Ep. 126 – The Market Is High Should I Sell

Have you been asking yourself whether it is time to sell or buy? It is perfectly normal to be nervous about your money in the current market, which is a result of the 2020 global pandemic.

It is important that you be very careful when making money decisions, especially if they’re not based on data.

In this episode of the Secure Your Retirement podcast, we talk about the current market high and whether you should consider selling. We cover the buy and hold and active management investment philosophies and why you should think of the latter when buying or selling.

In this episode, find out:

●     The meaning of the market hitting new highs and why you shouldn’t overthink about the new highs.

●     Don’t make investment decisions based on what you see in the news and instead follow data.

●     The buy-and-hold investment philosophy and why it’s risky during a market up or down.

●     Active management investment philosophy- when to shift from stock market to bonds to cash and vice versa.

●     Take the emotions out of the investment equation and instead look at the data.

●     Why you shouldn’t necessarily rush to sell based on your feelings and instead wait for the data.

Tweetable Quotes:

●     “Be careful when you read record highs; record high just means that the market has gotten higher than it’s ever been in the past.”– Radon Stancil

●     “It’s the media’s job to make these stuff seem exciting while if you just take a step back and look at what’s going on, it’s ideal for the market to be hitting new highs.”– Murs Tariq

●     “You don’t want to make a decision off of what’s going on in the news; you want to follow the data as much as possible.”– Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the Full Transcript:

