Home https://server7.kproxy.com/servlet/redirect.srv/sruj/smyrwpoii/p2/ Business https://server7.kproxy.com/servlet/redirect.srv/sruj/smyrwpoii/p2/ How my retirement portfolio will benefit from the next recession imgflip ) I have many readers who are asking me whether today is a good time to put money for work in blue chips. After all, fears of recession in 2020 are rising and market volatility has increased significantly due to the escalating trade war between the US and China. As with most things in finance, the answer is "depends." That's how I manage my pension portfolio (where I save 100% of my savings, currently around $ 260,000) before a potential recession in the future to give you an idea of how to navigate in today's precarious financial waters to hope to improve long- solutions that maximize your chances of achieving your financial goals. Time on the market is much more important than the market time … Nothing is more important than understanding the key investment principles, so often remind readers what Peter Lynch, the second largest investor in the history (behind Buffett), in this business, if you are good, you have right six out of ten . You will never be right nine times out of ten … Everything you need for a lifetime of successful investing is a few big winners and the pluses of these will overwhelm the minuses of the shares that more money is lost to investors who are preparing for corrections or trying to make adjustments than they have lost in the adjustments themselves. – Peter Lynch (italics added) Investing is always probable, because the future is unknowable. Thus, the first step towards achieving long-term financial goals is a robust, long-term strategy that is likely to work in the future. Market history / surveys can be a great guide to defining a basic strategy that can help combine The first thing we need to know is that the stock market is the best one ever found , with shares that are the best asset class in history. On the other hand, the securities market is positive in 74% of the years, with the probability of earning money while holding stocks. After you reach 15 years, the probability (at least on the basis of historic returns to 1926) increases to 100%. In 1872, no 20-year rollover period saw investors lose money, even those who lost money, which they bought before the Great Depression peak of 1929 (after which the shares collapsed with 90%, the worst decline in US market history.) What these figures tell us is that market timing is something , which should be avoided as market history and Peter Lynch point out: "Time is on your side when you own shares of higher companies." Additional evidence and from JPMorgan Asset Management, the largest asset manager  on the Earth, who found that the average investor had achieved a 1.9% CAGR total return over the past 20 years This is worse than buying and holding literally every other asset class and even losing the historically low inflation.What causes these huge returns? Most of all, the market momentum, as investors became greedy after stocks rose to historically high ratings, then sold panic after they were expected to Later. By contrast, the super-conservative 40/60 stock / bond portfolio managed to deliver 5% CAGR total return, 2.5 times more than market investors have achieved and much less volatility (thus helping you sleep well at night). The 25-year average P / E for the S & P 500 is 16.2. For market-based bear markets and mild recessions (such as technological bubbles collapse), the market tends to drop to a pre-release R / E of around 14. The financial crisis has fallen to 10.3, although it was a historical anomaly that investors had to make  For the context, the low level of 24 December showed that the S / P 500 is progressing P / E shots 13.7, roughly the level of assessment observed at the bottom of the regular recession bear market. 19659022] Today the market has a preliminary P / E of about 16.5, which is approximately fair value historically (especially factoring interest rates around half of their historical rate). How about investing money to work as fast as possible (averaging dollar costs) against investing a total amount (dry powder for corrections)? Avangard has an answer to that. By viewing the historical market data from the United States, Britain and Australia, Vanguard found that 60% to 70% of the cases were the highest probable an approach to greater return was the immediate introduction of money into the market. The distribution of your assets did not matter whether you are 100% in shares, 100% in bonds or somewhere in the middle. What do all this information tell us (and tips from Peter Lynch)? Putting your discretionary savings into working on income-generating assets (such as stocks) and then retaining in the long run is the most likely way of increasing your revenue and wealth over time. However, as I said earlier, funding is complex and there are no absolutes. There really is a time when it is appropriate to store dry powder before buying better. … But we must not neglect the risks or First, the assessments always matter. The moderation of dollar costs (which are fully invested all the time) usually works better than saving cash to deploy during an adjustment (which since 1950 has averaged every 1.9 years). But not always when market assessments are in historical extremes. Here's what the Avangard vs. DCA study when the famous Robert Schiller cyclically adjusts the cost-profit or CAPE is over 32. When the shares were overestimated by the probabilities transferred and the lump sum (dry powder / correction), investment became a higher probability strategy. Today CAPE is 30.3. Which is historically high, but it will drop significantly over the next 18 months, as the low Recession earnings drop out of this 10-year average and inflation-adjusted earnings ratio (hence no likelihood of collapse). Well, what about the specific macro risks we face, such as the US-China escalating trade war? On May 10 2019, the effective US tariff rose to 6 percent, almost four times more than it had been before 18 months, because the US imposed 25% of China's $ 200 billion of Chinese exports (over 5700 different goods). If the final Chinese tariffs of $ 300 billion (also 25%) come into force, the US will impose over 10% tariffs on all imports. China's Final Chinese Tariffs Affect [Source: National Retail Federation] 19659030] The latest round of tariffs (may take effect in August or September 2019 after a 90-day commentary period) will hit US consumers particularly hard, as so far most tariffs were for intermediate goods rather than consumer These final Chinese tariffs of 25 percent would cost the average American family at four between $ 767 and $ 2294 a year, while watt in power. This is equivalent to a decrease of 1.3% to 3.9% of household annual income, whereas the US Census Bureau estimates the average household income in the US of $ 59,000. But the tariffs from 25% for all Chinese imports are the worst case scenario. As Moody's Analytics recently pointed out in his weekly research note, Widespread expectations remain strong that the US and China will resign in the next few weeks … This is also