Think for yourselves.
For the last 10 years, the market has bounced back from every pullback and correction so investors have been trained to hold or to jump in on the dips. And the bigger the dip the more enticing it feels. But should you this time?
For the last 10 years, the US economy has plodded along near 2% real growth with just under 2% inflation. So the Federal Reserve simply flooded the financial markets with cheap money and pushed and prodded the financial market higher after every hiccup. It worked unfortunately.
And corporate CEOs were more than happy to take all their company’s cash flow to buy back its own stock on the open markets. Trillions and trillions in cash was burned buying stocks instead of saving for a rainy day. Instead of funding pensions. Instead of investing in growing their future services and products.
So ask yourself if corporate buying was the main driver of the stock market and now that is gone. Who is going to buy now?
Corporations in the SP500 hit record debt levels prior to the crisis and most of them should immediately be downgraded to JUNK bonds. Many will default which is why the credit markets are so unstable – the smart investors know this.
So ask yourself what happens when a global debt bubble slams into a global economic shutdown. Economies DO NOT bounce back when the financial markets are flooded with money.
We have NEVER experienced anything like this in modern history. So NOOOO, you can not use history as your guide for long-term investing as suggested in this article and many others over the years…
Viewpoint: Managing Your TSP Account Through Coronavirus Turbulence 13 March 2020 Government Executive
“Long-term market history provides a good guide for context”
Here is one statement in the article that needs clarification from the author…
“Yet, for those who continued to invest in their stock funds, portfolios recovered to October 2007 values [the bull top] by the end of 2009.“
NO THEY DID NOT!
The prices of the funds include dividends reinvested, so they are total returns. The only funds that managed the bear market well were the TSP G fund and TSP F fund and the Income Life Cycle Fund. The L2020 fund has a diversified equity/bond portfolio and it did not recover in this time frame.
The article makes the point that dividend have made up a large part of the gains over the last 100 years. This is true. But dividends get cut in downturns first. No company should be allowed bailout money while paying dividends. And buybacks should be made illegal again. They were criminal.
The fact that the first companies begging for gov’t handouts are the ones who engaged in buybacks is sick. They need to be restructured then loaned money. That means wiping out equity and junior bond holders. That is why returns are higher on stocks and junior bonds – more RISK.
So ask those who argue that it is best to buy and hold, how long does it take to break even if a stock becomes worthless – to be clear, you never do when you lose everything.
Will they force restructuring of company financing to maintain ops while minimizing free bailout funds? I doubt it since the financial elite are also the ruling class.
But know your risk in long-term investing? Especially now.
The Thrift Savings Plan sent this nice message out – “Stick to Your Plan”. BTW, this is not a “short-term market movement”.
What is your plan?
Our plan at TSP Smart (not affiliated with the TSP.GOV) has been to AVOID taking large losses. So far, so good. Here are my last allocation change recommendations sent out to members via email alerts…
How much did that drop cost you? How much could I have saved you?
If you followed this free blog then you saw my post TSP Funds & Coronavirus on 27 January 2020 where I provided this free advice:
My take is there is no way to contain this virus and it will spread globally and so we will have to deal with it. Hopefully, the death rate is low. But it will be economically disruptive at the least.
My free advice for the day – exit equities. All the king’s horses and all the Fed’s liquidity may not be able to stop a market correction.
I am not usually that blunt on my free blog, but I started my service to save people from wall street. The time came and I did my best. It’s not over.
I bring forward information so you can think for yourself and make informed decisions. And provide my personal opinion in my e-mail warnings and market updates.
Take care and invest safe,
Michael Bond
TSP & Vanguard Smart Investor for serious and reluctant investors.
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Categories: Perspectives, TSP Charts