Most investors have bought into Wall Street’s mantra of always staying invested. While this strategy may work for institutions during a bull market as we have had for the last 20 years, today it is not the best strategy for individual investors. [Here’s why.]
While equity markets have made substantial gains, there have been four periods when stocks generated zero growth.
Today, however, we are already in a market that has peaked and started to decline. When this market experiences a crash, most investors will lose at least half of their life saving and won’t live long enough to break even.
The 1929 crash took 27 years to break even, whereas the 2000 tech crash took 15 years. The high-flying Japanese NIKKEI still hasn’t broken even from its crash in 1989.
By every conventional measure, equity markets are significantly overpriced and are poised for a major decline.
Apart from destroying the savings of most investors, following the ‘always stay invested’ mantra could result in missing the opportunity of a lifetime. By cashing out of all investments today, investors will preserve their savings and be poised to invest in highly discounted stocks, bonds and REITs at the completion of the correction…
During broad equity market declines such as that in 2008, it didn’t matter what investments you were holding—they all declined. Even mining stocks declined by 21.6%, even though gold appreciated by 26%. The high-flying FANG stocks declined by 50%.
A totally contrarian strategy would be to cash out now and be liquid in order to benefit from opportunities that will present themselves after the correction.
Staying invested in order to achieve minimal potential gains in the next few years does not justify risking losses of over 50%.
Investors could hold cash during this period, but inflation will result in losses of purchasing power of +/-8% if the official rate is used, and 18% if the more realistic Shadowstats.com rate is used.
However, if investors hold gold bullion, they will likely realize positive gains. The table below shows gains made during past corrections.
As a result, not only will investors avoid losses, but they are likely to realize substantial gains by buying after the market crash and have more money to invest in highly discounted stocks…
*The content of the above article is sourced from one by Nick Barisheff of bmg-group.com and has been edited ([ ]) and abridged (…) for the sake of clarity and brevity to provide the reader with a fast and easy read.