Perspective on
Market High Fears

Now that markets have bounced back and the S&P 500 Index has crossed another significant threshold (3,000 points), the financial media is, once again, doing what it does best: subtly distorting facts to perpetuate a well-crafted narrative in order to create doubt and unrest so you will continue to tune in.

As we have discussed on numerous occasions, being a successful long-term investor at this critical stage in your life is not easy.  Understanding markets and history is certainly part of the job.  However, proactively filtering and putting the daily deluge of misinformation into proper perspective is of equal or greater importance to your success because of its impact on your mindset and potential actions.

Here are two very important examples we are hearing over and over right now that you have to be aware of:

1)“The market is at an all-time high: How many times have you seen this in the news, or heard it from friends or colleagues? In nominal terms, i.e. 3,000 points vs. 2,500 points, etc., it is true. However, like any financial number, the nominal figure itself  is of zero significance or value to you unless it’s compared with one or many other numbers for perspective.

As I shared with you in my book, The Relaxing Retirement Formula, in October of 1987, the Dow Jones Industrial average fell 508 points in one day.  Back then, 508 points represented a 22.6% drop, a very significant number!

Today, 508 points represents only a 1.8% drop which is Twelve and a Half Times LESS significant than a 22.6% drop.

However, the financial media continues to report “points” on the news each day.  Why do they do this instead using percentages which would be a far more accurate way to report the true significance of the drop?

You and I both know why intellectually: reporting points has a much larger impact on you emotionally!  And, the more emotion they can stir up, the more likely you are to tune in and remain tuned in for the next dose, thus increasing their ratings and the amount they can charge their advertisers.

Now, let’s go back to the market’s at an all-time highfear messaging and place it in proper perspective by comparing it to another relevant number.  The S&P 500 Index (as I write this) is at 3,085.  The consensus forward 12-month earnings estimate for the S&P 500 is 176 (per Yardeni).  Dividing this earnings estimate by the market price provides us with a 12-month P/E (Price-to-Earnings) estimate of 17.5.

For perspective, at the peak of the dot com bubble back in 2000, the 12-month forward P/E estimate of the S&P 500 Index was 29.0 (i.e. 66% higher than it is today)!

By any rational evaluation, that was an all-time high, and it doesn’t even take into consideration two other crucial variables as a backdrop to current market valuations, i.e. our current historically low inflation and interest rates.

The bottom line is the nominal figure of the market’s price (i.e. 3,000) is irrelevant without placing it into proper perspective.  However, the media will continue to tout the phrase, “the market’s at an all-time high” because it stirs up the fearful emotion they want to instill in you that the shoe is about to fall at any moment…so stay tuned.

2)  “The longest bull market of all time”:  The corollary to my first example is the continued storyline that we’re experiencing the longest uninterrupted bull market run of all time dating back to the financial crisis when the market bottomed out on March 9, 2009 after a 57% peak-to-trough drop.

To continue that narrative, the financial media has strategically chosen not to acknowledge two significant events.

You may recall that in 2011, we experienced a bear market brought on by the Eurozone meltdown, the debt ceiling crisis, and Standard & Poor’s downgrade of U.S. government debt.

(For reference, the pure definition of a “bear” market is a peak-to-trough fall in market prices of 20% on a closing basis, i.e. not intra-day.)

Between April 29th and October 2nd of 2011, market prices fell 19.4% on a closing basis, just shy of the 20% threshold. Although it didn’t close down 20%, if you measure the fall by the level of hysteria and equity fund redemptions, it certainly would have qualified as a bear market.

The same holds true for last year between September 20th and Christmas Eve when the value of the S&P 500 Index fell 19.8% on a closing basis, again just a hair shy of the 20% bear market threshold.

Ask all of those who panicked and sold out over $100 billion of equity mutual funds in just a two week period in December if they thought it was a bear market.

The financial media’s decision not to acknowledge these two large market downturns as “bear” markets allows them to strategically continue calling this the “longest running bull market of all time”, thus perpetuating the emotionally charged underlying fear that the market is long overdue for a large correction and it will do so at any moment.

None of this is in any way a prediction of what markets will do tomorrow, next week, or even next year.  Any honest person will readily admit that they don’t know either.

What’s so important to take away from this is to begin each day consciously aware of all attempts to strategically manipulate your emotions.  Don’t just take everything you read and hear at face value.  Always try to put it into proper perspective.

Protect your confidence by filtering all dispensed information for the truth so that you can make decisions based on fact instead of opinion.

 

Retirement Coach Jack Phelps Publishes New Article Explaining Why Stock Market Volatility Should Be Completely Irrelevant For You

Jack Phelps, founder of The Relaxing Retirement Coach, provides a perfect case study over the last 8 months to illustrate this classic mistake most retirees make

Wellesley, MA – April 19, 2016Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) clarifying exactly why stock market volatility is nothing to be feared.

