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Business Times
16-05-2025
- Business
- Business Times
Protecting capital in a market downturn
ONE of the most common mistakes made by retail investors is the failure to protect their capital in a market downturn. They tend to hold on to their stocks in a market downturn, thinking that it is just a correction and hence that the market will rebound. Many financial advisers have also advised investors to stay invested during a market slump as volatility is usually just noise. They point out that investors tend to sell out during market lows and fail to get back to the market just when it recovers. Retail investors also tend to buy on dips, especially blue chips, as their stock prices have taken a tumble in a market downturn. Investors reckon that the so-called fundamentals remain intact and stock valuation has since become cheaper. It is the time for bargain hunting as there is potentially a huge upside. Cheap stock valuation is an important consideration in investment decisions. However, it can also be a value trap. It won't help investors much on market timing such as when to buy and sell stocks. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Admittedly, it is unclear though if an initial market downturn is just a temporary selloff or the start of a prolonged and severe bear market. More often than not, investors only recognise it belatedly when a downturn turns out to be a bear market. By then, it would be too late as they get caught in deep losses. In my opinion, investors need to know when to be on the offensive and when to be defensive. One way of doing so is by using the 'trend following' approach. Great investors or traders such as Paul Tudor Jones and George Soros are trend followers. They use the 'trend following' approach to profit from a rising market and to protect their capital in a falling one. Jones has, for instance, advocated a 200-day moving average as a trend following indicator. The American hedge fund billionaire was interviewed by motivational speaker and coach Tony Robbins, for his book, Money: Master the Game (2014), where Jones shared his investing strategies. Said Jones in the book: 'I teach an undergrad class at the University of Virginia, and I tell my students: 'I'm going to save you from going to business school. Here, you're getting a hundred-grand class, and I'm going to give it to you in two thoughts, okay? You don't need to go to business school; you've only got to remember two things. The first is, you always want to be with whatever the predominant trend is.'' Jones continued: 'My metric for everything I look at is the 200-day moving average of closing prices. I've seen too many things go to zero – stocks and commodities. The whole trick of investing is: How do I keep from losing everything? If you use the 200-day moving average rule, then you get out. You play defence, and you get out.' He then offered a set of principles to guide retail investors : 'I get very nervous about the retail investors, the average investor, because it's really, really hard. If this was easy, if there was one formula, one way to do it, we'd all be zillionaires. One principle for sure would be to get out of anything that falls below the 200-day moving average. Investing with five-to-one focus (asymmetric risk/reward) and discipline would be another.' For those who are inclined towards numbers, here are the hard figures on 200-day moving averages. According to Ritholtz Capital Management, the average one-year return is 10.6 per cent when the S&P 500 is above its 200-day moving average, and 6.9 per cent when it is below its 200-day moving average, based on data from 1990 to 2022. As for market volatility, the annualised standard deviation for the S&P 500 is 12.6 per cent when the S&P 500 index is above the 200-day moving average, and 24.5 per cent when it is below that benchmark. Standard deviation here measures how much a set of data deviates from the standard or average. In short, historical evidence shows that a market which is above its 200-day moving average tends to see higher returns and lower volatility, and a market that is below its 200-day moving average tends to see lower returns and higher volatility. Experts and analysts like to point out, however, that if investors miss the 10 best days in stocks, their returns can be severely affected. Thus, market timing, such as the 'trend following' approach with 200-day moving averages, will not work well. Studies, however, show that a majority of both best and worst days happen when the market is below the 200-day moving average. As such, returns from 'trend following' can be superior to returns from buy-and-hold in the long term as investors tend to miss both the ten best and worst days. What about some false signals? Sometimes, a stock or index falls below its 200-day moving but a few days later, it then rises above its 200-day moving average. Investors then find themselves caught in whipsaws, which in turn would affect their stock performance. Here are some thoughts on ways to mitigate whipsaws. One way is to use a monthly closing price. If by the end of the month, a stock's or index's monthly closing price is still below its 10-month moving average, investors should probably be the defensive. Though a 10-month moving average helps to cancel out noise if compared to a 200-day moving average, it is less sensitive in a volatile market. Another way is based on the notion that an index – say, Nasdaq 100 or NDX Index – tends to deliver subpar returns after a phenomenal run. The NDX Index was above its 200-day moving average from Mar 13, 2023, to Mar 5, 2025 – a total of 497 trading days. This is the second-longest stretch of time above the moving average since 1990. The return for the current stretch is about 70 per cent – the third-highest return since 1990. The best return was 179 per cent from October 1998 to May 2000, and the second-best was 83 per cent from April 2020 to January 2022. All ended badly subsequently. How will the current stretch turn out? It should be noted that 'trend following' approach does not purport to help investors sell at the market top or buy at the market bottom. This is because when an uptrend or a downtrend is confirmed, it could already be quite lagging. As a result, investors might miss some significant gains at the major turning points. George Soros has come up with some tricks to tackle this challenge. As he put it: 'Most of the time I am a trend follower, but all the time I am aware that I am a member of the herd, and I am on the lookout for inflection points… I watch out for tell-tale signs that a trend may be exhausted. Then I disengage from the herd and look for a different investment thesis. Or, if I think the trend has been carried to excess, I may probe going against it.' The writer is a private investor. He was previously a researcher at an international business school in Europe and an Asia-Pacific director at multinational corporations.
