If you knew then what you know now, what would you do differently?
The old saying “hindsight is 20/20” – is not reality. We factor in the potential for risks, most of which never come true. If I knew I would not have an auto accident or fire for the next 20 years, I could save a lot of money on insurance. If I knew exactly how long my wife and I would live, I would not be so hell-bent on making sure we have enough money to last until age 120. You get the picture!
I prefer reality
The life we live in is full of challenges, uncertainty, twists, turns, emotional highs and lows – that is what life is all about. How boring it would be as a Cub fan to know the exact date the curse will be broken and the Cubs will finally win the World Series. (For further explanation see today’s closing comments.) The thrill of victory and the agony of defeat is what make the game interesting.
I feel a lot of people miss the real message. You don’t have to be dying from a fatal disease, or 85 years old to look back and say all the “should-a, could-a, would-a” things you wish you had done. Life is a continual learning experience, learn as you go and apply the lessons in real time. Don’t lament over the past, you can’t change it; however you sure can apply what you have learned to make the future brighter.
If I knew in 2008 what I know now
In 2008, the real estate bubble burst, the Federal Reserve stepped in and bailed out the banks with the first Troubled Asset Relief Program, followed by their Quantitative Easing programs that have driven interest rates to the lowest we have seen in our lifetime. A lot of friends took significant losses when the market tanked and they sold their positions.
If I knew the major central banks around the world would all inflate their currencies in harmony I would not have bet so heavily on inflation in the short-term. With the trillions of Yen, Euro and USD all created out of thin air, (and the Swiss pegging their currency to the Euro), where is the “safe haven” currency that investors normally flocked to in the past? If I had known how many trillions of dollars would have gone into the stock market looking
for the yield I would have allocated my capital differently.
Instead, I was more conservative and slept well at night feeling I had taken reasonable precautions. Perhaps someday I will write how I would have done things differently, but it would be wishful thinking. It’s easy to write cool stuff wishing you had taken more time to smell the roses along the way when you are approaching the end of the ride. For most people life is a trade-off between time and money and we have to find a personal balance that works for
The real issue, regardless of our age, is a simple one. Tomorrow morning we begin the rest of our life. What should we be doing in the here and now to protect ourselves and our nest egg for the future so we can enjoy the rest of the ride?
Here is a snapshot of the investment world today:
- CD rates are currently .75%, 2.35% and 3.05% for 1-5 and 10 years respectively. Investing heavily in these vehicles presents high risk if we have
any kind of inflation in the future.
- The dividend yield for the S&P dividend aristocrats ETF (NOBL) is 1.85%. These are a select group of companies that have increased their
dividends each year for the last 25 years. Stock prices have been driven sky high with money seeking decent yield. While dividend yields are generally
lower that FDIC insured CD’s for example, investors are sacrificing yield for liquidity.
- I recently wrote about stock market hypoxia in MarketWatch. The stock market has gone
over 1300 days without a major correction and is due. When the market downturn finally happens, the goal is to get out before the other guy. Good luck
- The Federal Reserve is dropping hints about raising interest rates before the year ends. If that happens the bond and stock market will adjust,
generally downward. Despite the notion that the Fed has hinted and the market has priced in small increases, it does not always work out that way;
particularly with programmed trading systems that react to certain “triggers”.
No one knows for sure what will happen – or when.
What should investors be doing?
If you invested in the market over the last few years, there is a good chance you have some nice gains. It’s time to lock them in. That does not mean you have to sell all your positions, just lock in gains and reduce the potential for a catastrophic loss.
If there is one lesson to be learned from the 2008 downturn, it would be the value of setting stop losses. They can be done with your stock broker, either by entering an order, which triggers a trade; or setting a stop loss alert. When the stock drops to a certain price, you get alerted to it.
I recently reviewed each of my positions and set some stop losses at 10-20% below the current market price. If a stock trades several hundred thousand shares a day, I normally just enter the stop loss directly. If the issue is thinly traded, I prefer to use a stop loss alert.
In some cases, I also enter a “trailing stop loss” which basically raises the stop out price each time a stock hits a new high, locking in even more profit. I look at each investment and decide the best approach for each.
When the inevitable market turn comes, we can always look back to see what we learned and should have done differently. Don’t end up like a friend of mine who said he knew he should set stop losses but he just didn’t get around to it. That was an expensive lesson, not to be repeated.
On the Lighter Side
We spent the last week with friends in southern Indiana. We discovered a lovely ice cream parlor in Newburgh, Indiana on the banks of the Ohio River. Spending a cool summer evening with friends, watching barges go up and down the river through the locks while slowly savoring your favorite treat is pretty neat.
I want to thank the folks at Moneytips for including my interview in their new series “The Retiree Next Door”. They interviewed financial professionals to determine if they really practiced what they preached.
I mentioned the plight of my favorite baseball team, the Chicago Cubs. Folk singer Steve Goodman (1948-1984) had his career cut short when he was diagnosed with Leukemia. He was quite a Cub fan, lamenting that the last time they played in a World Series was 1945, and they have not won the big prize since 1908. He wrote a sad, but very funny song, “A dying Cub Fan’s Last Request”. The link takes you to a video of him playing the song
from the Wrigley Field Bleachers.
On September 20, 1984, Goodman died of leukemia in Seattle. Eleven days later the Cubs played their first post-season game since the 1945 World Series. Goodman had been asked to sing “The Star-Spangled Banner“. Jimmy Buffett filled in, and dedicated the song to Goodman. Today, the Chicago Cubs plays “Go, Cubs, Go” at the conclusion of every home game win, a song Goodman wrote for his beloved team.
I hope Steve and Nadine are sharing their ice cream with Erma. Just like the inevitable stock market correction, the Cubs will eventually win it all and Cub fans everywhere will experience joy like they have never felt before.
Until next time…