This Time is NOT different and 4 Other Truisms For An Expensive Stock Market
Every once in a while I review a list of quotes I've accumulated over the years. Truisms, if you will, that keep me grounded in the work I do. Each one has particular relevance for where we are as we head towards 2019. Enjoy!
# 1 - Don't focus on making money, protect what you have! (Paul Tudor Jones)
When you retire, rate of return is far less important than you think. I can show you examples all day long of people who have had decent rates of return over a long period of time, only to run out of money when it matters most. As you move from asset accumulation to asset de-accumulation, it is when the returns occur. Timing! Bad returns when your assets are most - often causes the premature spend down of your nest egg.
# 2 - It's ok to pay taxes! (Jim Cramer - Host of Mad Money)
You know Jim Cramer, the colorful host of Mad Money on CNBC. Though Jim thinks it's ok to pay taxes, many future retirees don't think so. In fact, as soon as someone starts indicating an unwillingness to pay taxes, I know for certain that they have made a lot of money in their portfolio. It's generally the time to take some gains and lock in some good fortune. What's the expression - pigs get slaughtered...or something like that. Greed is exactly the reason why I stopped buying my boys Starbucks every day and won't do you any good as you near retirement.
# 3 - Wishful thinking is bad for your financial health! James P Arthur Huprich’s Market Truisms And Axioms)
At various times, Jon Bon Jovi has been a big thing in our house - especially with the wife. Ok, with me as well!
You may remember the 1986 hit, Living on a Prayer. It seems that, despite a plethora of experts who try to persuade future retirees to take planning seriously, many are relying on a hope and a prayer. That's neither the name of Bon Jovi's legendary song, nor a sustainable strategy for the long run.
# 4 - Don't try to buy at the bottom or sell at the top. Can't be done - except by liars! (Bernard Baruch)
If you know how to time the market effectively, there's no way you're reading this post! Rather, you're on a beach somewhere with unreliable WiFi! All kidding aside, I've been out of stocks for the majority of my holdings over the last year. Did I miss some upside? Probably. Will I be ready for the next buying opportunity of a lifetime? Absolutely.
# 5 - This time is never different (James Montier - 7 Immutable Laws of Investing)
So there's the expression that you may have heard regarding the stock market.
This time is different!
You may have heard it in the year 2000. This time is different! All these tech companies are the future. They have no debt. Just minting money. Don't miss out! You know what happened that year.
You may have heard it in the year 2007. This time is different! The economy is humming along. Real estate - such a vital cog in the engine is solid. Sure, there are a few big companies having difficulties, but those are outliers. You know what happened that year.
This time is different!
It's never different, but let's just say things are different this time around. One thing that's NOT different is you!
"You’re different now than you were during past market cycles. More specifically, you’re older now than you were during the last market debacle, so you have less time to recover from another one if it should occur. That might not mean much if you were 10 in 2008 and 20 now. But it means a lot if you were, say, 50 in 2008 and 60 now or even 45 in 2008 and 55 now. If you’re five to 10 years from retirement, the risk of encountering a period when bonds outperform stocks is high enough – and dangerous enough to your retirement plans — so that you should reduce stock exposure."
More from Morningstar:
"But it isn’t just that stock prices are high and that bond yields are low now. Benz argues that your mindset is likely different too. “Even if you sailed through the 2007-2009 market meltdown without undue worry or panic-selling, the next downturn could prove more visceral if retirement is closer at hand and starting to seem like a realistic possibility. It’s not fun to see your portfolio drop from $500,000 to $225,000 when you’re 45. But it’s way worse to see your $1 million portfolio drop to $450,000 when you’re 55 and beginning to think serious thoughts about the when and how of your retirement. The losses are the same (in percentage terms); the ages are different.” In other words, your proximity to retirement could make you sell at the bottom more than it might have a decade ago."
As I've heard it said - Experience is an expensive commodity to acquire, which is why it's cheaper to learn from the mistakes of others!
That's just the way it works!