In this post I will discuss my refined, structured Market-Based Selling Strategy for investing well with minimal effort – which is a 4-step process. For the buying side of things, you can find the structured strategy for buying investments here: https://brighterdayslifecoaching.com/a-structured-market-based-buying-strategy-for-investing-well-with-minimal-effort/. I discussed the initial buy and sell strategies I came up with in detail in books three and four of my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books focused on the “end to end” process to investing well: https://brighterdayslifecoaching.com/published-books-and-life-coaching-services/.

Keep in mind that the below process is notional in nature, and that you will need to refine it over time to get the best use out of it. My version has changed 10+ times over the past 10 years.

Here are the steps:

1. Calculate what I refer to as an Estimated Index Return Yield (EIRY) for each of the major market indexes as follows and see how they compare: add the earrings yield (1/PE) + dividend paid out for each major market index. For example, for SPY (an ETF which tracks the S&P 500 index (SPX)), on 24 January 2025, the earnings yield was 3.57% (1/27.99) and the dividend 1.21%. So, the EIRY would be 3.57% + 1.21% = 4.78%. Some investing experts prefer to use the projected nominal growth rate for the overall economy instead of the earnings yield since earnings growth has roughly been about the same as the overall economic growth. As of this writing, the nominal economic growth for the U.S. economy is presently projected to be 4.1% (1.9% real GDP projection + 2.2% inflation projection via PCE price index). So, using this measure in place of earnings yield, the EIRY for the S&P 500 index would be larger: 4.1% + 1.21% = 5.3%. I currently track each of the following major market indexes: S&P 500 index (e.g., SPY ETF), the Nasdaq (e.g., QQQ ETF), a Mid-Cap Stock Index ETF (e.g., IJH ETF), Russell 2000 index (e.g., IWM ETF), and the EFA ETF (or something similar). The first four are major United States (U.S.) based indexes, while the last one tracks international stocks of developed countries outside the U.S. and Canada. As of this writing, the EFA has the highest EIRY as compared to the other aforementioned indexes. Note: The S&P 500 and Nasdaq indexes typically have smaller dividends as well as PE ratios that exceed many of the other market indexes due to a larger and more concentrated amount of technology/growth companies. Technology/growth companies typically have higher PE ratios and pay little or no dividends – so if you prefer to invest in these indexes you might need to make some adjustments to account for this. The S&P 500 comprises about 80% of the entire U.S. stock market value – so it can be a useful proxy for the performance of the U.S. stock market as a whole.

2. Take a look at overall market indicators for the S&P 500 index to determine whether or not it is approaching extreme highs indicating a coming potential, substantial decline.

These indicators might include one or more of the following:

a. Cyclically Adjusted Price-to-Earnings (CAPE) ratio: Current Stock Market Index Price divided by average inflation-adjusted 10-year Earnings Per Share for the same Market Index. Here’s one source that talks about this indicator: https://www.investopedia.com/terms/c/cape-ratio.asp. The CAPE ratio approaching historical highs can be indicative of a potential, stock market decline although it has had a poor track record of timing the market overall. In recent months, the CAPE for the S&P 500 index has been approaching its highs historically speaking (e.g., as of this writing I believe a CAPE of 22 or higher might be a good number to use as an initial indicator for paying close attention and perhaps becoming more cautious overall).

b. Buffet Indicator: Present Total U.S. Stock Market Value divided by Gross Domestic Product (GDP). Typically, the Wilshire 5000 index is frequently used to represent the Total US Stock Market Value. Here’s one source that talks about this indicator: https://currentmarketvaluation.com/models/buffett-indicator.php. The Buffet Indicator approaching historical highs can be indicative of a potential, stock market decline although it has had a poor track record of timing the market overall. In recent months, the Buffet Indicator has been approaching its highs historically speaking (e.g., as of this writing I believe a Buffet Indicator approaching two standard deviations above the long-term trend line – roughly 185 or higher as of this writing – might be a good number to use as an initial indicator for paying close attention and perhaps becoming more cautious overall).

