How many ITA readers remember the behavior of the stock market from January 1966 through August 1982? I assume a few of you were building your portfolio during that period as it was a great time to save, but not a prudent time to retire. The Dow Jones Industrial Average first touched 1000 in 1966, repeated the move in November of 1972, and then retreated to around 780 in early August 1982. There were many bounces during this long stretch.
“In January of 1966 the Dow Jones Industrial Average (DJIA) hit a level of 990. It would continue trading in a range of roughly 600 to 1,000 over the following 17 years. It once again reached 990 in December of 1982 before finally breaking out and heading higher.” Are you prepared for another 16-17 years of “flat” market returns? While history does not repeat itself, it is said to rhyme.
Why the gloom and doom? Here are a few reason for pessimism rather than optimism.
- How long will the Covid-19 virus control our behavior? It looks like a vaccine is at least a year away and even then, viruses are known to evolve or mutate. If the 1918 – 1920 path is a guide, we may not be out of sheltering until 2022. There are bound to be changes in how we live for a number of years to come. As states begin to open up, pay attention to new infection rates. I have a spreadsheet that tracks this information on a daily basis and some of the rural states have yet to peak.
- The longer unemployment remains high, the more difficult it will be to return to something close to normal. Restaurants in particular are hard hit and it is estimated 20% to 25% will never reopen.
- Coming on the heels of the pandemic is automation. In a few years, long-haul trucks will not require drivers. What jobs await unemployed truck drivers? This is just an example of a coming automation revolution in how work is performed in this country.
- Are we to the point where everyone will be granted a living wage, regardless whether one is working or not? What is the cost and how will this impact self-esteem?
Since we have no idea if the market moving forward will “rhyme” with the 1970s, here are a few suggestions.
- Consider dividend yielding ETFs. This requires one to load up the “investment quiver” with high yielding securities. Some investors might even want to concentrate on some stocks that are considered, Aristocrats or Champion securities.
- Place tight TSLOs under your holdings so as to protect capital. Young investors can take more risk. Follow The Golden Rule of Investing.
- Follow one or more of the momentum models available within the Kipling workbook. The Dual Momentum model is showing itself to be an excellent protector of capital.
- For older investors or those within 10 years of retirement, hold the portfolio risk to 6% or lower.
During the remainder of this spring and through the fall, I’ll attempt to follow with portfolio examples based on the suggestions listed above.