Return On Principle With David Scranton – March 19, 2017
Guest: Jon Najarian
When the market falls dramatically into a long term secular bear market cycle and then rebounds with previous peak, the net gain for buying hold investors who ride the wave all the way down and all the way back up again is zero. And even if it surpasses its previous peak once it falls and rebounds again, the net gain again is zero. And one more time that current cycle that we’re in today, is a perfect example from 2000 to 2013 the stock market fell twice by nearly 50% or more and then recovered. Ultimately experiencing zero growth over the course of those 13 years, now you tell me does that sound like a good inflation hedge to you? Obviously not, but it’s actually a bit worse than this, why? Because inflation has actually worked against you during that time, decreasing the value of a nest egg, that experienced zero growth. In addition to that, you were also the victim of something economists talk about as lost opportunity cost. Consider for a moment that while you’re waiting and hoping to regain your stock losses twice over those 13 years you could have been earning interest elsewhere from 2000, 2007 for example, you could have had your money in an FDIC insured bank CD. That at that time was averaging somewhere between 3 and 5% annually. Now maybe those numbers don’t sound really exciting to you, but they definitely beat zero. What’s more, they produce reliable income and are not vulnerable to next major stock market plunge and that’s something to think about, because as I’ve discussed repeatedly on previous shows, the long term bear market cycle that we’re in currently likely isn’t over yet. If, if it adheres to the lessons of stock market history. History, is surely trying to tell us that these cycles last 20 years or more on average experience at least three not two, three major drops in each secular bear market cycle. And when you look at where the markets are right now compared to all the global economic turmoil and uncertainty that we’re experiencing, what does your gut tell you? Does the market being in a record high or near record high pass your sniff test? Or does it look more like a classic case of what Greenspan called irrational exuberance. Even more extreme than what we saw before the Dot Com crash when he first coined that phrase. The bottom line is that these are exactly th e kinds of important factors that come into play when you focus on the inside game. When you prioritize on things like overprotection, when you scrutinize details, study the markets diligently look at things honestly, and when you’re coachable and you’re not afraid to be a leader. You’re not afraid to zig while everyone else is zagging if you believe it’s in your best interest. That’s what the inside game is all about, and that’s why, in my experience, it’s an essential part of retirement planning for any member of The Income Generation.
**Disclaimer: Sound Income Strategies, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not an indication of future results. Be sure to first consult with a qualified financial advisor or tax professional about your specific financial situation before implementing any strategy discussed herein.