c. Average Length of Bull Market: According to Bespoke, since 1929 the average bull market has lasted 1011 days: https://media.bespokepremium.com/uploads/2024/07/Bespoke-Report-071224-Pros-Cons-78hy76.pdf. Bull markets in later stages (approaching or above the average) are likely to decline at some point although the timing can be questionable. The present bull market is still in its early stages and is far short of the average length.

d. Average % Gain of Bull Market: According to Bespoke, since 1929 the average bull market has gained 114%: https://media.bespokepremium.com/uploads/2024/07/Bespoke-Report-071224-Pros-Cons-78hy76.pdf. Bull markets approaching or above the average % gain, are likely to decline at some point although the timing can be questionable. The present bull market is far short of reaching this average gain.

e. Volatility index (VIX) approaching lows on a historical basis. Frequently the VIX at low levels rises sharply at some point and the S&P 500 index falls substantially. In recent months, the VIX has oscillated between lows and highs – but has not been at extreme levels.

f. Technical Indicators for S&P 500 approaching highs – especially when looking at weekly charts over several years (e.g., RSI approaching or above 70, S&P 500 approaching or above upper Bollinger Band, MACD at extreme levels, etc.). Technical Indicators approaching highs can signal a coming potential, substantial stock market decline. In recent months, the above technical indicators for the S&P 500 have approached its highs historically speaking.

g. Technical Indicators for VIX approaching lows – especially when looking at weekly charts over several years (e.g., RSI approaching or below 30, VIX approaching or below lower Bollinger Band, MACD at extreme levels, etc.). Technical Indicators for the VIX approaching lows can signal a coming potential, substantial stock market decline. In recent months, the aforementioned technical indicators for the VIX have not been at or approaching extreme levels – low or high historically speaking.

h. Gains substantially above long-term stock market average. The S&P 500 index gains about 10% annually (on average including dividends) – so if you experience substantial gains above and beyond that then it might make sense to sell at least part of the gains. This is particularly true for lower-risk investors – higher-risk investors probably would not be as concerned with this. As a low-risk investor, I frequently sell good gains as I experience them. However, above average gains can continue from one year to the next – and frequently they do – so the timing can be questionable. In the past two years, the S&P 500 Index has far exceeded the average (24% gain in 2023 and 23% gain in 2024). At some point, annual gains are likely to revert back to the long-term average.

i. See how the EIRY calculated in step 1 for the S&P 500 index compares to the 10-year treasury bond rate (TNX). Anytime the TNX approaches or exceeds the EIRY for the S&P 500 index, this indicates investing in the “risk-free” TNX is the more compelling investment and can signal a potential substantial decline in the S&P 500 index at some point although the timing can be questionable. For example, on 24 January 2025, the EIRY of the S&P 500 was 4.78% while the TNX was 4.63% – indicating the S&P 500 would only be a slightly better investment than the TNX meaning it is probably not worth the risk. If the EIRY for the S&P 500 was 50%+ higher than the “risk-free” TNX, then it would be a much more compelling investment and more worth the risk.

Now, although each of the above indicators has limitations, they can signal whether the overall stock market might be approaching extreme highs indicating a coming potential, substantial rebound – especially when these highs are signaled by several indicators. Many indicators, however, are not very precise, and tend to reflect highs much more frequently than lows over time.

The above are just a few of the technical and overall market indicators you can use. There are several others available including those discussed here: https://finance.yahoo.com/news/why-more-wall-street-firms-230100571.html

The best investing strategy to use will change over time depending on your investment risk category and the stock market risk overall. So, it’s very important, at least on a periodic basis, to maintain awareness of which risk category you fall into as well as what the overall stock market risk is at the time. Many investors fail to maintain this awareness and make these adjustments resulting in losing much of their life savings (e.g., remaining a high-risk investor when lower risk is appropriate) or not growing their life savings as much as needed (e.g., remaining a low-risk investor when higher risk is appropriate).

