What to Buy?

Stocks are down, no doubt. Market wizards are all over the place these days predicting the S&P 500 up 40% to down 40%! They are probably BOTH right but assuredly WRONG in their timing. What to buy? Also assuredly, SPY and QQQ. Here are their annual returns since 2000.

SPY = SPDR S&P 500 ETF Trust and tracks the S&P 500 index.  

QQQ = Invesco QQQ Trust and tracks the NASDAQ-100 Index®.

2000 to 2002 were a bust for both indexes arguably on the heels of the dot com bust and 911. 2003 was a recovery year with both ETFs up sharply. QQQs up 50%!

Markets subsequently rose, sometimes barely and sometimes up nicely, until the bust in 2008! Market's fell to their 2002 levels. The stock market time machine went in reverse. 

But who knew the gears would shift in 2009 to erase the prior year losses! The following decade marked a period of unmatched growth, posing new highs almost every year, 2018 excepted. 

After all that, markets posted the three highest gains EVER from 2019 to 2021! This in spite? because of? worldwide Covid pandemic. 

And this year, as of Friday's 7/15/2022 close , we ARE down but really how much? Both the SPY and QQQ are still above their 2020 closes.

HOW will 2022 end? Up 40%? Down 40? No one knows. And let's stop pretending that someone does know.

What to buy now? 

"Now" was NOT in the title for this post because "Now" doesn't really matter. We buy, when we are flush, what history tells us will "outperform" the "other choices" over the long term. Outperformance = the indexes (SPY and QQQ) and other choices are "everything else".  Long-term means lifetimes, earnings years, family, education and retirement. 

For those with lots of cash (another word for underperforming investors), or the young, today's buy will take you back to the middle of last year. But, yes, buy now. 

When to sell? 

Sell ONLY when you need the cash or when you have to. Which brings us to our next fact. What we do know is that in 2022, for the first time in years, many retired investors will have to sell holdings to meet their RMD (Required Minimum Distribution) withdrawals at large losses. 

For the first time in our short memories, these withdrawals, marked at high 2021 year-end prices, will create losses AND high taxes. This is a double whammy from the deal we made to be IN the market and hold IRAs. Again, living through market declines is the price we pay for superior long-term performance. (Caveat: the government might change this but don't count on it.)

The stock market time machine marches on. The fundamentals of aging population demographics have not changed while Pandemic and War, the predicate causes of today's declines, will.

Why SPY and QQQ? These are the largest most liquid broad based stock index ETFs in the world. You can't buy indexes but almost anyone can buy these-almost at no cost. And, as spglobal.com will tell you, active managers cannot beat the S&P. WHY? That's a subject for another post. SPY is interchangeable with any large S&P 500 or total market tracking fund. Ditto for QQQ and Nasdaq 100 funds.  Finally, why cherry pick 2000 to the present? Cherry picking or not, the results and conclusions do not change over time-using start date 1970, 1945, 1900, 1800 or 1600 (Dutch and UK markets) or more... applicable results are the same.

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information. 

© 2022 George Rahal