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Welcome to the Stay Wealthy Podcast. I'm your host, Taylor Schulte, and I want to take a quick moment to say Happy New Year to everyone. I hope the holidays treated you well. I hope you enjoyed some downtime with friends and family, and I hope your 2024 is already off to a great start. I also want to say thank you for another fun and rewarding year for the Stay Wealthy Retirement Show. Thank you for listening to the podcast, for reaching out to me and saying hello, for providing feedback, and for asking great questions.
Thank you as well for challenging me, for pointing out things that I got wrong, or maybe I could have explained better. It's these sort of interactions, these communications from you, the audience, that make the show better and also motivate me to keep going, to keep iterating, and to keep improving. So thank you. I could have never imagined the journey that this podcast would take me on. And I'm just so incredibly grateful to each and every one of you who take valuable time out of your day, out of your week to tune in.
I've got some great things planned this year for the Stay Wealthy community, one of which I'll be sharing with you today. In addition to a fun announcement, today on the show, I'm talking about stock market predictions, what happened in 2023, and what's in store for 2024. I'm also sharing why I think we should plan for the biggest crash of our lifetimes.
To grab the links and resources mentioned in today's episode, just head over to youstaywealthy.com forward slash 208. And if you ever want to say hello and introduce yourself or provide constructive feedback, you can send me a note at podcast at youstaywealthy.com. I personally read and respond to every message. Okay, on to today's show.
Before we dive into the primary topic for today's episode, I have an exciting announcement to make. And that is that together with four other amazing retirement podcast hosts, we have created and formally launched the Retirement Podcast Network.
This show is now officially part of the Retirement Podcast Network, along with The Retirement Answer Man, hosted by Roger Whitney, Retirement Starts Today with Benjamin Brandt, The Long-Term Investor, hosted by Peter Lazaroff, and Financial Symmetry, hosted by my good friend, Chad Smith.
Now, unlike most podcast networks that currently exist, the goal of this network is not to make money. The goal is not to collectively build up larger audiences so we can we can lure in advertisers with deep pockets and dilute the content and make a quick buck.
The primary goal of the Retirement Podcast Network is to help you, to help provide you with a safe place to get good, accurate information about retirement. One of the most common questions I get from listeners is some version of, Hey, Taylor, I really enjoyed your series on long-term care. I'd like to continue my learning on this topic. I'd like to hear some other opinions. What other podcast episodes or resources do you suggest?
You know, while I do my very best to provide clear, accurate, objective information every week, at the end of the day, it's still my opinion and my thinking that's been shaped by my individual experiences. Another highly respected peer may have a different perspective that's worth hearing and considering, or they may explain something differently or more clearly, or they may cover aspects of a topic that I left out.
Enter the Retirement Podcast Network. While we're still in the early stages, the ultimate goal is to provide a learning library of sorts for retirement savers around the country. Want to dive deeper into long-term care? Want to quickly find additional podcast episodes on the topic that have been published by other licensed financial professionals? Or find research papers, online tools, or even videos that have been handpicked and carefully curated by us?
You can head to retirementpodcastnetwork.com and visit the Long-Term Care Resource Library to do just that. By the end of March, our first three retirement resource libraries will be fully populated with helpful information, links, tools, additional podcast episodes, and more. Until then, feel free to visit the site as it stands today, learn more about the other shows, and check out the initial information and resources that we've published so far.
In addition to providing a safe place to get good, accurate retirement information, the goal is also to make it easier to find and keep up with the great retirement content that's being published every week.
For example, starting next week, we will be sending out our weekly email digest summarizing the episodes that have been published by Retirement Podcast Network hosts. The digest will also include a handful of our favorite articles published by organizations and people outside of the network, as well as timely retirement and tax information that we think our listeners need to know about.
We'll start simple and we'll regularly collect feedback from you, our listeners and readers. So you can help us build what you think you'll find most valuable. We have a lot more up our sleeve and we'll be sharing more as we go. But if you want to follow along closely and ensure that you don't miss out on anything, just head to retirementpodcastnetwork.com. Click the purple free retirement toolkit button and you'll be added to our weekly digest that again will begin next week.
