Refresher Class: The 3-Bucket Retirement Income Strategy

US stocks rally for the first week in four

US stocks gained 1.4% on the week, though remain down 6.6% on the year, down 10.7% from the May 2015 high, up 64.1% over the last 5 years and up 139.0% from the March 2009 bottom.  The rally was sparked entirely by a reversal in the price of oil, which touched a 12 year low at $26.55 on Wednesday, then rebounded to $32.19.99 by Friday afternoon, an 21% move in 48 hours. 

We would like to think that financial markets are "rational" but every once in a while, markets fixate on ONE particular indicator.  In the last three weeks, price direction in stocks became entirely correlated with price direction in oil.  Nothing else - earnings, interest rates, labor markets, industrial production, housing markets - seemed to matter.  Last August, investors fixated on the Chinese markets, which dragged down US stocks 11% in a month.  When the fixation dissipated, US stocks gained back the entire loss in 2 ½ months.  We expect the same will happen over the next few months, so starting Monday we are putting all our spare cash to work.

Clients want to know: is there a way that we can anticipate times when stock investors will be irrational, step out of the market for a few weeks, then come back in at lower levels.  Many funds and services CLAIM to offer that prognostication, but whenever we inspect their historic records, we see no benefit at all (actually, the results are worse.)  Fortunately, there is a simple asset allocation strategy that enables us to pay our clients' monthly draw no matter HOW CRAZY markets react.  There's nothing magical about this approach - good advisors have employed this strategy for 50 years.  Given that we have an opportunity to catch our breath after 4 long weeks, here is a refresher on:

Read the entire commentary here.