Best of Dennis – Protecting Our Life Savings In Turbulent Times

Best of Dennis…

Dennis is taking a short break to enjoy some time off, but will be back to writing soon. In the meantime, we’re revisiting this article from February 13, 2025 on protecting a lifetime of savings from market instability. With the recent fluctuations in inflation and energy costs, Dennis’s focus here on long-term capital preservation is timely.

 

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Most Baby Boomers (1946-1964) are past their retirement age and on Medicare. Boomers’ parents emphasized working hard, saving your money with hope to retire comfortably. With a booming economy, guaranteed pensions and social security, the future looked bright.

Things changed; Social Security benefits were cut, the retirement age moved back, 401k programs replaced pensions; boomers became responsible for saving and investing wisely to achieve the dream.

The stock market soared, along with government debt. Interest on the debt is threatening Social Security solvency.

Since 2015 the market has more than doubled.

Inflation is NOT under control and our economy is teetering on the brink of collapse because of the debt load.

Recent headlines blared warnings about Trump’s double-digit tariff threats aimed at Canada, Mexico and China; justified by huge trade deficits.

I wrote about Smoot-Hawley tariffs fueling the Great Depression:

“Washington Internation Trade Association (WITA) explains: (with my emphasis)

‘There was overproduction in the industrial sector…. While the upper 1% was doing very well, those farther down the income scale were not doing as well and many were buying cars, appliances and other products on credit.

Additionally, many Americans had been buying stocks on margin and when the stock market collapsed, they saw their equity plummet….'”

Sound familiar? The Fed was established, banks lent money hand over fist, people speculated with cheap money and we had the roaring 20s. The top 1% did very well, until borrowers couldn’t repay their debts. History shows too much cheap money ends up with very turbulent times!

President Hoover swooped in like Mighty Mouse, vowing to save the day:

“The Tariff Act of 1930 (aka the Smoot-Hawley Tariff Act), started out as a bill that would only raise tariffs on some agricultural products, but a host of other special interests piled on and before the legislation finally reached President Hoover’s desk it represented one of the largest tariff increases in U.S. history.

…. Economists argued that the tariff increases would raise the cost of living, limit our exports as other countries retaliated, injure U.S. investors since the high tariffs would make it harder for foreign debtors to repay their loans, and damage our foreign relations. Unfortunately, this is what happened.”

Hoover ignored the warnings and pleas from foreign countries, creating a worldwide trade war. Unemployment reached almost 24%, and thousands ended up homeless in shanty towns, the politicians called “Hoovervilles.”

Darn Right I’m Concerned!

Winston Churchill warns, “Those that fail to learn from history are doomed to repeat it!”

Will Trump’s tariff threats lead to negotiations for fair trade deals and a booming economy or fuel a major trade war where all will suffer?

We see data where the US has been treated unfairly in much of the world, and adjustments would certainly have a major positive impact – however…. While Trump may keep his ego in check and work in good faith negotiations, other leaders will have to do the same….

Meanwhile…

Investors of all generations MUST PREPARE FOR THE WORST! We don’t know what will happen so we must consider possible scenarios.

High inflation. Roosevelt, attempting to pull the country out of depression devalued the dollar, decreeing the dollar’s gold value from $20.67 to $35. Owning gold and other inflation-beating assets hedge against further dollar devaluation.

Default on debt, government and private. Cheap money has fueled “debt out the wazoo,” with many debtors unable to repay. I’d urge all readers to look at their debt holdings, particularly mutual funds and ETFs. No matter what your broker tells you, defaults are coming.

Major stock market correction. Will we have a recession lasting a few years or another Great Depression? Either way it can be ugly, and many will never recover.

The Fed may try to flood the system with money, but they are out of ammunition. Cheap money will fuel more debt that can’t be repaid and could lead to hyperinflation…causing a market collapse.

This creates challenges for all investors. While time frames and objectives vary, investors want to see their nest egg grow from asset appreciation, while generating safe, solid income. Cash and debt instruments create inflation concerns. The stock and bond markets are on thin ice.

Following Churchill’s advice, I looked at history. Following is the Dow Jones Averages from 1915-1965.

The events leading up to the Great Depression were easy money, “The Roaring 20s”, excess speculation and debt that couldn’t be repaid. It certainly rhymes with today’s financial world…. The market has more than doubled over the last decade, and we are facing inflation and a public/private debt crisis. A correction will come; how big, when, and how long is the big unknown?

The Investment Scientist weighs in:

“If you are a listener of Jim Cramer, you would have heard his advice: Sell, sell, sell! He constantly reminds his listeners how the Dow went down 83% during the Great Depression; and never fully recovered until 1954.”

I’ve heard way too many brokers confidently reassure us, “The market always comes back,” touting the historic gains of stocks over decades. They encourage us to stay the course and don’t sell.