Okay, let's dive into stock market predictions. More specifically, what happened in 2023, what's ahead in 2024, and why I think we should prepare for the biggest crash of our lifetime.
Now, as most are aware, 2023 was a great year for the global markets across the board. It was pretty much impossible to lose money if you were a smart, passive investor. U.S. stocks were up 26%, international stocks up 18%, bonds were up, cash was up. Heck, even the classic 60-40 portfolio that was deemed dead the year prior returned 15 plus percent in 2023. Now,
The only major broad-based asset class that was in the red was commodities, down just over 5% for the year. So if you maintained an academically sound portfolio and didn't panic, you were handsomely rewarded for staying the course last year. But if you listen to just about any market pundit or economist at the start of 2023 and followed their advice, you're likely kicking yourself right now.
In January of 2023, if we rewind, stocks were coming off their worst year since the 08-09 financial crisis. Bonds had their worst year ever in history. Inflation still wasn't contained and interest rates were skyrocketing. This led well-known analysts and economists to say things like the bloodbath is likely to continue. The market is in for a mega threatened age and investors will lose trillions.
We're not just headed for another recession, but a profound economic and financial shift.
In December of 2022, Bloomberg pulled 22 of the so-called top strategists from all the big banks. On average, they expected U.S. stocks to rise just 7% in 2023, predicting a recession and a volatile year for stocks. In other words, the smartest people in the room were only off by 19% last year. As my friend Colin Roche recently put it, just when you feel like you know everything, the markets and economy will surprise you.
Contrary to what most people thought, the Fed paused interest rate hikes, bond yields started to come back to reality, inflation eased back to 3% levels, and the most talked about recession in history was avoided. As a result, the broad markets rewarded patient, disciplined investors, and it served as a good reminder once again that nobody has a working crystal ball.
As always, as we've seen over and over again throughout history, the vast majority of these so-called experts were wrong. And the few that were right, they likely won't be right again. So you'll see them capitalize on the short-term win, take a victory lap, and maybe go write a book.
Now, while market predictions can be interesting and even entertaining, allowing them to influence you to make meaningful changes to your investments can be downright damaging. Remember, stocks are long-term instruments. Anything can happen to the stock market in the short term. So if that's true, why would we allow a one-year market prediction to influence how we approach a 10-plus year investment?
If we accept that stocks are a long-term asset and we own appropriate, shorter-duration assets like bonds and cash to support our near-term retirement needs, then it should be easier to ignore the short-term pessimism when it does show up.
Setting my boring advice aside for a moment, I did say that market predictions can be interesting and entertaining. So purely for entertainment purposes only, let's have a little fun and look back at history to see what 2024 and beyond may have in store for us. As highlighted by Ben Carlson in a recent article, good years like we experienced in 2023 historically have clustered together.
More specifically, going back to 1928, double-digit stock market gains in a single year were followed by another year of double-digit gains over 40% of the time. For example, stocks were up 31% in 2019. That year was followed by double-digit returns of 18% in 2020 and 28% in 2021.
Perhaps more interesting is the fact that when U.S. stocks have returned 20% or more in a given year, they have historically had a positive return the following year 65% of the time. Not necessarily a double-digit return, just a positive return, something greater than zero.
In other words, historical performance going back to 1928 would suggest that there is a 65% chance the U.S. stock market will have a positive return in 2024. And while you might find that comforting, in any given year, irrespective of what happened the prior year, the U.S. stock market has ended the year in positive territory about 75% of the time, about three out of every four years.
So if anything, the odds of a positive year for U.S. stocks based on history are slightly lower in 2024, coming off a strong double digit gain of over 20% in 2023. But that's just U.S. stocks, one single asset class. Anything can happen to one single asset class, which is why we diversify.
Also, anything can happen to a long-term asset class like stocks in a single year. So while it's fun and interesting to look back at history and see how stocks have behaved over short periods of time throughout different environments and market cycles, it's more realistic and I think more constructive to evaluate the longer-term results.
