Unlikely, But Not Impossible

Domestic stock indexes, led by the mega-cap Magnificent Seven, continue to set all-time highs.

The bear market of 2022 is a distant past, a reminder that stocks generate higher returns than bonds and CDs if you hold them long enough. Is that always the case? 

Do stocks always outperform bonds?

Do you have a game plan in place if that isn’t the case?

Keep in mind Japan’s Nikkei index topped out in 1989 at 38,957 and some 34 years later still hasn’t climbed back to that record level.

Closer to home, it wasn’t that long ago that the S&P 500 Growth Index of mega-cap companies generated a decline of 33% over the ten-year period from 1999 to 2008.

Could those negative returns in U.S. mega-cap stocks occur again at today’s lofty levels?

It is highly unlikely.

But not impossible.

Because of that, and because I am 25 years closer to retirement than I was in 1999, I have taken a few steps to cushion the highly unlikely, but not impossible scenario of a nasty bear market in domestic mega-cap stocks.   

1. I am diversified beyond these companies into value, small, and international dimensions of the market. I might be wrong; in fact, I hope I am. If domestic mega-cap stocks continue their meteoric rise, the rest of the market will follow (just like the past 14 years), and I am OK with that.  
2. I have a healthy dose of bonds, certainly a lot more than I had two years ago. And why not? Treasury notes are paying 5% on the short end and 4% for 10 years. I’ll take those yields any day for the safest corners of my portfolio and again, I hope I am wrong, and the stock market is setting new highs ten years from now. 
3. I monitor my financial plan at least once a year. Twice a year in bear markets. I am planning on 4% nominal growth for my portfolio and hoping for higher. If stocks do trend lower in the years ahead, my regular reviews allow me to make saving and spending changes to match those market declines.

That’s what being a Coffeehouse Investor is all about. 

Strategy Under Uncertainty

How confident are you in your investment and financial plan to weather the unexpected?

If you want peace of mind and clarity, have $1 million or more of investible assets, and are in or close to retirement, strategize your future with me on a complimentary call. Let's get you on the right track to planning ahead.