the most likely scenario Given the difficult progress in the discussions so far, the cost of the economy and the stock market, if war is held, and Trump's inherent desire to cope, are good chances that by the end of the grace period in mid-June . We apply a 60% probability for this baseline scenario . "Moody's Analystics Moody's underlying valuation also takes into account other commercial risks of America and what effects it will likely have on the US The trade deal with Trump with Canada and Mexico at the end of last year has not yet passed Congress and will probably not The baseline suggests that the previous NAFTA rules will continue to apply and that the president will not meet his threats to renounce fully NAFTA or – even more seriously – increase tariffs on car imports The economic prospects will not change meaningfully, with real GDP growth expected to reach 2.5% in 2019 and China's growth is also not affected, with real GDP growth of 6.3%, while the world economy continues to grow with almost [3%potential "- Moody's Analytics (the italics added) So, if Moody's high-probability prospects come true (which I also expect), then the US economy should be fine and unlikely for recession / bear market However, good investment requires that account be taken of the less likely (long queue) risks. That's why Moody's also has two alternative and less pink scenarios modeling An alternative scenario is that Trump can not find a way to shake hands with President Xi, and the higher 25% tariffs remain a place for longer, say by the end of the year … Higher tariffs will have a significant impact on the US, China and global economies Global companies can focus on the impact of a 10% tariff … but navigating around 25% tariff will be impossible Global supply chains will be disrupted, which will harm business investment and production. This alternative scenario is likely at 30% and will reduce real GDP growth this year by nearly half a percentage point to 2%. "- Moody's analysis (emphasis added) There is also the worst case scenario on which many bears are focused: Here's Moody's assessment of this grim hit A much more serious, worst, and more plausible scenario is that Trump participated in an all-commercial war following the vast majority of the threat he threatened. 25% of all Chinese imports to the US reached some $ 520 billion last year, about a fifth of total imports 15] In this dark scenario, Trump also had all-in 25% import tariffs for cars and parts (from Europe) … The probability of this complete scenario for trade war was 10 and a recipe for American, Chinese and global recession later this year. The Federal Reserve will try to mitigate the economic shock by reducing interest rates and the Chinese will stimulate monetary and fiscal stimuli, but these efforts will decrease . The length and depth of the crisis will depend on how long Trump calls for a cease-fire but considering the fast-moving presidential election is hard to imagine that it will allow the war to continue much in the coming year . – Moody's Analytics In the worst case scenario (10% probability), Moody's forecast is that US GDP may be affected by 2.6% by 2020. This is equivalent to an approximately 1.8% drop in annual GDP, potentially causing zero or slightly negative growth next year (and 3 million job losses leading to roughly zero net work) ( Source: Federal Reserve of New York) The economic growth model (based on leading economic indicators) predicts economic growth of 2.2%. This is roughly in line with the Cleveland Fed economic model, which expects GDP growth of 2.2% to 2.3% this year (Source: Federal Reserve in Cleveland) And this is also near what the Fed expects this year to grow in 2020 and 2021 to just below 2% (Source: Federal Open Market Committee) So the bad news is that in the worst case the commercial war may potentially put the United States in a slight recession (in 2001, when the peak of GDP fell by 0.9% due to the burst of the technology bubble.) The good news is that Moody's (Goldman Sachs (NYSE: GS) calculates only 40% of the probability that the May 10 increase in price will not be the case (as I am) it will happen, but it did.) So, when it comes to predicting important economic results like a trade deal, I have a valuable source I'm referring to, pp. "Intelligent Money" in the world of finance; bond market. The bond market is far larger and more liquid than the stock market and dominated by institutions (such as pension funds, donations and state funds) whose job is to focus primarily on risk and capital protection. why the bond market, through the famous yield curve, has been able to predict any recession of 1955 with only a false positive result (the mid-1960s when growth slowed to zero but never negative ) There are two specific things that I check when considering the bond market for the economy. The first is the bond futures market, where large institutions spend billions to hedge against interest rate changes. While the market market hit a fresh peak on May 3 expectations that the final trade deal will be announced by May 10 th the bond futures market signaled a 66 percent probability of at least a 1 percent decline from Fed in 2019 (with a zero chance of excursion). I understand that as the bond market correctly predicts that trade talks will affect and the trade war will escalate (potentially damaging the economy enough to bring down the interest rate). January 2020 the bond futures market evaluates zero chance for an increase in interest rates, a 20% chance that prices will be equal, and an incredible 80% chance that the Fed will have to cut at least once (and over 50% that will have to be cut more than once). The second way I track the bond market is the very 10 to 3 million yield curve, which is a study by San Fran Fed in August 2018, which concludes that "The best aggregate measure (the recessionary risk) is the spread between ten-year and quarterly earnings. " This is probably due to the fact that the survey of Dallas Banking officers in October 2018 found that the 10y-3m curve was carefully monitored. In other words, the "moderate and prolonged inversion" of the yield curve is perceived by banks as a warning that the recession is coming and it's time to cut the credit to a more risky one. This reduces money supply (financial lending accounts for 85% of US money supply), creating the recession that they feared would came ] The yield curve turned twice now, once at the end of March (for 6 trading days) and is now flat after spending four negative days. In the next section I will look at the different yield curves / Criteria to confirm the recession (there are four major ones), but one is 10 consecutive days of inversion (with any amount). (19459072) (Source: Bianco Research, MarketWatch) Since 1969 (the last 7 recessions) remained negative for 10 consecutive trading days, the recession always followed, on average within 10.5 months. While seven data points are not significant enough to say for sure that such an event guarantees a recession that will come in 2020, it will certainly increase the risks of one who is already at 10-year highs according to Cleveland and New York. Federal Reserves.