About 20 years ago I discovered that my maintenance foreman was going to retire in a year. He had a fixed pension and social security, but he also had about $500,000 in a 401(k) or IRA. While talking to him I found out he was 100% invested in company stock. I told him he needed to sell since he could not afford the risk. He kept saying, “James, I don’t want to miss out. This stock is doing a lot better than the markets.”. Finally I hit on something. I told him to sell half. If something bad happened, he wouldn’t be wiped out, and if the stock continued to be a high flyer, he wouldn’t kick himself for selling out. He did it, and sure enough a few months before retirement the stock crashed. He still got to buy his dream retirement home and I think he would have named his first grandbaby after me. He was very thankful.
I’ve been looking at the economy and I’m not liking what I’m seeing. First the Fed has been tightening. Don’t fight the Fed, I really don’t need to write anything else. Sure enough, quarterly GDP just printed 0.7% growth, which is anemic. Car sales have rolled over and farm land prices are down. People hopeful that oil would hit $60 are now praying it holds $50, and the yield curve is flattening. The economy is looking recessionary.
I don’t give investment advise, but I’ll tell you what I would do. Sell half. I’ve given that advise in the past, and been wrong. But guess what? The remaining half participated in the stock market mania and still made you money while the other half suffered no loss. If I was up at night worrying about my investments, I’d sell half. Move it to safe money.
In a 401(k) or IRA, that would be FDIC insured money markets. If you want a little more return, then use short term Federal government bond funds; and make sure that excludes FNMA and any other housing entity. For the half you leave invested in stocks, I’d move some of that to Fed long bonds in the hope that bond prices are heading higher (lower interest on the long end).
For money outside of retirement, I’d use Treasury Direct and be looking at 26 week T Bills. No commission and safer than a bank. The interest rate is around 1% right now, which is better than a CD.
Now if you want to speculate, as in, you can lose every penny, then start dusting off Elliot Wave theory. I was short during the 2008 and 2009 blood bath and made a pile. I have to tell you that Elliot Wave tracked excellently and I was actively trading triple short ETFs. It worked great. And that is how you would speculate. Once you recognize the Wave 1 sell off, you do the counts and use short ETFs. I actually covered my shorts at around S&P 750.
Elliot Wave appears to suck during a bull market. I speculate that Wave Theory captures emotional investing, which means a Bear Market. It kind of works for Bull Markets, but it’s not good enough to trade with. I believe this is because the Bull Markets are driven by the 13 members of the Distributist Federal Reserve Banking Soviet so emotions are not as important. You might be following a perfect A-B-C correction only to have it short circuit on B and miss out on a rally initiated by Fed action. Note you have to watch out for Fed Acton during the Bear Market also, but you usually have time to trade the Bear. In a Bull Market you are better off buying a low cost broad market index fund/ETF like the Vanguard S&P fund.
So at a minimum, at this time I’d sell half and move it to safety.