Now That S&P 5,000 Has Been Hit, Is It Time To Lock In Gains? | Lance Roberts & Adam Taggart
Feb 10, 2024
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Portfolio manager Lance Roberts shares his strategy for selling off positions in an overbought market. They discuss unaffordable housing, retirees' warning, the US' fiscal path, and job-seeking strategies. The importance of diversifying information sources and gaining job experience is highlighted. Strategies for reducing portfolio risk and preparing for a market correction are also discussed.
It is advisable to start reducing exposure to stocks and rebalancing risk in portfolios due to concerns of an overextended market and a potential correction.
The market gains have been largely driven by a small group of stocks, raising concerns about the overall health of the market and the reliance on a few stocks for continued gains.
Individuals approaching retirement should assess the level of risk and potential market correction, evaluating their portfolios and implementing strategies to protect savings and provide stability.
High levels of market concentration and potential overvaluation increase the vulnerability of portfolios to market downturns, necessitating diversification and a balanced approach involving other asset classes.
The sustainability of stock market growth relies heavily on continued stimulus spending, raising concerns of a potential shift into a secular bear market period with significant downturns and limited returns.
Deep dives
Growing concerns over market reach and need for rebalancing
The podcast discusses the need to start reducing exposure to stocks and rebalancing risk in portfolios. With the S&P 500 hitting 5000, there is a concern that the market is becoming overextended and that a correction may be around the corner. While it is difficult to predict when this correction will occur, it is important to start using the rally to reduce risk and prepare for a potential market downturn in the coming months.
The concentration of market gains in a few stocks
A significant portion of the market gains have been driven by a small group of stocks, known as the magnificent seven. These stocks, primarily in the technology sector, have outperformed other sectors by a wide margin. However, this concentration raises concerns about the overall health of the market and the reliance on a few stocks for continued gains.
The importance of considering long-term retirement savings
For individuals approaching retirement, it is crucial to consider the long-term implications of market conditions. While stocks have performed well in recent years, it is important to assess the level of risk and the potential for a market correction. Retirement savers should evaluate their portfolios and ensure that they have strategies in place to protect their savings and provide stability for their retirement years.
Risks of relying solely on stocks for retirement savings
With an increasing number of retirement savers piling into stocks, it is essential to be mindful of the risks involved. High levels of market concentration and potential overvaluation can increase the vulnerability of portfolios to market downturns. Diversification and a balanced approach that considers other asset classes, such as bonds or gold, may help mitigate these risks and provide more stable long-term growth.
Importance of Stock and Real Estate Appreciation
The podcast episode highlights the belief that stock prices and home prices will appreciate over time. It emphasizes the historical pattern of stock market returns averaging around 8% annually, with recent stimulus measures contributing to even higher returns. This has led many individuals to invest heavily in the stock market, hoping to make up for their lack of retirement savings. However, the episode raises concerns about the sustainability of this trend, as it relies on continued stimulus spending. When this stimulus eventually runs out, it predicts a potential shift into a secular bear market period with significant downturns and limited returns.
Challenges Facing Retirement Savings
The podcast discusses the disconnect between individuals' retirement savings goals and the actual amount of savings they have. It highlights a survey revealing that people of all ages generally believe they need around $1.3 million for retirement, but the majority of people have inadequate savings. The episode argues that many individuals turn to investing in stocks as a way to compensate for their lack of savings, taking on higher risks in the process. This is seen as a consequence of inadequate financial literacy and the societal pressure to keep up with materialistic desires. It suggests that a well-allocated portfolio and disciplined savings are essential for a secure retirement.
The Need for Financial Education and Opportunity
The podcast addresses the lack of financial education and opportunity provided to individuals, which contributes to the difficulties faced in building wealth and saving for retirement. It underscores the importance of teaching fundamental wealth-building skills and budgeting, in addition to creating networking opportunities and mentorship programs. It emphasizes the need for individuals to take initiative and explore internships, participate in business organizations, and develop valuable skills outside of traditional education. The episode encourages young people to connect with employers, offer their time and skills for free, and build real-world experience to enhance their marketability and increase job prospects.
Concerns about debt and deficit
The podcast discusses the rising debt and deficit in the United States and highlights the potential negative consequences. The speaker emphasizes that excessive spending on various programs and foreign aid without prioritizing domestic policies will lead to slower economic growth, wider wealth inequality, lower inflation, and reduced interest rates, ultimately making life worse for individuals. The discussion also touches on the political challenges in reining in fiscal spending.
Preparing for an uncertain future
The podcast encourages listeners, particularly younger individuals, to prepare for an uncertain future by taking proactive steps. The speaker suggests planning for retirement independent of relying solely on government support like Social Security. The importance of saving, investing in income-generating assets, protecting wealth, and considering annuities as a means of securing income in retirement is emphasized. The conversation highlights the need to be aware of potential changes in policies and to make informed decisions based on a realistic assessment of the future economic landscape.
The S&P finally hit a new all-time high of 5,000 this week.
So does this milestone give the market the green light to rocket higher?
Or is this the right time to lock in recent gains by starting to sell?
Portfolio manager Lance Roberts thinks the latter is more likely, especially as the S&P remains quite overbought here from a technical perspective. Which is why his firm is going to begin selling off positions starting Monday.
He provides the details of his selling strategy in today's Weekly Market Recap.
We also discuss solutions for the unaffordable housing market, Lance's warning to retirees, the US' unsustainable fiscal path, and potential success strategies for job seekers.
For everything that mattered to markets this week, watch this video.
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