For example, when U.S. stocks have returned 10% or more in a single year, the median return for the next 10 years historically has been 173%. When U.S. stocks returned 20% or more in a single year, like we experienced last year, the median return for the next 10 years has been 188%.
Put simply, over long periods of time, long duration asset classes historically have provided investors with healthy long-term returns. 2024 could be a bloodbath for the stock market. It could be the worst year for stocks in history. And it shouldn't matter. Or said differently, it shouldn't influence you to make meaningful changes to your investments. If you're owning stocks based on what they might do in the next 12 months, well, I'd argue that you probably shouldn't own stocks.
Now, even if we accept that we own stocks for the long run and what happens in 2024 is irrelevant to our asset allocation decisions, it doesn't mean that we shouldn't plan for a market crash. In fact, Harry Dent, a perma bear well known for regularly making market crash predictions, recently made headlines saying, quote, I think 2024 is going to be the biggest single crash we will see in our lifetimes.
He followed that up by predicting that U.S. stocks will drop by 86% this year. Of course, these comments are outlandish and smart investors are quick to avoid the clickbait. But that doesn't mean it can't happen. Anything is possible. So what if, just hypothetically, what if Harry is right? What if we experienced the single worst crash in history this year? What if stocks dropped by, let's say, 50% or more in 2024?
While I don't think we should let short-term predictions influence us to make meaningful changes to our long-term investment decisions, I do think that we should regularly prepare for these worst-case scenarios. It's a worthy exercise to stress test your investments, stress test your emotions, and stress test your plan.
Based on your current asset allocation, if stocks dropped by 50% this year, what would that do to your investment value in dollar terms? Crunch the numbers, write it down, and try to imagine what it would feel like emotionally, psychologically, to see your $3 million nest egg turn into $1.5 million. How?
How would you react? Would you be able to sleep? Would you panic and make irrational changes? Even more, what would an event like this do to your retirement plan? How would this change the probability of reaching your retirement goals? Would you need to make changes to your lifestyle? I find going through an exercise like this to be wildly helpful. Even more helpful is if you document a plan for a potential event like this happening. You know, if X were to occur, well, I would do Y. For
For my clients, the possibility of this sort of catastrophic market event is precisely why we create a war chest of cash and government bonds that equates to something between two to five years of living expenses.
Two years if you wanted to be a little more risky, five years if you wanted to be more conservative. In other words, if we went through a catastrophic event that caused the stock market to suffer for five years, well, you could lean on your war chest of cash and bonds to cover your retirement expenses without needing to change your lifestyle or worry about needing to sell your stocks at a loss.
You can let your stocks go on a wild ride knowing they are long-term instruments, that anything can happen in the short term, and that you created this war chest for this very reason. If Harry's prediction comes true and you're prepared, you have a plan B, then his outlandish comments become irrelevant. Following a dynamic withdrawal strategy in retirement to create a retirement paycheck is another example of being prepared for the unknown. We
We don't know what's going to happen in the markets tomorrow, but a dynamic withdrawal strategy has specific rules in place for us to follow when major events occur. During good times, we can withdraw more from our portfolio and spend more freely. But when markets go down and our portfolio drops below a predetermined dollar amount, we have to be okay with reducing our withdrawal amounts so we don't put too much pressure on our investments during difficult times.
Having these rules in place and knowing exactly how we're going to respond when different events happen, in my experience, gives people a lot of confidence in their long-term plans. And more importantly, helps them avoid making irrational, destructive changes in the short term.
I'll be linking to a number of different sources and studies in today's show notes if you want to dive deeper into market history or some of the lessons learned from 2023. You can once again visit the show notes for this episode by going to youstaywealthy.com forward slash 208. And don't forget to check out the Retirement Podcast Network and grab the free toolkit that we put together on the website, which will allow you to follow along with everything we have planned for 2024 and beyond.
Thank you, as always, for listening. I hope your year is off to a great start, and I look forward to seeing everyone back here next week. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional sources.