Radon:	Welcome, everyone, to Our Retirement In Action. Today, we’re going to talk about a topic that you could find yourself thinking about, I know we’ve had conversations with clients and those that are looking at working with us, and it’s an emotional one. It’s emotional because people are scared and nervous about losing what they made. And that doesn’t matter. That’s any market. Everybody would love this, make lots of money and never, ever, lose it. Never lose any of it. And that’s good, but probably wishful thinking. But here’s the scenario. Go back into March of 2020, and now we’re a more than a year and a half, almost ahead of that, and we have had a good run in the market. The market just rebounded off that bottom and it has gone up and we had a good year for 2020. We look like we’re going to close out a 2021.that’s going to be a good year. And you’ve just had all this good. And so the question comes up, “Hey, when is our next sell off going to happen? I’m nervous about the next sell off, because this market seems high.”
Radon:	And especially when you start reading headlines about record highs, and be careful when you hear record highs. Record high just means that the market has gotten higher than it has ever been in the past. Doesn’t mean that it’s a record high in the sense of the year or anything like that. It just means that the market has hit a new high. And so when we use the word record high, people think that means it’s over bought, and that does not mean that all the time.
Radon:	But here’s the question, and we’re going to talk about it a little bit today, because we’ve had this question come up. “Hey, the market’s really high. Should we just sell and get out and keep the profit we got?” Now there’s some problems with that and we’re going to talk that through. So Murs , what’s your thoughts on that? The market’s really high, Murs . Should I get out?
Murs:	Yeah, that’s a tough question to answer because you’re probably seeing the headlines every single day when you see that the Dow Jones or the NASDAQ or the S&P just hit a new high. And the thing about new highs are if the market continues to go up, you’re hitting a new high every single day. One thing you got to remember is that it’s the media’s job to make this stuff seem very exciting, while if you just take a step back and just look at what’s going on, it’s ideal for the markets to be hitting new highs. The market goes up over time, and that’s what we like to see. And then we do see years like 2020, where we have issues in the market like 2008, 2011, ’15, ’18, all these different periods of time we do see issues, but overall the market has gone up. And throughout all of those years there’s been media articles and on the news and all the people talking about the stock market saying, “Hey, we’ve hit a new high.”
Murs:	And so it brings this nervousness into it. What we say is, “You can’t ever call it. You don’t ever know what the new high is going to bring. You don’t ever know how much strength is really left in the market.” That’s why we love our philosophy so much, because we don’t have to worry about the headlines. We don’t have to worry about the motions. We are very data driven. And so when someone calls us and says, “Hey, the market just hit a new high. We’ve had a great year. Should we call it?” We say, “Well, we’re all in right now because that’s what our data tells us to be. The indicators are all green and it’s been working for years and years and years. It got us through the pandemic in a very, very stress-less situation. And it’s done a time and time again.”
Murs:	So what we say is we’re not going to overly think about these new highs. We’re not going to overly or ever guess as to what the market is going to do, because that’s quite near to impossible. And it’s very risky if you start guessing. We could tell you story after story about one person saying, “I’m going to sell out the market because this Presidential candidate has a potential to get into office.” Or, “This one has a potential to get into the office. So I’m going to sit on the sidelines because I don’t believe in what they’re doing. And so I’m going to sit on the sidelines,” while the market falls apart because of what they think is going to happen. And it doesn’t have to be Presidential. It could be anything about what’s going on. We’ve got a lot of things going on this year, stimulus, we’ve got The Fed, we’ve got interest rates, we’ve got inflation.
Murs:	And so what we say is you don’t want to make a decision off of what’s going on in the news. You want to really follow the data as much as possible. And that’s at least it’s a rule that you can live by, rather than you’re guessing back and forth and then you start to blur that line, blur that rule, as far as how you make your guesses. And it can really just snowball on you and you look back and you wish you did something different, but we can never look back and fix it all up. So what else you got on that, Radon?
Radon:	Yeah, I was just going to say, let’s just talk about what we do and let’s talk about how we do this so that it keeps the stress low. And I think it’s just a good reminder. We wrote a book called Security Retirement. In Chapter One it talks about exactly how we look at things when it comes to managing these types of markets and what we do. And there’s ultimately two major, I mean, there’s more, but there’s two major philosophies when it comes to investing. One is a buy and hold. The buy and hold says, “You don’t think about the markets at all. You just buy your asset allocation and you hold it no matter what occurs.”
Radon:	The problem with that one, for us, our personality, and for our clients, is that when you do the buy and hold scenario, if the market goes down, you ride it all the way down and if you’re close to or already in retirement, that adds a tremendous amount of stress to your life. So even if you’re a conservative investor, if you go back and you look at markets when they drop 50%, and let’s say you only dropped 30% of the 50 or 40% of the 50, do you really want to have those kind of drops in your portfolio? Not to mention then when the market goes back up, you’re not participating in that either because you’re in an ultra-conservative portfolio.
Radon:	What we do is we view the stock market, the bond market, and cash as all in a race. I talk about this all the time with folks that say, “Imagine everything is in a race. And the only way that stocks they will lose the race or begin to fall back is if they are falling.” So imagine in our mind, you’ve got all the stocks in the world. You’ve got all the bonds in the world. And all the different types of cash accounts, money markets, all those kind of things, CDs, that’s all cash. And they’re going in a race.
Radon:	Well, you can imagine in your head, stocks in a good market, they’re faster, way faster than everything else. So the only way that bonds really catch up is if the stock market is declining. When we see that, when we start to see that decline and we start to see the pace of bonds catching up because the stock market is starting to drop, our philosophy is, “Hey, let’s shift out of stocks. Let’s go to safety, because there’s something happening in the market.” The market, the stock market’s, all based on supply and demand. So we will shift over to bonds.
