrator. If it is self-managed you can probably do so working with your broker.
Regards,
Dennis Miller
I’ve made some drastic mistakes – had I not, I’d be a ‘believer’ in the ‘murica meme and going all in….but, I wish I’d made some mistakes earlier on and had more time to heal – make that more time in the right environment to heal financially.
Yeah, well. I guess some folks would’ve have driven their cars in Oakland Saturday night if they’d known a bunch a little niggers were going to heist the BART train. Did I say niggers?
Sorry. I should have said “teens”.
Bought and saved gold starting when young. Spent more time meditating and masturbating.
Just as relevant today as it was when it first aired. A couple of GIs school young Boomers on the best way to think about their lives. Sadly, the Boomers didn’t listen, and raised spawn that have even less understanding of this simple advice.
I found places like Zerohedge and TBP before I actually had to start making real financial decisions.
So I feel pretty proud of most choices.
On a personal note, the only real regret I have is that I let my weight rise throughout college. Its been on the way down since then, but such a massive amount of effort to shed what was an easily handled situation younger. Shame on me.
One thing I would have done different is I would have bought a SHITLOAD of gold when it was $220 oz. instead of the smaller amount I purchased. Stoopid move on my part.
Agree.
I should have gotten in on silver at $under 5.
I just want to make a couple of points:
1. Setting stop losses. I have seen time and time again how the ‘specialists’ now just computers at Goldman and various other market makers will purposely pop your stops in an effort to test certain supply / demand points in price. This gives them a better outlook on the market to make decisions. unfortunately, your stop with your broker is not secret. It is actually viewed by the market makers, and is used to their advantage. Also, keep in mind that in large numbers of participants in any market, it is very natural for everyone to have the same point as a stop. I use supply and demand volume to tell me where a mental stop should be, then if that stop is crossed, and stays there, on high sell volume (visible through level II) or after hours on longer term charts in volume pane, then you sell
2. The markets behavior, at least the major indexes is dictated primarily by the big market cap players. It is mostly the tale wagging the dog, or Apple / Google / Amazon wagging the Dow and Nasdaq. Look at the move just the last 2 trading sessions in Google and Apple. This is manipulation of the indexes, pure and simple. Volume, especially buyers volume was terrible, but a few large bidders were most of the move. It is easy to run up a stock like Google that is thinly traded (due to the high stock price) and also has no resistance (selling) due to its all time high. Little in the way of motivated sellers when the price never goes down. Of course they prime the pump before hours in the thinly traded futures index for the desired open to give maximum effect.
This is not to say that you can’t make money, just keep in mind that there is a LOT of manipulation, and BS. The one thing that cannot be manipulated is the longer term charts. If you are going to leg out of positions, do what the pros do, leg out in equal lots based on actual supply / demand on at least a weekly chart. DO NOT make a decision based on a day, buy or sell, then you are simply falling in to traps set by the banksters. Also hedge. It drags your returns, but you are not a 2/20 hedge fund, you are your own hedge fund, and the only person you answer to is you. Hedging is maybe a position in one of the inverse ETFs, it is not to make money, as these do lag and have a high drag effect, BUT they do insure against a gap down 200 or 300 down DOW or S&P open. Also, buy something with a good dividend, and little debt. Why buy a stock that pays you nothing in the risk to own it. This is no longer a capital appreciation market, it is a capital return market. IPO’s are being pulled from the market due to lack of interest. That is NOT a capital appreciation market.
Hi,
Thanks for the remarks. Stop losses are a tricky subject for the reasons you mentioned. I set stop losses for stocks that are heavily traded like KO. If a market maker stops me out and I lose a couple pennies a share, so be it.
On the other hand, setting stop losses for thinly traded stocks is an invitation to let market makers have their way. In that case, stop loss alerts come into play. You get an alert and can choose to enter a sell order or not.
What you have to avoid is the stock dropping and fretting when to sell. Then you ride it down and say, “might as well hold on”….then it drops some more. Riding one stock down to oblivion can screw up dozens of other gains you have made in your portfolio.
Bottom line is prevention of the possibility for catastrophic losses in a retirement portfolio.
Best regards,
Dennis Miller
Today is the only day I can use to make my tomorrow better.