Tuesday, December 3, 2019

Markets Turn as December Opens

As I write this, the market is down (DJIA) about 325 points, or 1.2 percent. After a loss of 268 yesterday, this is the largest decline in more than two months. The decline is reportedly a reaction to weaker manufacturing data and Trump's remarks on a trade deal.

I've been talking about this possibility for longer than that. See What Do I Do Now, from Sept 24; This Pattern Is Another Warning Sign, Nov 2;  and of course, some advice in general portfolio management for any market: What should my investment strategy be right now if a recession is imminent? or Have a Smart Trade Plan Before You Invest.

Many brokers and advisors and other "experts" on portfolio management prescribe the buy and hold, yet reallocate, method. This involves deciding on a mix of investments, for example 60 percent stocks and 40 percent bonds (or fixed income). Then on a regular basis, you re-balance the portfolio to maintain that ratio.

There are studies that show this is a valid method that creates higher annual returns over a long-term period, such as 30 years. If you have 30 years until you plan to retire, it might be worth your benefit to explore this theory of portfolio management.

But if you are at least 50 years old and thinking about retiring, or have already retired, this is not for you. If the market tanks, you can't wait six to 10 years for the market to break even. If you're using your portfolio to supplement your retirement earnings, if your portfolio's value sinks 50 percent, how would this affect those draws?

I have written several articles over the last year about this. You can start with this on from last January: Beware Your Broker. You can then browse the posts from this year on the blog archive list at the right.

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