🐻 🐮 It’s Do or Die For Stocks

What’s on the Menu 🍴

The weather is cooling down, but the markets are heating up!

We’re analyzing BAD financial advice and key price zones…

And we’ve got a delicious plate of wisdom for you!

Let’s dig in!

  • What To Watch This Week 👀

  • Dave Ramsey's Investment Advice Under Scrutiny

  • It’s Do or Die For Stocks 🐻 🐮

Today’s newsletter is a 4 minute read.

What To Watch This Week 👀

Last week we had a relatively light macroeconomic calendar, but that didn’t stop surging crypto prices nor volatile action in bond markets.

In stocks we saw a familiar pattern: large cap stocks went up while small caps broadly fell.

That puts the Nasdaq index up 42% for the year while the Russell 2000 index is down 2%. Perhaps the divergence is best illustrated with a meme:

Tech continued to outperform, while the energy and financials sectors traded down last week.

In the bond market yields rose after a weak 30-year Treasury auction spooked investors, though surprisingly the short-term end of the yield curve saw the largest rise.

This week bond markets will once again be worth watching as the US Consumer Price Index (CPI) inflation data for the month of October is released on Tuesday.

A deluge of economic data will be released this week as well including:

  • US Consumer Price Index (Tues)

  • UK unemployment (Tues)

  • China retail sales (Tues)

  • US Producer Price Index (Wed)

  • US retail sales (Wed)

  • UK inflation (Wed)

  • Japan trade balance (Wed)

  • UK retail sales (Fri)

  • US building permits (Fri)

It will also be a busy week for retailer earnings, including quarterly reports from Walmart, Target, Home Depot, Macy’s, Alibaba, JD.com, TJ Maxx, and others.

US President Joe Biden will meet with Chinese President Xi Jinping on US soil, which has the potential to calm or inflame geopolitical tensions between these two global superpowers.

Keep an eye on the following assets and sectors this week:

📈 Rising Recently

  • Bitcoin (BTC) & Ethereum (ETH)

  • Semiconductors (SOXX)

  • Software (IGV)

  • Brazil (EWZ)

📉 Falling Recently

  • Energy (XLE / XOP)

  • Banks & Financials (KBE / KRE)

  • Retail (XRT)

  • Small Caps (IWM)

  • Real Estate (XLRE)

  • Solar (TAN)

  • Gold (GLD)

Dave Ramsey's Investment
Advice Under Scrutiny

We see a lot of bad investment advice on social media, but, this past week, some of the most atrocious advice went viral from Dave Ramsey.

He built an empire on being a money guru and has been great at helping people get out of debt and change their spending habits.

Although many people argue his approach is abrasive and out of touch… it seems to work for him.

But, he’s crossed a line in the investing advice world.

He had someone call into his show asking about safe withdrawal rates from their portfolio for early retirement.

The withdrawal rate strategy is taking out a certain percentage of your portfolio and then adjusting that dollar amount for inflation every year.

The caller brought up that they found an article on the Dave Ramsey website stating that for a 30 year time horizon, you want to be closer to a 3% withdrawal rate vs. 5%+.

That’s where Dave became unhinged and went on a rant about how a lower withdrawal rate is WRONG and you should have a rate of 8%.

By his math:

You make 12% annualized return on your stock portfolio

Inflation averages out at 4% a year

= 8% that you should be able to withdrawal ( 😳 keep reading…)

Dave misses a few things when it comes to the safe withdrawal rate argument.

He doesn’t take into account:

  1. Most people don’t have a 100% stock portfolio to get the 12% return he’s claiming (annualized return of the S&P 500 looks more like 10.5-11% depending on the time period).

    Dave touts a 100% stock portfolio as the way to go… but, this is not a safe way to preserve capital going into retirement. His advice is essentially giving EVERYONE the same portfolio although everyone has different risk tolerance and needs.

    Not to mention, he only touts mutual funds which have downsides.

  2. He’s not taking into account “sequence of return risk”. This is the risk of WHEN your portfolio has drawdowns (because of big selloffs in stocks) while you’re having to withdrawal the money to live at the same time.

    Charles Schwab has a great visual demonstrating this. If you have a few years of negative returns early in your retirement, your withdrawal rate greatly affects your ability to recover your money, or make it last longer.

    Investor 2 in this chart also had a few years of negative returns, but it happened much LATER in their retirement! This allowed them to preserve more capital vs. investor 1.

    Sequence of return risk matters, and it’s out of our control.

  3. Data shows that lower withdrawal rates yield a more successful chance of not running out of money for longer time periods.

    Dave has seemed to completely ignore all of the very detailed research that has been done about safe withdrawal rates in retirement.

    OR, maybe he’s assuming you just won’t live that long??

    Study after study shows that the longer you need your money to last (20 years+) your success rate of having enough gets lower with a higher withdrawal rate.

    Sure, if you’re only planning to need money for 10 or 15 years, you may end up just fine withdrawing 8% per year (or even more).

    But, the longevity is what gets you if you’re not prepared and wise with your withdrawal rate decision.

The main takeaway?

Dave should stick to debt and budget advice… and maybe leave the investing advice to the professionals.

It’s Do or Die For Stocks 🐻 🐮

Every now and then, prices hit levels that spells victory OR defeat…

At least in the short-term.

Stocks are testing a “do or die” zone right now.

Let’s weigh the sides:

The BEAR case 🐻

Stocks have been making lower lows, and lower highs since this summer…

And the S&P 500 is sitting below the 100 day moving average.

So, there’s overhead resistance and a ton of fear everywhere you look in financial media.

But…

The BULL case 🐮

Prices have seen a strong bounce the last 2 weeks, and we’re sitting above the 200 period moving average.

So what’s going to happen?

Instead of trying to predict, we can plan.

In the event of bears taking the lead, we can:

  • Lean in to hedges (assets that do well during stock crashes like bitcoin, gold, real estate, and other verifiably scarce assets).

And if bulls win:

  • Buy dips, breakouts, and look for under-valued assets in stocks.

At the end of the day, it’s not about “guessing” what’s going to happen — but planning our plays in a way that would leave us with no regrets — no matter what the market throws at us!

Food For Thought 🧠

"If you tell the truth, you don't have to remember anything.”
- Mark Twain

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DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.