What worked before 1995 for investors, no longer works in our “New Age of investment bubbles”.
If you as an investor to manage your account (b), or other employer-sponsored super-annuation account retirement, or take advantage of a strategy of buy-and-hold to create long term wealth or choose to hire a / financial professional advisor to manage your money … their investments are not protected against the massive loss of wealth that will occur when the next and all the next bubble bursts.
In this article, I will focus on:
- Why Buy & Hold is dead!
- Why protecting your wealth should be your No. 1 priority
- The “New Age of investment bubbles”
1995 ushered in a new era of investment that the vast majority of investors still recognize and adapt. Investors have been misled into believing that what worked in the years before 1995, remains relevant in this “new era” irrational speculative short term, or gambling, or chasing what is “hot”.
This “New Age” is based on the investment bubble burst clear trillion of investor wealth and making it impossible for investors to never realize their potential life of wealth.
If you are not familiar with the S & P 500 stock index most used and measured over time, I recommend you check out the link below for a quick visual and historical perspective. I am convinced that it is also agreed that 1995 was a year something changed dramatically and changed the investment landscape.
Please do not be fooled or deceived by a financial advisor, your parents, friends or that what worked in the past will work in this “new era of investment bubbles.” Certainly, it did not prevent massive loss of wealth from investors during the tech bubble and the housing when these bubbles burst, and there is no reason to think that this “New Era” will change in the short term because it has been enriched and built huge amounts of wealth to investment banks on Wall Street, the financial services industry and all who work in them … but not for us “average investor.”
Why Buy & Hold is dead!
Buy and hold is … not … it was a long-term strategy until 1995 when markets were rational, and it was easy to handle, all the emotions investment took off, and had a proven record of success for many decades. However, this strategy is more relevant or prudent in the “New Age” today and a little math and the S & P 500 is all that is needed to show why buy and hold is dead!
As an investor buy and maintain, they are taught that to build long-term wealth simply remain invested in the market 100% of the time, so you can capture all the upside potential for the extended bull markets, while weather markets below. Let’s see how this strategy has worked in this “New Era”.
If you started with $100,000 invested in the S&P 500 at the beginning of the technology bubble and remained invested 100% of the time, your investment would have gained 115% in its bull market and 50.8% in patinated loss the market down. At the end of the technology bubble, his initial $100,000 investment would have grown to $105,780, no big deal after seven years.
The housing bubble and its market Bull won 105% immediately after, or enough to recover the loss of 50.8%. When the housing bubble burst, however, the loss was 56.8% and therefore its initial $100,000 investment as a buy and hold investor, would now be worth $93,679 after 14 years at a rate of return Annual -0.46%.
This is the exact reason why many baby boomers were carried consider delaying retirement, supplementing their retirement income with a second job, or worse, take more risks with their investments in a vain attempt to win biggest comeback in this “New era”.
Consider the current bubble we are. At February 28, 2014, the S&P 500 gained 175% in our current bull market, increasing the value of your $93,679, to $257.617 for an annual return of 5 06% from 1995. But do not forget, all current bubble bubbles burst and today is no exception. Assuming our current bubble will follow the trend of technology and housing bubbles, it is not hard to imagine a loss of 50%. On the basis of such loss, your initial investment of $100,000 will be worth around $128,808 after 21 years and $28.808 wealth equivalent to an annual yield of 1.21% gain in this “New Age bubbles investment” .
No investor will not create wealth in the long-term rate of change!
Buy-RIP and wait … or until we meet again!
Why protecting your wealth should be your No. 1 priority.
Investors should recognize the greatest challenge and the most important in creating long-term wealth in this “New Age” is the way to protect the value of their investments in the massive loss of wealth when bubbles burst factor. Protect wealth should be priority # 1 of an investor if you want to create wealth in the long term.
Protect the wealth of today requires a unique approach that minimizes these massive and devastating loss of wealth when bubbles burst. For such, investors should simply learn when it is safe to exit the market when a major market collapse occurs when you move your investment (s) to the kind of cash equivalents security or position. It is not difficult to achieve, but it can not achieve any degree of success to guess when to exit the market, with emotion to tell when you’ve lost a lot of money and it’s time to leave or listen to friends and / or colleagues .
The only way an investor can protect wealth with success in the “New Age of investment bubbles” today is integrating a simple strategy, but very disciplined triggers a fail predetermined or input and output indicators.
Default input and output triggers such work. Once a bubble burst, output is default shot some time after the collapse investors began selling their investment (s) and move your cash or cash equivalents and investment once that the crisis is over and that markets have begun to recover, an entry of default shot resembles investors that it is safe and prudent to redeem their investments to capture the upside potential of the new market Bull so they can create wealth.
Academic studies demonstrate such strategy eliminates guesswork, emotions, and noise for investors who try to time the markets, reduces overall portfolio risk and volatility, protects the mass market wealth collapses when bubbles collapse, and ultimately provides the additional advantage of improving annual performance.
The “New Age of investment bubbles”
Assume the worst after a bubble burst, default shot output becomes an investor in the markets after a loss of 25% and a return of investor gets after markets recovered at least 25 %. In essence, our entry trigger shows a market recovery and reaches the first 25% of revenues during a bull market, but our trip output minimizes total losses when the bubble burst during bear market or markets.
After the tech bubble, investors incorporate a predetermined trigger strategy have seen their wealth grow to $ 142.500 compared to $ 105,780 to buy and hold investor. After the housing bubble, the investor using triggers have seen their wealth grow $192,375 compared with $ 93,679 for the buy and hold investor, and after the bubble bursts today, $360,702 compared to $128,808. The $360,702 amount of wealth for investors using triggers have achieved an annual return of 6.30%, against 1.21% for a buy and hold investor.
What is important for investors to understand in the above examples are not absolute figures, but the power to use predefined investment to create and protect wealth in this “new era of investment bubbles” triggers.
Protecting wealth is the most important aspect of this “New Age” and should be priority # 1 if an investor hoping to create long-term wealth and realize their potential life of wealth.