There were millions of people whose retirement dreams were crushed by the bear markets of 2000-2002 and 2007-2009. Bear markets are devastating events for all investors, but they are particularly painful for those at – or nearing retirement.
How can you make sure you’re not part of the next wave of retirees who have to put off their retirement dreams longer than they had hoped?
Actually, we can look back to past bear markets to find an answer.
To do so we put together a simple investing strategy that illustrates how powerful a simple investing system can be. Here it is…
Starting in August of 1994 (our first month of available data), our back-test invested $1,000 per month in SPY as-long-as the TradeStops Stock State Indicator (SSI) on SPY wasn’t red. It could be yellow or green but not red.
When the SSI was red, this system went completely to cash. While the SSI is red you continue to contribute $1,000 per month to your investment cash pile. Once the SSI turns green again, you’d put all that cash back into SPY.
We’ll compare this simple strategy to the traditional buy and hold method that is so widely advocated as the “only way” to invest intelligently.
The Data
Through the end of last week (November 10, 2017), both methods would have invested $280,000 into SPY. Using buy and hold, the account value would have grown to $836,000. Using the TradeStops SSI signals, your account value would have grown to $900,000 which is a difference of almost 8% more money earned.
Making an extra 8% is great, but there’s more to the story.
In 2007, using either method, your account would have been valued at close to $300,000. When SPY finally hit the SSI Red Zone, you would have lost about 10%, or $30,000 from the high, but would still be holding onto the vast majority of your money.
Would a 10% loss have destroyed your retirement dreams? Probably not.
On the other hand, if you hadn’t been using the TradeStops signals your account would have dropped by more than 50%! Instead of losing $30,000 you would have lost $159,000.
Would that have destroyed your retirement dreams?
No Doubt
Had you stayed the buy and hold course through the 2007 – 2009 bear market and held through to 2017 you would have made back some of those gains of course. But many investors weren’t able to hold on. It was just too painful. They threw in the towel and swore off the markets.
And many of them did so right near the bottom of that terrible bear market … and the very beginning of the incredible bull market of the past 8 years.
Some of those traumatized investors are just getting back into the markets now.
I don’t want anyone to go through that again and I know you don’t either.
Today the TradeStops Volatility Quotient (VQ) on SPY is 9.9%. That’s a nice tight stop and if this rally continues it will get even tighter.
Nobody likes to take a loss, but you can recover from a 9.9% loss. Another 50% loss? That would be life-changing, in the worst possible way.
The Takeaway
Using the TradeStops signals can protect yours and your family’s retirement. For those of you with family members participating in 401(k) programs, you might consider forwarding this to them and help them avoid the next bear market too.