Miami Herald
26-04-2025
- Business
- Miami Herald
Tony Robbins sends strong message on Roth 401(k)s, Roth IRAs
Preparing for retirement entails tackling a range of complexities, often emphasizing maintaining financial security while sustaining one's preferred way of living. Tony Robbins, the author, motivational speaker and philanthropist, has a steadfast belief in the importance of Roth 401(k)s and Roth IRAs in American workers' retirement savings and he explains some major financial reasons why. Don't miss the move: Subscribe to TheStreet's free daily newsletter Key retirement money considerations on which people can take action include estimating future Social Security monthly paychecks, navigating increasing health care expenses, and evaluating the sufficiency of their savings and investments. Routine costs such as food, utilities, transportation, and recreational activities also play a significant role in shaping financial plans in retirement. Related: Dave Ramsey bluntly warns Americans about Social Security Even amid challenging market conditions, many U.S. employees recognize the importance of retirement savings options such as 401(k) plans and IRAs. Enrolling in an employer-sponsored 401(k) plan is a reliable strategy for building retirement funds, especially when employers offer matching contributions. With automatic paycheck deductions, this approach ensures consistent and convenient saving, requiring minimal effort from employees. In 2025, the contribution limit for 401(k) plans has increased to $23,500, up from $23,000 in 2024. Workers aged 60 to 63 are now eligible for higher catch-up contributions, capped at $11,250, compared to the $7,500 limit for workers aged 50 to 59. IRAs, on the other hand, provide access to a wider range of investment opportunities than many 401(k) plans, which is an important feature for many people. However, IRAs involve more active participation, as users must independently establish accounts and arrange for regular contributions. For 2025, the IRA contribution limit remains $7,000, with an additional $1,000 catch-up contribution for those aged 50 to 59, catering to late-stage savers. Given all of this, Robbins takes some time to explain why he recommends people use Roth 401(k)s and Roth IRAs as they plan for their retirement years. Getty Robbins points out that conventional wisdom often encourages maximizing contributions to 401(k) plans or IRAs for their tax benefits. The reasoning is straightforward: Every dollar contributed is tax-deductible, allowing individuals to defer taxes until a later time. However, Robbins believe that this strategy carries with it a major uncertainty. The future of tax rates remains unknown, making it impossible to predict how much of the savings will be available for personal use down the line. In his book Money: Master the Game, Robbins shares a discussion he had with one of his senior executives. More on retirement: Scott Galloway sends strong message on Social SecurityJean Chatzky cautions U.S. workers on Social Security, retirement moneyDave Ramsey bluntly warns Americans about retirement When Robbins asked him about his 401(k) balance, the executive confidently disclosed that he was nearing $1 million, feeling secure in the belief that he could live off this amount. Robbins then reframed the question, challenging him to think about how much of that million truly belonged to him after taxes. The thought that state and federal taxes could consume nearly half revealed the reality that a significant portion of his savings belonged to the government. Robbins explained that Roth 401(k)s and Roth IRAs, because taxes on them are paid up front, are better options than traditional 401(k)s and IRAs. Related: Scott Galloway sends strong message on Social Security Robbins wrote that he thinks of Roth 401(k)s and Roth IRAs as if they are legal tax havens in the face of rising tax rates in the future. He offered an analogy with a question. "If you were a farmer, would you rather pay tax on the seed of your crop or on the entire harvest once you have grown it?" he asked. Robbins points out that many people misunderstand this concept. There's a tendency to avoid paying taxes in the present, opting instead to defer them into the future. The common belief is that it's better to pay taxes later, when the "harvest" comes in. But Robbins explains that the truth is that paying taxes up front - on the "seed" rather than the harvest - can be far more advantageous because the amount being taxed is smaller at that stage. A larger harvest will naturally incur higher taxes. Roth accounts operate on this principle, Robbins clarifies. People pay taxes on their contributions now, depositing the post-tax amount. Once that's done, they no longer owe taxes - on the account's growth or on withdrawals. This setup shields their savings from future tax increases and, more importantly, gives them clarity on exactly how much they will have available to spend during retirement. By taking this approach, people can ensure their financial plans are secure and free from uncertainties tied to fluctuating tax rates. "With 401(k) contributions being Roth-eligible, people can pay tax today and let their growth and withdrawals be free from the IRS's grabby paws," Robbins wrote. Related: Veteran fund manager unveils eye-popping S&P 500 forecast The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Miami Herald
