Staying out of the market too long is the biggest mistake you can make.
For the last year, people have been screaming RECESSION RECESSION! This led to many going for the sidelines, taking their money out of stocks and bonds both. In some cases, this meant selling at the bottom or in the red. I think staying out of the market for too long can be a SERIOUS detriment to your portfolio.
There is nothing wrong with being hesitant and managing your risk. However, one must do so with some sort of strategy in mind.
I personally chose to stay invested in 2022. However, I didn’t contribute as much to my brokerage account as I normally would have. I did max out my retirement accounts. What did I do?
- I put money into T-bills and I bonds
- I still invested into the market, I simply slowed my role
- I was more methodical about WHEN I invested (timing the market if you will)
- Maxed out retirement accounts
- Sold off positions that had ran too far (XLE, ie. oil stocks)
Here are some stats from the last year and YTD for my accounts:
- My brokerage account and traditional IRA are up 10.95% in the last month. Had I missed January, that would have been a big opportunity cost. These same accounts are up 10.34% over the last year. My Traditional IRA is up 14% YTD and a whopping 20.45% over the last year. You see, if I had stayed out of the market my IRA (which was down 20% at one point) wouldn’t have recovered so quickly. People fail to understand how fast you can recover from -15% in a fast moving market. If you miss the good days, you miss a lot of gains.
- My favorite Mid-Cap Value ETF IJJ that I poured the most money into. Shares I bought 6/2022 are up 21% not counting dividends. Shares I bought in October are up 23-24%. The shares I bought on Jan 11th of this year (2023) are already up 7.25%. Once again, had I avoided purchasing new shares of this, my account wouldn’t have seen the huge rewards.
- UFPI is an individual stock I’ve owned since 2020. I hadn’t been buying any in 2021. However, in 2022 I bought on March 29th and that lot is up 18% not counting dividends. I bought another couple of shares on 1/12/23; that is already up over 12%.
- Marten Transport has been one of my top performers. The shares I bought in January of 2022 are up 28-38% not counting dividends. That is a HUGE gain in a short period of time. The shares I bought on 1/18/23 are already up over 13%.
- Alison Transmission shares from 1/15/22 are up 19%, the shares I bought in April are up 29%.
- Cigna Healthcare shares from 1/13 and 1/18 are up over 30-35%.
- My XLE ETF I sold off after it had ran nearly 165% from 2020. Sure, it could have went up more but I felt I had made enough and it was time to go elsewhere. So far, for 2023, that has been a wise decision.
In short, there were plenty of opportunities in the stock market in 2022 for those that chose to stay invested. Had you sold after the -15% and didn’t get back in by October, you missed out on some quick gains as the market has rallied. You had to do your research to find value, but it was available. I won’t tell you I didn’t make some bad moves (Teradyne was my worst stock which I used for Tax Loss Harvesting) but none of those positions were large positions.
Could things change? Of Course, this is why you have to stay on your toes. I can’t say I’m a 100% buy and hold investor. I do tend to sell some things when the total market crosses the 200 DMA. However, I’m never 100% or even 75% out of the market. The majority of my funds stay in the market, I simply look for value or I stop putting new money in if I’m hesitant.
I honestly suspect we are in for a large rally. At some point, people will start throwing large amounts of money into the market thinking it is going to run forever and that is when it will turn for the worst. I suspect we have a 20% correction in our future within the next few years. Over the next six months I plan to take profits in some of my largest winners (I already sold all of my XLE). A leaner portfolio is easier to manage.