Are you on track to retire comfortably? One of the biggest fears facing seniors is the prospect of outliving their savings in retirement. If that happens, what then?

Back in 1975, more than half the full-time workers in the US were covered by a company-sponsored pension plan that took care of their retirement. Today, only about 4% of U.S. companies in the private sector support retirees with a traditional pension.

Retirement has become the ultimate do-it-yourself project. And you can’t afford to make a mistake.

So, today I’d like to look at how using the TradeStops Stock State Indicators (SSI) combined with risk-adjusted returns can help you achieve your most ambitious retirement goals – plus, help you sleep better at night.

We saw last week that using TradeStops to help manage a retirement plan would have been beneficial over the last 20 years. But these days, most of us are working longer than 20 years. 40 years or more is the new norm.

Not only are we working longer, but we’ll need to invest for a retirement that can last 30 years or more.

That Requires a Lot of Money!

Therefore, I asked my team to look at using the same investment strategy we presented last week, only this time, over a longer period.

Even though the S&P 500 ETF didn’t exist 40 years ago, we used the same $1000 monthly investment, this time into the S&P 500 Index itself. The backtest rules stayed the same. When the Stock State Indicator (SSI) signals were not in the Red Zone, we invested into the Index.

When the S&P 500 index was in the SSI Red Zone, we went to cash, but continued to invest $1000 monthly. When the index triggered a SSI Entry signal, we moved all of the funds back into the market.

Over 40 years, you would have invested $481,000 of your own money. The returns are similar, though using the SSI signals would have given you an almost $80,000 advantage over the buy-and-hold strategy.

SPX Dollar-cost averaging with and without SSI

So you might look at the above chart and ask, “What’s the big deal?” The final results are basically the same.

The real question, however, the question that most investors miss… is which roller coaster could you have ridden on and stayed the course? The big key isn’t only what the final number is at the end. It is if you could have achieved the final number without too much stress or throwing in the towel at the exact wrong moment.

That’s why risk-adjusted returns are so important! What exactly are risk-adjusted returns? Let’s look at these two scenarios to get the idea.

The Takeaway

The real advantage in using the SSI signals is shown in the two major downturns in the early part of this century. In both cases, you would have been on the sidelines while the stock market was dropping almost 50% from 2000-2002 and more than 50% from 2007-2009.

What this chart doesn’t show is the gut-wrenching turmoil that investors experienced during the two bear markets. It was emotionally painful. Do you remember what It felt like as the market moved down almost every day and you saw your investments shrink in half?

That’s How Emotion-Fueled Mistakes Happen

The risk-adjusted returns tell the big story. Remember, the risk-adjusted return is defined as how many units of reward did you make for each unit of risk you took. I first talked about RAR here.

And you can see that the risk-adjusted returns were far greater using the TradeStops SSI signals.

Moreover, you would’ve experienced less stress along the way. Would’ve helped you stay the course – lowering your chance of making a devastating mistake.

SPX Dollar-cost averaging – Risk Adjusted – with and without SSI

When You Add It All Up

Greater returns? Check.

Less Risk? Check.

Accomplish the goal of your retirement? Check.

Your retirement is too important to risk making costly mistakes you simply can’t afford. Reduce that risk by considering risk-adjusted returns and the impact of SSI over the long term.

With TradeStops as your partner in the ultimate do-it-yourself project, your odds of success will be greatly increased.


Richard Smith, PhD
CEO & Founder, TradeStops