I was waiting for it to happen. Whenever bear markets strike, buy-and-hold proponents come out and tout the wisdom of their ways. Leading the pack as usual is Jack Bogle, founder of Vanguard who had this to say:
“If you’re following the rules of asset allocation, diversification and long-term horizon, stay the course.”
Sure, along that long-term horizon, we will all be able to retire just about 6 years after we’ve died. Be realistic and take a look at some bear market numbers as of right now.
Most investors, who stubbornly stayed in the market, have lost some 40% of portfolio value this year. That means that a $100k portfolio is worth now about $60k. Even if you feel comfortable with that, and I doubt it, you will now have to make some 66% return on your $60k balance just to get back to even.
How long will that take? Well, if the markets cooperate, you might make it back in some 7 years. That translates to you just having wasted 7 years of your financial life that could have been used to grow your assets, even at a slow pace.
Bear markets have a way to restore some sense of reality in the investment world, and it’s easy to forget that a bear can always lurk around the corner and wipe out many years of your investing efforts. If this has happened to you, I feel for you and recommend that you revisit your investment strategy and review how to better prepare for the future.
No one investment approach is perfect, but using a simple trend tracking strategy along with a clearly defined entry and exit method will most certainly avoid the big portfolio disaster.
Once of my clients put it best when he emailed me saying that “It never felt so good to sit in cash with this crazy market while all my work buddies are seeing their work years extending by the day! Thanks!”