Do You Need to Evaluate Your Market Exit Strategy?


If you have money invested in the market, chances are very high that you have a loss. In talking to savers and investors like you, I’m amazed they all tell me the same thing: “As soon as my investments get back to where they were, I’m getting out of the market.” You should give some thought to this exit strategy.

First, by saying “as soon as” or “when” the market recovers, implies an economic forecast. How do you know the market is going to recovery anytime soon?  People were saying the same thing in 1929 but they didn’t get their chance to exit at break even until late 1954 – that’s 25 years later.” 

In case you think the great depression was an anomaly, look at the market averages in late 1969 and compare them to late 1982—the DJIA at the beginning of this thirteen year period was the same as at the end. As this is being written in 2009 the DJIA is at roughly 8000 – the same level as 1997. So if you say “when the market comes back to where it was,” exactly what time frame did you have in mind? One more thing – if you adjust for inflation, the picture gets a lot worse.

So what makes you think the market is coming back during your lifetime? Maybe that’s what your stockbroker told you…wonder if she might have an ulterior motive like losing commissions or saving face? Regardless, you should pay no attention to her “forecast” because obviously she didn’t know it was going to melt down or you would have been warned. So, what makes you now think your broker know when it is coming back?  The fact is: No one knows when, or if, the market will recover.

So what should you do? Try answering this question: “What will I do if the market continues to melt down and I only have half of what I now have?” If you think this can’t happen, you can stop reading.  If you don’t like the answer you gave, then maybe you should think about getting out of the market. I know, you’ll be turning paper loses into real losses – or maybe you’ll be avoiding more losses. Or, if you get out now, you’ll miss the coming recovery (have you been listening – we don’t know the timing for the end of the world and we don’t know when, or if, the market will recover). 

Yes, I know it would hurt to take your losses…but, if you still have enough for an acceptable retirement, you need to face realistically the hard decision you have to make. Maybe locking in a guaranteed lifetime income with what you have left is the way to go. Yes, this is very easy to do by depositing your money with an insurance company – they are in the business of insuring longevity risk (that’s the risk of outliving your money).

The foregoing is not the advice you’re getting from those that sell stocks, bonds, mutual funds, variable annuities and other market investments because if you abandon the market, they lose commissions. 

What’s more, those that sell such investments have been brainwashed to actually believe what they tell you because that is what the brokerage industry has taught them. The fact is, the “wisdom of Wall Street” is an oxymoron and the brokerage industry has been exposed: not only can’t they manage your money, they can’t manage their’s either.  Nonetheless, there is no shortage of pundits preaching that the “market is coming back” and now is the time to buy at bargain prices … and unfortunately those who least can afford the risks are among the believers. I sincerely hope you are not “drinking their cool aid.”

Shelby J. Smith, Ph.D.


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