10-04-2025
- Business
- Miami Herald
Tony Robbins warns Americans on major 401(k) factor
While striving to support themselves and their loved ones financially, Americans frequently contemplate their long-term goals, including retirement planning, securing Social Security benefits, saving for the future, and making wise investment choices. Motivational speaker and personal finance author Tony Robbins discusses his view on one conventional fact about 401(k) plans for which he believes a better solution exists. Don't miss the move: SIGN UP for TheStreet's FREE Daily newsletter First, it is important to note that Robbins believes in the power of employer-sponsored 401(k)s as retirement savings tools. Because Social Security monthly payments are not enough alone to live on, contributing to one's 401(k) - preferably along with a tax-advantaged IRA (Individual Retirement Account) - is an important task. In particular, if an employee's company offers a Roth 401(k), it's a good idea to choose that option. Robbins argues that taxes are likely to increase during retirement, making the tax-free withdrawals from Roth 401(k)s especially appealing. Contributions to these accounts are made with post-tax income. He extends this reasoning to Roth IRAs, emphasizing their financial benefits compared to traditional IRAs. With Roth IRAs, taxes are settled up front, allowing retirees to make withdrawals without additional tax obligations. Related: Tony Robbins sends strong message on Social Security, 401(k)s Robbins mentions that retirement savings and investments are commonly referred to as a nest egg, but he prefers to use an alternative term for this concept. "I call it your money machine because if you continue to feed it and manage it carefully, it will grow into a critical mass," he wrote in his book, Money: Master the Game. But Robbins has a warning about a commonly used strategy often implemented in 401(k)s. Getty Robbins explains that about 90% of 401(k) plans require pay-to-play fees in exchange for placing a mutual fund as an available option. These fees result in a limited selection of funds from which to choose - and a contributor ends up selecting a fund that is designed to maximize profits for vendors, brokers and managers. Robbins believes that the target-date funds listed in 401(k) plans may be the most expensive and marketed creation to find their way into a plan's investment options. "Despite being the fastest-growing segment of the mutual fund industry, target-date funds (TDFs) may completely miss the mark," Robbins wrote. More on retirement: Dave Ramsey bluntly warns Americans about retirement Tony Robbins sends strong message on 401(k)sScott Galloway shares bold words on Social Security controversy Robbins explains a bit about how target-date funds work in 401(k) plans. The fund manager decides on a "glide path," Robbins described. He said that referred to a schedule for decreasing stock holdings (more risky) and increasing bond holdings (traditionally less risky) in an effort to be more conservative as one gets nearer to retirement. "Never mind that each manager can pick his own 'glide path,' and there is no uniform standard," Robbins wrote. "Sounds more like a 'slippery slope' to me." Related: Tony Robbins warns U.S. workers on Social Security, retirement certainty Robbins mentions a strategy known as Pure Alpha, developed by Bridgewater Associates founder Ray Dalio and launched in 1991. "The strategy now has $80 billion and has produced a mind-boggling 21% annualized return (before fees were taken out) and with relatively low risk," Robbins wrote. The Pure Alpha strategy is a flagship investment approach for Bridgewater. It's goal is to increase the value of its investments that grow regardless of contemporary trends in markets. The strategy involves extensive research, advanced models and precise execution to maximize returns that outsize market expectations. "The investors in the Pure Alpha strategy want big rewards and are willing to take risks - albeit still limiting their risk as much as humanly possible," Robbins wrote. Dalio understood that conventional wisdom and portfolio management involves models that can't succeed in tough economic times, Robbins wrote. "So he began to explore whether or not he could put together a portfolio - an asset allocation - that would do well in any economic environment in the future," Robbins explained. Related: Veteran fund manager unveils eye-popping S&P 500 forecast The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Miami Herald
