Today I’m talking about stock market predictions.
Specifically, I’m sharing:
- What happened in the markets in 2023
- What may lie ahead for us in 2024
- Why we should prepare for the biggest crash of our lifetime
I’m also sharing an exciting announcement that will directly benefit you! 😊
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How to Listen to Today’s Episode
- Check Out the Retirement Podcast Network!
- Major Asset Class Performance in 2023
- Stock Market Gurus Were Wrong About 2023
- 2023: The Year of Terrible Market Predictions
- Most Well-Known Economists Got It Wrong In 2023
- What Could Go Right and Wrong in 2024
- How I, and Everyone Else, Got 2024 So Wrong
- What Comes After a Good Year In the Stock Market
- 2023 Was a Good Year
- 3 Lessons From 2023
2024 Market Outlook: Why We Should Prepare for a Crash
Taylor Schulte: 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 good 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, reaching out to say hello, providing feedback, and asking great questions.
Thank you as well for challenging me – for pointing out things I got wrong or could have explained better. It’s these interactions that make the show better and also motivate me to keep going, to keep iterating, and to keep improving.
So, thank you. I could never have imagined the journey this podcast would take me on, and I’m so incredibly grateful to each and every one of you who take valuable time out of your week to tune in. I have 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 lifetime.
To grab the links and resources mentioned in today's episode, just head over to youstaywealthy.com/208. And, as a reminder, if you ever want to say hello or provide constructive feedback or ask me a question, you can send me a note at firstname.lastname@example.org. I personally read and respond to every message.
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 Chad Smith.
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 lure in advertisers with deep pockets, dilute the content, and make a quick buck.
The primary goal 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, “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?”
While I do my very best to provide clear, accurate, objective information each week, at the end of the day, it’s still my opinion and my thinking that has 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 long term care have been published by licensed financial professionals? Or find research papers, online tools, or videos that have been hand-picked and carefully curated by the network hosts?
You can head to www.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, learn more about the other shows, and check out the initial information and resources that have been 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 is being published each week.
For example, starting next week, we will be sending out a 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 regularly collect feedback from you, our listeners and readers, so you can help us build what you will 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 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 will begin next week.
Ok, 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.
As most are aware, 2023 was great 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 were up 18%. Bonds were up. Cash was up. Heck, even the classic 60/40 portfolio that was deemed dead the year prior, returned 15+%.
The only major broad-based asset class that was in the red was commodities, down just over 5% for the year.
If you maintained an academically sound portfolio and didn’t panic, you were rewarded for staying the course. But if you listened 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, stocks were coming off their worst year since the 08/09 financial crisis, bonds had their worst year ever in history, inflation wasn’t contained, and interest rates were skyrocketing.
Well-known analysts and economists were saying things like:
“The bloodbath is likely to continue” … “the market is in for a mega-threatened age and investors will lost trillions” … “we’re not just headed for another recession but a ‘profound economic and financial shift.”
In December of 2022, Bloomberg polled 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. The smartest people in the room were only off by 19% last year.
As my friend Cullen 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 that nobody has a working crystal ball. As always…as we’ve seen over and over again throughout history…the vast majority of so-called experts were wrong. And the few that were right, likely won’t be right again. So they’ll capitalize on the short-term win, take a victory lap, and write a book.
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 why would we allow a one-year market prediction to influence how we approach a 10+ 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 shows up.
Setting my boring advice aside for a moment, I did say that short-term predictions can be 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 often 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 year prior, the U.S. stock market has ended the year in positive territory about 75% of the time. 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 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 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, 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, I’d argue that you 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 we shouldn’t plan for a market crash.
In fact, Harry Dent, a permabear well-known for regularly making market crash predictions, recently made headlines saying,
“I think 2024 is going to be the biggest single crash we’ll 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 experience the single worst crash in history this year? What if stocks drop 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 we should regularly prepare for 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 might feel like, emotionally, psychologically, to see your $3MM nest egg turn into $1.5MM.
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 wildly helpful. Even more helpful when you document a plan for a potential event like this happening. If X were to occur, I would do Y. 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 2-5 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 5 years, 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 them 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 are irrelevant.
Following a dynamic withdrawal strategy in retirement to create a retirement paycheck is another example of being prepared for the unknown. 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 the predetermined dollar amount, we have to be ok with reducing our withdrawal amount so we don’t put too much pressure on our investments during difficult times.
Having these rules in place, and knowing exactly how 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 some of the lessons learned from 2023. You can, once again, visit the show notes for this episode by going to youstaywealthy.com/208.
And don’t forget to check out the Retirement Podcast Network and grab the free toolkit 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.
Episode Disclaimer: This podcast is for informational and entertainment 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 services.