One Way To Avoid The Stock Market Busts In Your 401k

There are many ways to successfully climb the investing mountain. But many end up falling over the "investing cliff".

In my newsletters I show you ways to know better times to be in individual stocks and ETFs and better times to be out of them. Today, I want to show you just one way that you can know when it may be a good time to exit mutual funds and ETFs that track the overall market (like an S&P 500 index fund) or funds that are highly influenced by it.

It's very simple really. You see, before I knew anything about fundamental analysis, Elliott Wave counts, measuring investor sentiment, etc. I only knew a few technical indicators and how to successfully use them.

Well today, while I have several indicators on the chart below, we're only going to focus on ONE of those indicators - the 50-week simple moving average (SMA).

This is a strategy that certainly won't "call a top" or "call a bottom", but it can help you to know when the dangers are high and help you to avoid the bulk of the stock market's downtrend.

You see, in my personal opinion, part of your "retirement planning" needs to be avoiding as much of the bear markets as you can, and you'll find that your assets grow so much further than those who don't have a "plan of attack" along these lines. It's something I used in helping my dad with his 401k investing and it's something that I'm going to share with you here today.

Keep in mind, as it concerns your own retirement, if you feel you need to contact a CFP or a retirement specialist at your brokerage firm, feel free to do so. But if you're self-directing your own retirement investments within a 401k or IRA and you're willing to be just a bit more hands-on than the average person, then I believe you can help enhance your long-term returns because of what you don't "give back" to the market when you avoid much of its bear market (downtrend).

The chart I've provided below is from www.stockcharts.com and its free to access. But you can use most any charting provider (like one your broker uses in your trading station) to replicate what I'm going to show you today.

You really don't need anything else on your chart for this strategy except for the (blue) 50-week moving average. All you'll do is choose the "weekly" period and choose a "range" that goes back several years in time, like 5 years.

Once you're on the weekly chart, going back many years in time...you'll choose the "Simple Moving Avg" overlay and in the Parameters box, type in the number 50. (Also, make sure you've got $SPX in the Symbol box). Then click on the Update button and it will add this moving average to your chart.

My chart goes back further in time because I want to show you how this played out in the last two bear markets. So let's take a look at the chart below.

(Click on the chart above to enlarge it.)

When the price drops below the 50-week moving average AND continues to hold there for long enough to where the price starts to hold below the moving average (like its a ceiling to it), and the moving average is beginning to curl lower, you know it's likely time to exit your mutual funds/ETFs that would be tied to or influenced by this market down-draft. (Examples are in the red circled areas on the chart above).

You'll notice that this doesn't dodge ALL of the bear market (because no system will successfully do that), but you certainly miss a TON of the downside by exiting when this happens.

Then the question becomes, "When to get back in?"

The answer to that is when the price of the index starts to trade AND hold above its moving average. (A short-term spike above the moving average doesn't count, in other words).

Once this happens, you can move your money back into these stock mutual funds/index funds. You'll usually find that you're past the bottom in the market and it is generally a safer time to re-enter the market.

In my opinion, this is a great way to dodge a ton of the downside and yet get you back in early enough to enjoy the bulk of the next bull market uptrend.

I write this to you now because we may not be very far from the next bear market downtrend. Therefore, it's a good habit just to keep a tab open on your web browser with this set-up on it and click to update the chart after the close of the stock market on Fridays (after 4pm EST) and you'll have the latest data charted there for you.

If you're willing to do this, I believe you'll very likely fare much better than those who don't. Be pro-active about your wealth and make the time to steward it well and watch it grow better through the years as a result.

In the Bible, God said it this way, "Know well the condition of your flocks, and give attention to your herds."—Proverbs 27:23

If He were saying it to us today, I believe He would be saying, "Know well the condition of your 401k and IRA and give attention to those retirement accounts."

God bless!

Thank you for this article. I work for a major mutual fund company here in Canada and they always say anytime is a good time to buy but never once say when is a good time to sell. (For obvious reasons). That's why I like your guidance, teachings and reasons. Once again thank you for all you do.

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Thanks. Yes, if their money is invested, they’re less likely to take it out. So they have no incentive to tell people to get out. I agree.

Sean, thank you for your wisdom. In December 2016, I took your teaching to heart, and against my brokers advice, I converted my IRA to cash, then rolled it over to my company self directed 401k account. I was a bit concerned that I would miss some growth, but also did not want to caught in the drastic downturn. I feel confident that this was the right move, as you have stated, you can never call the top. I also learned from the past market correction and housing bubble that these type of downturns can set you back tremendously. Not willing to through that again. I feel that at this time my family is poised to invest wisely following the upcoming correction and provide us a nest egg for when I retire in 20 years.

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Yes, by staying invested, you're less likely to take money out of the account. Brokers have goals of "aasets in" and "asset retention". So encouraging people to remain invested helps meet those goals. Additionally, many brokers don't know when stocks are overvalued/undervalued, etc. Many aren't taught that. They're taught more sales techniques than anything. It's the nature of the business. It's why I like what I do because I can do what I feel is in the best interests of the subscriber and then the subscriber can decide what they want to do with their assets based off of that information. Also, some firms believe in "buy and hold forever" but as you stated, some of those downturns can take 5-15 years to recover from. So I don't hold their philosophy.

that is what all mutual fund company do...Asset retention...when market drops/crashes, they will say now is the best time to buy more by averaging down.

Yep, they're always suggesting buying but never suggesting selling. I agree. Yet there is a time to do both. Truth is, many of them don't know valuations enough to know when the dangers are so high and the ones that do know enough have no incentive to tell their clients. I agree.

That verse (Prov 27:23) really struck me one day several years ago. Since then, I have been committed to "shepherding" my "flocks", and it led me to finding and following your advice. I have learned so much, and even though I'm a bit impatient with all this cash on the sidelines, I am confident in the truth of what you are teaching and ready to buy value when others are moving in fear and greed.

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Awesome! Thank you!

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