Buy and Hold Does Not Work in a Bear Market
"Buy and Hold" works great in a rising Bull Market. In A Bull Market, every time that the Market corrects down, you buy. But all Bull Markets come to an end says Fraser Allport, the Owner of Safe and Smart Money, LLC, a Registered Investment Advisory Firm.
Vero Beach, FL, February 24, 2016 (Newswire.com) - Whenever Stocks decline, Wall Street's mantra is typically the same: "Buy and Hold, and Buy some more." Buy and Hold works in a rising Bull Market. In a Bull Market, every time that the Market corrects down, you buy. Then the Market goes back up, and you look like a hero for " buying the dip." That's a Bull Market: You make money on the way up by simply hanging on. " Buy and Hold " works well as a strategy for a Bull Market.
But all Bull Markets come to an End. In my 34 year career, I have seen global macro trends change from a tailwind for stocks into a headwind, and Bull Markets are followed by Bear Markets. In a Bull Market, corrections come, but the markets eventually go back up. But in a Bear Market, the declines are part of a larger downtrend. So I don't see how prudent people can view Bear Market declines as a " buying opportunity. " Bear Market declines are usually "Bear Traps," part of a long grind down to an eventual market bottom. Think of a rubber ball bouncing down a staircase. That's a Bear Market. A Bear Market can become the definition of Pain, financial as well as psychological.
Read the worldwide headlines on my Facebook page (www.facebook.com/fraserallport). The global macro trend of Deflation is unfolding, right now, under your feet. Like an ill wind blowing around the globe, Deflation is slowly enveloping the world's monetary system and markets in a vise grip. Deflation takes years to develop, and then years more to do its cleansing of the system. Historically, global Deflation is painfully simple : Deflation can cascade into a multi-year decline in asset prices, punishing stock prices until the world's bad debt is liquidated. Printing Money is not the answer. Printing too much "Funny Money" is what got the Global Markets in trouble in the first place. Deflation is the hangover caused by too much Debt and speculation. Printing more Money is not the answer. Printing Money is the problem.
If you lose 50% of your capital in the Stock Markets, like the decline in 2008-2009, you then need to make 100% just to break even ! Do you have the luxury of time to wait for your Stocks and Mutual Funds to come back ?
Read the History of Bear Markets, and look at the charts of long Bear Market declines. "Buy and Hold" does not work well in a Bear Market. In a Bear Market, Buy and Hold can be financial suicide for many people who are over the age of 60 because they do not have time to recover their losses. Every time that you buy more, you lose more, as the markets continue to decline. Buying the dips in a Bear Market is like throwing good money after bad. The risk is that in the end, you will go down with the ship.
Historically, Bull Market corrections are usually short and sharp. Stocks takes a dip, and then the Bulls come rushing back in to buy because they want to get on with the party. Think of a Correction as a brief thunderstorm that cools down a hot day. Like a Correction, the storm is intense, but it passes briefly. But the U.S. and Global Stock Markets have been in decline since early in 2015. That's the hallmark of a Bear Market: A long, grinding decline that slowly envelops you and can destroy your Wealth. Bear Markets can be like water torture: Drip, Drip, Drip, slowly taking you down to the bottom.
Today's Stock Markets are dominated by Big Institutions, Day Traders, "High-Frequency Traders," and Short-Sellers. Do you think that you stand a chance against these Professionals? You are playing against "The Smart Money," in their House, with their Rules. And paying brokerage commissions, over and over, whether you win or lose. That's a very lucrative Business Model for The Fat Cats on Wall Street, but maybe not so profitable for you.
Think on this : If you lose 50% of your capital in the Stock Markets, like the decline in 2008-2009, you then need to make 100% just to break even! Do you have the luxury of time to wait for your Stocks and Mutual Funds to come back? And what about the psychological stress of watching your Retirement Fund evaporate in today's yo-yo " Casino Markets?" It's not just How Much you lose in the Stock Markets. It's also When you lose Money that can wreck your Retirement and psyche. Ask yourself this simple question : Do you have the luxury of Time to ride though a Bear Market and then recoup your losses? And what about your Peace of Mind?
If you are age 60+, then ask yourself this Question: Can you afford to lose a big chunk of your Life's Savings in Stocks ? And do you have the time to recover from your Stock Market losses? Ask anyone who has suffered through a Bear Market: It can take years to recover your losses, and the psychological damage can wreck your peace of mind and financial security. Paying commissions to lose money, worrying about your money, and waiting years to recover your losses, just so that you can break even. Is this your idea of Smart Investing? Retirement should be about Safety and Income, and enjoying your money. Go spend your money in Retirement instead of losing and stressing about it.
Is your intelligence insulted by hearing the same old stale platitudes from your Stock Broker about "Buy and Hold, Don't Worry, Be Happy. Buy Some Buy, and Keep Buying More?" Like a mechanical doll, Stock Brokers often sound like someone is simply pulling a string out of their back, repeating the same old tired lines. Wall Street tells you to "Buy and Hold," but they are often the first ones out the door. Who's been doing all the selling, going all the way back throughout 2015? Is this a Retirement Plan for you, or for your Broker? Stop listening to the people who sell Stocks for a living. They don't work for you. Your Broker works for The House. You are going to go broke listening to your Broker. That's why they call them Brokers!
If you are tired of paying commissions to lose money, tired of being patronized by your Broker with boiler-room clichés, tired of being duped by Wall Street, tired of losing money and then waiting years for your investments to recover from losses, then it is time to stand up for yourself. If you are mad at being had by Wall Street and your Stock Broker, then it is time to stand up for yourself and think for yourself. Protect your Wealth by thinking for yourself and making your own decisions. Get involved, get proactive, and get smart about your money. Seek out Advisors who are Fiduciaries, not Stock Brokers. Find an Advisor who listens to you instead of belittling you and ignoring your concerns. Trust your instincts. That's how you got successful in the first place. It's your Money. Take a stand: Stand up for yourself, your Wealth, your peace of mind, and your long-term financial security. You are going to go broke listening to your Broker!
For a fresh outlook from a Fiduciary, please read my Biography, learn about my Services, and listen to my Radio Shows, archived at www.safeandsmartmoney.com.
Fraser Allport is the Owner of Safe and Smart Money, LLC, a Registered Investment Advisory Firm. Securities are traded through Sound Income Strategies, LLC, a SEC registered investment advisory firm. Safe and Smart Money, LLC and Sound Income Strategies, LLC are not associated entities. This article is the Author's opinion. This article is not intended to solicit, nor give investment, legal or tax advice. Seek professional advice for your specific situation. No matter how " safe, " no investment can provide Guarantees in every situation.
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