Now, the above being stated, if you have not yet defined your investment goal, then your financial future is already at substantial risk. So, please put in the time and effort to come up with a solid investment goal, and revisit and refine it from time-to-time to ensure it remains sufficient for fulfilling your future plans and needs. Your investment goal drives the associated risk category, and that, along with making adjustments when your risk category changes are the keys to achieving future financial success.

The most promising investment strategy for higher-risk investors (those in the HIGH-RISK and VERY HIGH-RISK categories) can be summarized as “playing to win” – ensuring you maximize stock market participation to the extent practical by staying invested for much of the time to ensure you don’t miss out on longer-term gains; even if it means you temporarily experience unrealized (“paper”) losses from time-to-time. It is most appropriate for investors in these higher-risk categories to continue buying into stocks – so as not to miss out on any potential gains – and some of these higher risk investors may never sell or just sell a little from time-to-time.

In contrast, the most promising investment strategy for lower-risk investors (those in the LOW-RISK and VERY LOW-RISK categories) can be summarized as “playing not to lose” – ensuring you maximize safety and protection and avoid losses to the extent practical; even if it means you miss out on potential gains. It is most appropriate for investors in these lower-risk categories to refrain from buying into stocks until they approach lower levels – and they are likely to sell many of the gains as they experience them to avoid experiencing substantial losses. Because once you have built up substantial savings overall, it makes sense to do what you can to protect yourself from losing what you have.

Medium-risk investors will need to take more of a middle ground approach, doing a little of both investing strategies but at less extremes on both the high side and the low side.

3. Assign one of the following to the overall stock market based on the results of step 2: GREEN (Low-Risk), AMBER (Medium-Risk), or RED (High-Risk).

4. If the S&P 500 index has reached new all-time highs, and the risk level assigned in Step 3 is AMBER or RED (for lower risk investors as defined in the section towards the bottom of step 4) or just RED (for medium and higher risk investors as defined in the section towards the bottom of step 4), take following actions (otherwise do nothing):

Note: each of the applicable steps is executed one time only in the exact order presented below (a-m) until the point when you start buying again using the structured strategy for buying investments: https://brighterdayslifecoaching.com/a-structured-market-based-buying-strategy-for-investing-well-with-minimal-effort/. So, once you execute step c, for example, you will next execute step d at some point when the specified condition is met. You will never go back to re-execute any of the previous steps – the only time that potentially changes is after you start buying investments again via the strategy referenced above.

a. Sell A% of the stock portion of your overall investment account (excluding bonds, CDs, bond ETFs, and such), and note the price of the S&P 500 index when selling this portion of your overall investment account. The price of the S&P 500 index noted will be used as the reference point for the remainder of this selling process.

b. Sell an additional B% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 5% from the price level noted in step 4.a. above.

c. Sell an additional C% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 10% from the price level noted in step 4.a. above.

d. Sell an additional D% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 15% from the price level noted in step 4.a. above.

e. Sell an additional E% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 20% from the price level noted in step 4.a. above.

f. Sell an additional F% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 25% from the price level noted in step 4.a. above.

g. Sell an additional G% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 30% from the price level noted in step 4.a. above.

h. Sell an additional H% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 35% from the price level noted in step 4.a. above.

i. Sell an additional I% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 40% from the price level noted in step 4.a. above.

j. Sell an additional J% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 45% from the price level noted in step 4.a. above.

k. Sell an additional K% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 50% from the price level noted in step 4.a. above.

l. Sell an additional L% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 55% from the price level noted in step 4.a. above.

m. Sell an additional M% of the total stock portion of your overall investment account determined in step 4.a. above when the S&P 500 index rises about 60% from the price level noted in step 4.a. above.