04-04-2025
- Business
- Miami Herald
Tony Robbins has blunt 6-word reaction on Social Security, 401(k)s
As Americans work to provide financially for themselves and their families, they are often also thinking about their future retirement years, Social Security, saving money, and investing. Tony Robbins, author of Money: Master the Game, offers six words of wisdom that he suggests will help people get started taking control of their financial lives. Don't miss the move: Subscribe to TheStreet's free daily newsletter Both Social Security and 401(k) plans involve some complex details that people planning for retirement would be smart to understand. For example, it's important to know that, while one can begin claiming Social Security benefits at 62 years of age, choosing to begin receiving the monthly paychecks at a later age increases the amount of the payments. Related: Tony Robbins sends strong message on Roth IRAs, 401(k)s The average Social Security monthly benefit is about $1,980, for a yearly total of $23,760. By comparison, the 2025 poverty line for a two-person household is $21,150. Obviously, that's not enough money for most people to maintain their standard of living and their vision of a comfortable retirement. So it's important for people, during their working years, to contribute as much as they are able to employer-sponsored 401(k) plans and to invest in tax-advantaged IRAs (Individual Retirement Accounts). Robbins explains a succinct way to view strategies for building wealth and one way to understand how to get started. Getty In Money: Master the Game, Robbins wrote that one of his goals was to give people the knowledge and tools to take control of their finances. He emphasized the fact that, because Social Security monthly benefits are too little to live on, money saved and invested in 401(k) plans and IRAs should be a bigger source of income in retirement than the Social Security paychecks. And he addressed the complicated nature of many financial strategies with a six-word explanation of why people don't get started on using them. "Complexity is the enemy of execution," he wrote. More on personal finance: Tony Robbins has blunt words on IRAs, 401(k)s and a tax factScott Galloway warns U.S. workers on Social Security, retirement flawDave Ramsey explains a Roth IRA, 401(k) blunt truth Robbins broke down his plan for people to build financial security into a series of steps that he believes will help remove confusion and make it easier for people to find a place to begin. He explained that any successful wealth-building plan starts with the first step. "You'll uncover what it is you're really investing for, and unleash the power of the best financial breakthrough strategies," Robbins wrote. Related: Tony Robbins warns U.S. workers on Social Security, retirement Robbins suggests one area of knowledge employees with 401(k) plans can educate themselves on and implement to help grow their retirement savings. That is, if a worker's employer offers a Roth 401(k), it's a good choice to take that option. Robbins believes a person's taxes will be higher in retirement, so the fact money invested in Roth 401(k)s is done after taxes are already paid means tax-free withdrawals in retirement become all the more attractive. The author applies that same logic to Roth IRAs and why he believes those tools are more financially advantageous than Traditional IRAs. With Roth IRAs, taxes are paid up front, so withdrawals for retirees are made tax-free. Robbins suggests two major reasons people find they are unexpectedly paying higher taxes after they retire than they did while they were working. By the time people retire, it is often the case that their home mortgages are already paid off. For tax purposes, then, there is no longer a mortgage deduction they can use. Also, any children they have will likely be already grown up and have lives and careers of their own, so it is no longer possible to claim them as dependents. Robbins notes that money saved and invested for retirement is often called a nest egg. But he has a different term for it. "I call it your money machine because if you continue to feed it and manage it carefully, it will grow into a critical mass," he wrote. He describes the goal as having a "safe, secure pile of assets invested in a risk-protected, tax-efficient environment that earns enough money to meet your day-to-day expenses, your rainy day emergency needs, and your sunset days of retirement spending." Related: Veteran fund manager unveils eye-popping S&P 500 forecast The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Yahoo