In his article titled “Why Market Volatility is Irrelevant for You, Jack Phelps writes, “In the last eight months, you have experienced firsthand why stock market price volatility is completely irrelevant. Yes, after 28 years of careful study and hands-on work with hundreds of Relaxing Retirement members, I can unequivocally say that volatility is irrelevant for you.

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/why-market-price-volatility-is-irrelevant-for-you-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

 

 

 

Why Market Price Volatility is Irrelevant for You

In the last eight months, you have experienced firsthand why stock market price volatility is completely irrelevant.

Yes, after 28 years of careful study and hands-on work with hundreds of Relaxing Retirement members, I can unequivocally say that volatility is irrelevant for you.

So that we don’t confuse the issue, and jump to the conclusion that I’ve gone off the deep end, let’s first define volatility.

Volatility simply means price movement, down and up. You may expand that to mean unstable and unpredictable.

Please note that nowhere in the definition of volatility is the word loss or permanent.

The Last Eight Months

Time has a way of healing all wounds/memories, so let’s recall the journey of market price movements over the last eight months to beautifully illustrate just how irrelevant market price volatility is:

Episode #1 of particular interest was the last days of August, 2015.

In a matter of 5 trading days, the price of the broad market S&P 500 index fell more than 11% down to 1,867. (We could examine the price of other indexes, but to keep the incredible lesson simple, we’ll stick with the S&P for now)

You may recall the hysteria created by the financial media. During the week following this drop, an all-time record $29.5 billion was withdrawn from stock funds by investors with $19 billion coming on one day!

As they always have, market prices then corrected right back up through November.

Episode #2 was the price slide that began in late December and picked up steam in early January leading financial journalists to pronounce the beginning of January 2016 as:

“The Worst Five Days to Begin Any Year”,
“The Worst First Two Weeks of Any Year”, and
“The Worst 12 Days of Any Year Since 1929!”

Attaching numbers to this “catastrophe”, the price of the S&P 500 Index fell 6.1% in the first 8 days of 2016, and bottomed out on February 11th at 1,815 down 10.5% for the year, and down 13.2% from early November.

The End of the World was pronounced once again by the financial media and more and more Americans began to buy into the belief that the bottom was officially falling out this time.

As you now know, market prices once again rebounded back up again to close out on March 31st at 2,051.

That not only means that the “worst start to any year in history” was erased. It was erased in less than two months! And, the S&P 500 Index ended the first quarter of 2016 up 1.13%.

What We Can Learn From This

Experience is a wonderful tool….if we use it.

Every life event, good and bad, is just that unless we pause for a moment to document and learn from it so we can better prepare ourselves for the future.

Expectation Level: If you enter the game with a proper expectation level, you won’t be spooked into making a cataclysmic mistake. By expectation level, I’m referring to the fact that since 1980, the average intra-year peak to trough drop in the price of the S&P 500 Index is 14.2%.

Translation: On average, market prices have temporarily fallen 14.2% at some point in the middle of the year over the last 36 years. I don’t think the importance of that fact can be stated enough times.

What this means is that you should expect market prices to temporarily fall, and fall sharply at times each and every year. That’s what market prices have always done. Why would they no longer do so in the future?

The two corrections detailed above that you have just lived through and experienced first-hand are perfect examples of this. Their effect on your long term goals is zero because they were temporary, not permanent.

A Plan: If you enter the game with a carefully thought out and detailed plan based on your long term goals, you can sleep like a baby at night with total confidence.

If you know your level of Retirement Bucket™ dependence (how much you need to withdraw each year to maintain your lifestyle).

If you keep sufficient balances in money markets and short term instruments to support your withdrawals without being forced to sell your ownership stake in companies in a temporary down market.

And, if you maintain disciplined asset allocation and an “ownership” mindset with the rest, market price volatility is 100% irrelevant for you.

The Financial Media: The goals of the financial media are not your goals. Their goal is to keep you tuned in so they can sell higher and higher priced advertising space.

Next to a good old fashioned hurricane or blizzard, the O.J. slow speed Bronco chase, or a real national catastrophe like the events of 9/11, the greatest tool ever invented to assist the mainstream press with capturing your attention is the volatility of stock market prices.

Up…down….up….down…up!

They absolutely love it because it’s a great tool to scare the living daylights out of the average American who does not understand that market price volatility is 100% irrelevant for those with a plan.

If you didn’t panic out and you maintained your focus and discipline over the last eight months, take a bow! I sincerely congratulate you. Well done!

Know that you are in the minority.

While you’re taking your bow, don’t miss the opportunity to internalize what just occurred so you will be even more prepared the next time market prices correct and the mainstream press proclaims “this time it’s different!”

You will better prepared to laugh it off the same way Lamont laughed off his father, Fred Sanford’s, weekly proclamation while grabbing his heart, “I’m comin’ Elizabeth….this is the BIG one” in the hilarious sitcom Sanford and Son.