Money from Heaven, Path to Hell

By Ryan Litfin & Dale Creed Francis, Vincent Asset Management:

What the Fed is going on?!

The free-flowing money from the Fed appears to be “Money from heaven” at this point. And in some ways it absolutely is – but only if you take advantage of it personally and decide to protect yourself by locking in these “artificial” gains you’ve been given. Because this “Money from heaven” will undoubtedly become a “Path to hell.”

But it doesn’t have to. Why take unnecessary risks? “Paper gains” aren’t profits until they are realized. Millions of people are rudely reminded of this every time the stock market takes a dump. And if you’re forced to sell due to a myriad of reasons such as Required Minimum Distributions, margin calls, basic income needs, college tuition, emergencies, debt balloon payments, etc. – that’s precisely when “paper losses” suddenly become actual losses.

I know, I know, you might say, “No problem, I just won’t sell then. I’ll wait for it to come back.”

“It will come back” is not an investment strategy! It’s financial disaster. Especially as it pertains to the stock market and mutual funds, which historically have taken far longer to recover losses than in most other non-correlated investment strategies. Sorry to be the bearer of bad news: if you wait until the stock market drops, you’ve already lost. You’ll either lose by selling or lose by not selling and waiting. It’s a lose-lose proposition.

We might be tempted to rewrite the recent past as ancient history. What happened to the folks who had the majority of their money in mutual funds when they retired or were planning to retire around 2001 or 2008? Instead of taking profits when they could have and then continuing their growth in other non-correlated investments, they have spent all those years just trying to dig and claw their way out of the hole, hoping to get back to even. But “hope” is not an investment strategy either!

It amounts to years of actual continued growth they’ll never get back.

Here’s a simple but profound statement: “An investor never loses when taking a profit.” Elementary, right? So what is it that causes intelligent and prudent investors to hold on to an investment that is profitable until it becomes a loss? Greed. But the wrong kind.

What we see time and time again are investors who appear to be greedy because they’re holding out for every last penny of gains by attempting to do the impossible – time the market down to the last minute – only to end up losing much or all of those late gains before they’re able to get out.

But if they were truly greedy, they would sell for a profit when it’s available and reallocate into other non-correlated investments in order to stack up even more growth. Sort of a rinse and repeat approach, if you will.

Turns out, there are two kinds of greed: Ignorant Greed and Intelligent Greed.

Successful investors don’t continue to hold onto those investments that have seen significant artificial gains until reality hits and these gains evaporate back into the thin air from where they came. They use intelligent greed. They grab this “Money from heaven” before it becomes the “Path to hell.” And then they enjoy the gains of their new, non-correlated investments until it’s time to lock in those gains as real profits and move on to other non-correlated investments. Rinse and repeat.

Case in point. Just as we predicted, there are always rallies and drops in any market – both, when it enters into a long-term bear market, and when it enters into a long term bull market. These are called cyclical bears or cyclical bulls within the larger-scale trend.

So sell the rally, Sally!  :)

The clear and wise move right now is to sell the rally. That will protect you in the short term and give you the opportunity to reallocate in order to achieve non-correlation. And don’t buy the dip.

Simply keep the cash in your money market structure within your IRA, TRUST, etc. to avoid a taxable event. Take a breath, sleep well. Then it’s not that hard to reallocate to non-correlated investments that can give you what you need: Growth, Protection, Income. By Ryan Litfin and Dale Creed Francis. You can contact us at Vincent Asset Management. You can also find out how to listen to our Financial Fortitude Radio Show at Vincent Asset Management.

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  4 comments for “Money from Heaven, Path to Hell

  1. DanR says:

    I recommend looking into the Permanent Portfolio by Harry Browne as this appears to accomplish a lot of what is written about in this article in a fairly straightforward rules oriented way. This could be used in lieu of half or more of one’s stock investments.

  2. This is so true. I was reminded of something I read that only the greedy truly lose in investing with respect to people who get pulled into scams. I feel disgusted at those who prey on the elderly but when I watch the Dateline and 20/20 exposes, it’s hard to feel bad for the people who are 80 and wanted to turn their life savings of $1M into $2M. Why??? Now they have nothing. Totally absurd. Should have been happy with what they had. It was more than adequate.

  3. TruthAddict says:

    Great advice!
    Now I just have to design and build a time machine, go back in time, introduce my parents to each other 10 years earlier and convince them to conceive me immediately. Then I can jump back to the present a much wealthier (yet older) man as I was able to earn a higher wage at an existent job, allowing me to invest in aforementioned funds before stumbling onto this very article aaaaaaaaand, PROFIT!

    • Robocop5626 says:

      Be sure you don’t create a paradox while traveling back for the profit!!!

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