25-03-2025
- Business
- Yahoo
Tony Robbins Says This Retirement Move Is More Important Than 401(k) Plans and IRAs
If you come into good fortune and acquire some extra money, planning for retirement should be at the top of your list. Most personal finance experts will agree that saving up over the long term is a great tactic for securing your future financial health. Be Aware: Find Out: However, Tony Robbins, an author and professional motivator, urges you to take your retirement plans to the next level. Most people agree that a good way to save for retirement is to put money into Roth IRAs and 401(k) plans. These tax-advantaged accounts help you invest your money over the long term so you'll have more when it comes time to retire. For a Roth IRA, you contribute money you've already paid taxes on. This money can grow over time, and you won't have to pay capital gains tax. When you reach retirement age, you don't have to pay anything to the IRS when you withdraw your money. A 401(k) is a bit different. The money you put into a 401(k) comes straight out of your paycheck before you pay taxes. Your employer may even match a certain percentage of what you put into the account, quickly adding to your investment. Then, like a Roth IRA, these funds can grow over time without capital gains taxes. Unlike a Roth IRA, when you withdraw funds from your 401(k), you'll have to pay taxes. When you put money into these accounts, you can build wealth that will become available when you turn 59 ½. Learn More: While Robbins agrees that putting money into retirement accounts is a solid idea, he also suggests taking an additional step to maximize your finances. In his new book, 'Money: Master the Game,' Robbins touches on several money issues that people should consider. One question relates to retirement savings. He poses the question of what you should do if you suddenly come into a large amount of money. Robbins goes through multiple suggestions, such as putting it into bitcoin, buying up stocks and putting it in a Roth IRA. While these options may be a good idea, he says the key to your financial well-being is spreading out your cash vs. putting it all in one place. Robbins explains that asset allocation is the way to go when you receive a lump sum of money or are preparing for retirement. Asset allocation is dividing up your money and investing in multiple asset classes, such as stocks, bonds, real estate and commodities. Many investors point to diversification as an important part of investing, but it isn't exactly the same as asset allocation. Robbins explains diversification is spreading out your investments within only one asset class. For example, putting your entire lump sum of money into the stock market while buying different types of stocks, such as energy, technology and healthcare. Diversification is an intelligent way to reduce your investment risk, but investing in different asset classes takes protecting your finances to another level. Robbins explains that the asset allocation approach lets you take different levels of risk while protecting yourself. Certain amounts of money can go toward riskier investments with the possibility of great reward, while safer investments will keep your finances propped up if things don't work out. He simplifies the concept by breaking down potential investments into two categories: security and peace of mind assets vs. risk and growth assets. The security assets are the long-term investments that will help you build wealth in the long run. This may be investing in mutual funds, bonds or life insurance. These investments aren't risky, and they best protect the principal investment so you cannot lose your money no matter what happens. The growth assets are where you take a bit of a swing and hope things work out. With higher risk comes higher reward, so putting your money into currencies, collectibles or high-yield bonds can potentially make you a lot of money. However, it's important to be smart about your investments, even if you're knowingly taking a risk with a limited amount of your funds. Striking a balance between growth and security assets will help you protect and grow your wealth to enhance your retirement savings. More From GOBankingRates 5 Types of Vehicles Retirees Should Stay Away From Buying 4 Housing Markets That Have Plummeted in Value Over the Past 5 Years 3 Changes That Could Be Coming to Social Security Now That Congress Is Republican 7 Tax Loopholes the Rich Use To Pay Less and Build More Wealth This article originally appeared on Tony Robbins Says This Retirement Move Is More Important Than 401(k) Plans and IRAs
