"Doc and Steve have become bears. Is it time to get out of the market?"
That's the sentiment I've heard from readers since my friend and colleague Dr. Steve Sjuggerud's event last week... where he announced a stock market Melt Down is coming in the next 12 months.
Hearing a market collapse could be less than a year away would frighten most folks. And for months, I've warned people I've seen signs of an impending bear market.
So I understand why some of you are seriously considering sitting on the sidelines now. Longtime readers know Steve and me well for our overall market optimism. And while neither of us falls for the fearmongering headlines you often see with the mainstream media, we do believe in being prepared.
I want to be clear that I haven't seen a "sell everything" type of warning...
Today, we're at a crossroads. We're in the late innings of this current bull market. The economy is recovering well from the pandemic, and up to this point, stocks have been shrugging off market corrections. But investors always have this fear of when the bear will attack.
So, what do you do?
Well, I've long recommended readers hold cash. That doesn't mean you should sell everything... But having some money in short-term cash and cash-like investments will save you a lot of heartache when the selling starts. Think money-market accounts, certificates of deposit, and Treasury bills. Cash will survive a bear market.
But you should also keep your portfolio working for you. There are still opportunities to see incredible gains in the late stages of a bull market.
During last week's special Final Melt Up event, Steve revealed:
- What happens during the "Final Surge" – the last six to nine months of a Melt Up...
- Why we could see decades of little to no growth in the stock market after the crash...
- And how these final months of the Melt Up can lead to life-changing gains.
Steve put together everything you need to take advantage of this very rare moment in stock market history, including two investments he believes could soar 800% to as much as 1,000% in the next few months.
You can get all the details here.
Now it's time to get into this week's Q&A. As always, please keep sending us your questions, comments, and suggestions. We love reading every e-mail... [email protected].
Q: You always say never put more than 5% of your money in any one investment. I get that, but how often should we bother rebalancing our portfolios? – H.S.
A: This is a great question... and I rebalance mine at least once a year. I'll do it more frequently if certain categories have moved particularly quickly. But in general, even with a some great picks, few people would need to rebalance more than three or four times a year.
Imagine an investor has a $100,000 portfolio with 20 investments ($5,000 each). If one position goes up 25% in a year – a strong one-year return – you now have a portfolio worth $101,250 and your one position is up to $6,250. Your investment is just 6.17% of the total.
Sure, you can sell some shares of that stock to rebalance back down to 5%, but I wouldn't worry about it until a successful position like this starts to approach 10% or 15% of your portfolio. And remember... trailing stops will protect the gains, too.
The bottom line is that the 5% rule is really meant to create awareness for investors when they're initially placing money on new investments... In other words, don't put all your eggs in one basket. If a stock becomes a bigger piece of a bigger portfolio, that's a less urgent concern.
Q: A similar article on disability insurance would be helpful. The cost of living after a disabling event can be greater for survivors than if the person had died. – D.R.
A: Great point, D.R. We've already got an issue on disability insurance in the works, so keep your eyes out for that in the coming weeks!
Q: Great info on life insurance, Doc! Please add an additional piece of advice. Start as young as you can and buy decreasing 35-year term. I found out the hard way that buying insurance to protect your spouse when you are in your 70s is prohibitively expensive. Buy young, and put the decrease into an investment account, such as a Roth IRA. You need the life insurance when you are young, and you can be self-insured with the IRA when it's just you and your spouse. Longtime subscriber and formerly licensed life insurance agent in California. – J.L.
A: Thanks for the tip, J.L. And you're absolutely correct. The younger you are when you buy life insurance, the cheaper it will be. The premiums you pay increase exponentially when you're older – especially, as you mentioned, once you're in your 70s. That's why I hope readers will share that issue with the younger folks in their lives, so they can work on getting their financial houses in order when they're young and time is on their side.
What We're Reading...
- Did you miss it? It's finally here... Americans are all-in on the stock market.
- Something different: Gray divorce is on the rise.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
May 7, 2021