the present trend in investing – the way most people do it anyway – is inappropriate for most retirees. Think about it. Remember 2020, when the COVID 19 clampdown sent the S&P 500 Index down a whopping 34% in the span of one month and effectively wiped out the gains of the previous 3 years? Then, the stock market turned it around and made all of the losses back in just 5 months before closing 2020 with a gain of over 18% for the S&P 500 Index. The following year, in 2021, the S&P 500 exploded to return nearly 29%. This was followed by a pullback of over -18% in 2022, and finally another outsized gain of over 26% to end 2023.
While it’s true the positive years look good in hindsight, the roller-coaster ride in achieving those returns has many investors biting their nails at every turn. Case in point, in the years before the COVID-19 pandemic, at a time when I was investing in Index Funds like most investors, I had a nervous client who would call me the next morning following each day the stock market experienced a pullback. The situation continued for over a year with me repeatedly trying to console the man over the telephone that he wasn’t going to lose all of his savings. The silliness of the experience was that even with all of the daily ups and downs the client ended that one year period with more money than he’d started with. At the end of the day, all that worrying had been for nothing.
Perhaps the main problem is that my client like most folks who invest in a Passive S&P 500 Index Fund didn’t understand that the return is dependent on the collective results of a handful of popular companies. This leaves Funds reeling as folks jump into and out of the crowd favorites with every new headline and soundbite, and results in excessive volatility as those few companies are continuously bought and sold. Assuming the waves of volatility aren’t enough to drive retirees away, even the most fearful ones too often invest in Index Funds because they’ve drank the Kool-Aid that says owning them is the best anyone can do.
Meanwhile, my clients have learned there’s a better way than parking money in an S&P 500 Index Fund and hoping for the best. The practice involves purchasing a balanced blend of large stodgy dividend companies from across the economy, ignoring the latest soundbites and holding onto the stocks through thick and thin. Investing in this manner can lower volatility while garnering strong long-term returns. The best part is the dividends investors receive can be used to offset income needs through monthly withdrawals or used to enhance portfolio growth through dividend reinvestment. To request a free demonstration email me at dennis@longrunfinancial.com or give me a call at (815) 464-9275.
Dennis Gravitt AFC® CFP®