9 years ago – Business Insider, “This is the biggest mistake investors can make right now”, “History shows that panicking during bouts of volatility is the most classic mistake an investor can make.” So far, they are right – but for how much longer?

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Eye-witness report!

As a young college student, I showed my father, who had lived through the depression, charts from my economics professor outlining how much more an investor would make in stocks as opposed to Certificates of Deposit; they were missing out! It was a no-brainer; I couldn’t understand why anyone wouldn’t understand. I was not so subtly putting dad down.

He pointed his finger at me, raised his voice and said, “Sit down, shut up, and listen!” His face was beet red; I’d pushed him too far.

In measured tones, he explained he and his four brothers quit high school during The Great Depression. There was no work. They earned money playing semi-professional softball, picking up odd jobs and pooling it with their parents so they could all survive.

“Don’t tell me the stock market is safe, I know better! I know people who lost everything. We work hard for our money and can’t afford to lose it!”

While none of us have lived through the Great Depression, seen Hoovervilles, or had to quit school to help the family survive – today, Baby Boomers “can’t afford to lose our money” either.

I spoke with a young, well-educated, credentialed analyst about stop losses. I trust him and have bought stock based on his recommendations. It was deja vu, with me being my father. Here are some comments:

“The market always comes back.”

“If you sell when it is down, what happens if the market comes back?”

“We own good companies that will survive, and continue to pay dividends.”

The Investment Scientist continues:

“Cramer forgot to account for dividends. If dividends from the Dow stocks were reinvested, then investors would have been able to recoup all losses by 1945. That’s a full nine years sooner! Think about this: what if investors held only high-dividend stocks? Would they have recovered their investments even sooner?

To find out, I examined the following four portfolios’ performance from 1929 onwards:

1. Portfolio A: stocks with zero dividends.
2. Portfolio B: stocks with bottom 30% dividend yields.
3. Portfolio C: stocks with middle 40% dividend yields.
4. Portfolio D: stocks with top 30% dividend yields.

All four portfolios peaked in August, 1929. With the exception of portfolio B, all portfolios bottomed in…1933. For each of the four portfolios, the total peak-to-trough decline (drawdown) and the number months it took to recover are presented here:

How many investors, particularly Baby Boomers, can afford to see their stocks drop well over 80% and wait years for them to return to their previous high? When trillions move out of the market, stocks will go down, no matter how great a company might be, even while they pay regular dividends.

Set Stop Losses NOW! To become wealthy, and stay that way, investors much avoid catastrophic losses; you must be willing to take small losses to avoid the big ones.

For more information on Stop Losses and how to set them, click HERE.

There is one remaining scenario….

Trade deals negotiated, peace, and prosperity. What if:

• Trump’s tariff threats lead to good trade deals?

• DOGE is successful and cuts government waste by the trillions?

• US involvement in endless wars is brought to a halt?

• Millions get moved off the government dole and become productive, tax-paying citizens?

• The economy experiences a slight correction and America becomes great again?

It’s time to prepare for turbulent times ahead. Owning gold, solid assets, diversifying your investments, and setting stop losses to protect your wealth – will do no harm.

God Bless the optimism of youth and the wisdom of experience. When we are young, we invest with hopes of getting rich. As we age, we invest to protect our wealth – not get poor. Keep on top of your stop losses….

I hope we can all learn from history, and avoid repeating it!

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Quote(s) of the Week….

“He who fails to prepare, prepares to fail.”
— Confucious

“History is always repeating itself, but each time the price goes up.”
— Will Durant

And Finally…

Jo sent along some clever retirement quotes for our enjoyment:

• “Sometimes it’s hard to tell if retirement is a reward for a lifetime of hard work or a punishment.” – Terri Guillemets

• “Retirement is not in my vocabulary. They aren’t going to get rid of me that way.” – Betty White

• “When a man retires, his wife gets twice the husband but only half the income.” – Chi Chi Rodriguez

• “I always likened retirement to falling off a cliff, and then you have to kind of brush yourself off.” – Steve Young

• “There’s never enough time to do all the nothing you want.” – Bill Watterson

• “I have never liked working. To me, a job is an invasion of privacy.” – Unknown

• “He who laughs last at the boss’s jokes probably isn’t far from retirement.” – Unknown

• “There are some who start their retirement long before they stop working.” – Robert Half

• “Retirement: it’s nice to get out of the rat race, but you have to learn to get along with less cheese.” – Gene Perret

• “You can’t retire from being great.” – Unknown

• “You might be on the back nine of life, but it’s good to finish strong.” – Morton Shaevitz

• “I enjoy waking up and not having to go to work. So, I do it three or four times a day.” – Gene Perret

And my favorite…

• “Retirement is not the end of the road. It is the beginning of the open highway.” – Unknown

Until next time…

Dennis Miller

“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken

 

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