Radon:	Now, what if the bonds themselves are falling? Well, then who’s going to catch up? That’s right. Cash is going to catch up. Now, those are short-lived. That is not typical. You’re not going to sit in cash for a year, two years. That’s not common. That is not something that we’re going to do. But what if it’s just a short period of time and it saves a tremendous amount? Let’s think about that example. 2020, pandemic begins, stocks start to fall. So what we did is we moved from stocks to bonds. Well, the bonds weren’t doing very well. So we went to cash. Now, there we set in cash. If you look at our most aggressive portfolio, I mean, we’ve talked about this before, it was down negative nine. So we stopped any losses at a negative nine, negative 9%. Well, the stock market continued to fall, bonds continued to fall. What was cash? Holding its own. Wasn’t making anything, wasn’t losing anything.
Radon:	Stock market continues to fall. The stock market bottoms out. Now we know, we didn’t know at the time it was going to be bottom, but it bottomed out at 34%, a negative 34%. We had locked in a negative nine. So you see, we’re now sitting on the sidelines. By the way, we were only on the sidelines for about 40 days. And then, okay, the stock market starts winning the race again. We feel and determine that the market is back into play. We have to get back in. We have to make that move and get back in. Not because emotionally we wanted to. We’re still sitting in the middle of a pandemic, but because the numbers said we had to.
Radon:	Now, the race gets to the finish line of 2021, I’m sorry, 2020. When you get to the end of the line, what is it? The S&P had made 17% positive. Had you been on vacation, never knew we had a pandemic, and came at the end of the year, you would have went, “Man, this was a great rosy year.” Because it was up 17%. By the way, our aggressive growth that year was up, our growth portfolio, was up 19%. So it doesn’t mean that you have to protect and not get return. It just means like, “Hey, I need to act.” And that’s the difference. The two philosophies, buy and hold versus active management.
Radon:	So I think what that does, let’s say this, Murs , in working, in doing this type of management, and you’ve been doing this now with us for 10 years, we’ve been doing this together for 10 years. I’ve been doing it for 20, but in your 10 years, what do you find that by having that type of approach, what does it do for the client emotionally?
Murs:	Oh, emotionally, think about the people that are listening to this, this podcast, think about the clientele that we typically work with and cater to is the person that’s close to retirement or already in retirement. And so emotionally it makes it so that you can really focus on all the other things of life and all the things that you want to be doing in retirement. Because everyone knows, we take emotion out of the equation. It’s purely about the numbers. So the story that Radon just told you about the stock market being in a race, that is all data driven for us. We’re never guessing. We’re never saying, “Hey, it looks like The Fed is doing what they’re doing in back in 2020. It looks like things are going to be okay. So let’s go ahead and get back in.” We didn’t say that.
Murs:	We said, “Let’s look at the numbers. We know what The Fed is doing, but what are the numbers telling us?” And that’s why we saw things trending up. Sometimes, people will say, “Well, you had a great way of getting out, but the next big question is, well, how do you get back in?” Well, it’s the same as how we got out. The numbers told us to get out. We saw things trending down. We saw cash staying in place. So that forced us to shift. Same thing happened. We saw stocks and equities coming back up, inherently because of what The Fed was doing, but we don’t care about that side of it. We care about what the actual stock market was doing, the demand in the market. And that’s where it went up.
Murs:	Something that’s easily relatable to everyone right now, back in 2020, when things started to come out a little bit and started to resurface, right around April of 2020, think about what you were doing and think about what you were utilizing. Everyone was Amazons. They were us utilizing things like Zoom, all the large companies and all the technology companies that essentially kept the country afloat. What were the smaller companies doing? They were starting to really struggle. Restaurants were starting to really struggle. Now, we weren’t guessing that, “Hey, we should put all our money on Amazon.” By the way, we don’t buy individual stocks, we buy ETFs, but we weren’t guessing and saying, “We think Amazon’s going to thrive in this environment. So let’s go buy that type of ETF.” We were saying, “These type of larger companies, are by numbers, just doing much better. Technology, because everyone is using technology right now to keep their jobs to stay afloat, is doing much better.”
Murs:	So, we shifted the portfolio. When we got back into the market from cash, back in April of last year, we went pretty much large cap type companies and technology companies. Eventually things started to change again. And then we hit 2021, and it wasn’t so much that large cap was in favor, it wasn’t so much that technology was in favor. It switched over to those smaller companies and those middle size companies, because eventually they had to get back in the game, and they started to open up. So the story aligns so much with the data, but everything that we do is data driven.
Murs:	So, Radon, to answer your question, we take the emotion of it considerably and what that does for the client, for the people that work with us and like this methodology, it takes the stress out of retirement because you’re never worried about, “Am I going to be sitting down 30, 40, 50% of my nest egg?” We have protections in place so that, first, we’re never guessing as to what to do. We’re never saying relying on the fundamentals of the market. We’re purely looking at the numbers and that has, time and time again, done very well. It relieves stress, and it makes it such an emotionless process that once you’re in it for a little bit, you just get very comfortable with it.
Radon:	So, ultimately, we’ll close this out with this. The market is high. Should I sell? Not necessarily. And I say it that way, because it might mean at some point, yes, that we have to sell, but we don’t want to guess. In our opinion, you don’t want to guess. A person can do that and they can guess it right The problem is you can guess it wrong. And so it’s much better to do it based on the data than it is doing it based on a gut feeling, based on what you think the market might do. Because if that were the case, you would’ve never gotten back in the market all of 2020, because the news got worse, and the stock market did better.
Radon:	That is a prime example of following the data, not following the emotion. And we have seen that. Fortunate or unfortunate, the training ground since 2008 has giving us multiple scenarios of bad news, good stock market, good news, bad stock market. So we’ve had the opposite that has occurred. So the news could start getting really great right now, and the stock market start going down. So we don’t want to manage our portfolios based on the news. In fact, we tell people don’t even listen to the media, because it’s inflammatory, it’s emotionally driven. But if you decide to, almost take the stand of the opposite of what the news is saying is kind of what the market does, but the data needs to prove it out.
Radon:	We hope this has been helpful. If you’ve not had a chance, we certainly would love for you to go visit our website, pomwealth.net. Visit the blog page. We write a new article every single week that talks on these topics. Also, if you’d like to have a quick conversation with Murs and I, we have a complimentary 15 minute introduction call. You can click right there on our website. You can click a button, the calendar comes up, and you’re able to schedule that right with us directly. So we hope this has been beneficial. We’ll talk to you again next week.