Daily Wealth

About the Author Daily Wealth

In a nutshell, our investment philosophy here at DailyWealth is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. So our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. We believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

SPDR S&P 500 ETF Trust (SPY): The Biggest Downside to ‘Buy and Hold’

By Richard Smith

It’s August here in Florida, and that means one thing – It’s hurricane season. The trouble is, most people aren’t listening. You see, Florida hasn’t suffered a major hurricane since Hurricane Charley in 2004. Going 13 years without a major hurricane has caused most Floridians to become complacent. It’s human nature.

The same goes for investing. The bull market in U.S. stocks is eight years old. It has been the gift that keeps on giving for “buy and hold” investors. But we aren’t naïve. Eventually – whether it’s next week, next month, or next year – a hurricane will hit the stock market. Is your portfolio prepared?

The steps you take to protect yourself today could mean the difference between a comfortable nest egg or having to delay retirement for a few years. Ask yourself the following question: How long can I go before my portfolio fully recovers after a market correction?

In the following chart, you can see how long it took the market to recover its post-crash losses…

The market peaked in March 2000. By October 2002, the S&P 500 had shed nearly 50% of its value. It took until June 2007 – more than seven years – for the market to recover its losses. Stocks peaked again in October 2007 and fell an enormous 56% through March 2009. It took until March 2013 – nearly five and a half years – for the S&P 500 to reach its pre-crash levels again. Even after the market’s most recent pullback – from May 2015 to February 2016, when stocks fell 14% – it took nearly 14 months to break even again.

These corrections wiped out the brokerage accounts of millions of people. Many had to postpone their retirements or even unretire altogether. Lots of people got scared out of the market and sold near the lows, missing out on the gains.

My friends at Stansberry Research have been warning readers to prepare for another major market correction. As my friend Steve Sjuggerud has repeated, we’re in the “Melt Up” phase. The market is marching to new highs practically every day. People have grown complacent. But eventually, the Melt Up will end and the “Melt Down” phase will be here.