Determine the specific % of overall stock investments to sell at each step of the above process (a-m) as follows:

Important Note: When adding up what you have across your investment accounts, I recommend making the following adjustment for pre-tax type investment accounts (e.g., 401Ks and IRAs without the word “Roth” attached): reduce the total amount by 24% for a conservative overall estimate. We have to pay taxes when withdrawing from these kinds of accounts so this will help to account for that. Feel free to use a different percentage reduction depending on what tax bracket you believe you will fall into when withdrawing money from these accounts.

VERY HIGH-RISK INVESTOR (your investment goal is 8+ times what you presently have in total across your investment accounts – after making adjustments in accordance with the note above). For example, if your investment goal is $2M and you presently have $250k or less in total across your investment accounts then you would be a very high-risk investor.

If the overall stock market risk you assigned in step 3 is RED: D% = 10%, E% = 10%, F% = 10%, G% = 10%, H% = 10%, I% = 10%, J% = 10%, K% = 10%, L% = 10%, M% = 10%.

If the overall stock market risk you assigned in step 3 is anything other than RED, then do nothing.

Every time you sell or have new additional savings, put the cash in a money market fund and await another substantial market drop before buying (e.g., you can use the structured strategy for buying investments if desired: https://brighterdayslifecoaching.com/a-structured-market-based-buying-strategy-for-investing-well-with-minimal-effort/). You can also take a look at the overall market indicators for the S&P 500 index as shown in step 2 above and buy when it approaches extreme, beaten down levels indicating a coming potential, substantial rebound. You can also combine the two approaches if that is your preference.

HIGH-RISK INVESTOR (your investment goal is roughly 4-8 times what you presently have in total across your investment accounts – after making adjustments in accordance with the note above). For example, if your investment goal is $2M and you presently have $250k-$500k in total across your investment accounts then you would be a high-risk investor.

If the overall stock market risk you assigned in step 3 is RED: B% = 10%, C% = 10%, D% = 10%, E% = 10%, F% = 15%, G% = 15%, H% = 15%, I% = 15%.

If the overall stock market risk you assigned in step 3 is anything other than RED, then do nothing.

Every time you sell or have new additional savings, put the cash in a money market fund and await another substantial market drop before buying (e.g., you can use the structured strategy for buying investments if desired: https://brighterdayslifecoaching.com/a-structured-market-based-buying-strategy-for-investing-well-with-minimal-effort/). You can also take a look at the overall market indicators for the S&P 500 index as shown in step 2 above and buy when it approaches extreme, beaten down levels indicating a coming potential, substantial rebound. You can also combine the two approaches if that is your preference.

MEDIUM-RISK INVESTOR (your investment goal is roughly 2-4 times what you presently have in total across your investment accounts – after making adjustments in accordance with the note above). For example, if your investment goal is $2M and you presently have $500k-$1M in total across your investment accounts then you would be a medium-risk investor.

If the overall stock market risk you assigned in step 3 is RED: A% = 10%, B% = 10%, C% = 10%, D% = 15%, E% = 15%, F% = 20%, G% = 20%.

If the overall stock market risk you assigned in step 3 is anything other than RED, then do nothing.

Every time you sell or have new additional savings, put the cash in a low-risk fixed income investment and await another substantial market drop before buying (e.g., you can use the structured strategy for buying investments if desired: https://brighterdayslifecoaching.com/a-structured-market-based-buying-strategy-for-investing-well-with-minimal-effort/). The low-risk fixed income investments to potentially buy include a highly-rated 2-10 year bond, 2-10 year CD, low-cost bond ETF (IEF and AGG are two examples), or money market fund (if the yield on the money market fund is similar then all cash should go there but if the yield is substantially higher for bonds, CDs, or bond ETFs then consider placing at least some of the cash there). Note: No more than 50% of your overall investment account should be invested in bonds, CDs, and bond ETFs.

LOW-RISK INVESTOR (your investment goal is roughly 1-2 times what you presently have in total across your investment accounts – after making adjustments in accordance with the note above). For example, if your investment goal is $2M and you presently have $1M-$2M in total across your investment accounts then you would be a low-risk investor.

If the overall stock market risk you assigned in step 3 is AMBER: C% = 10%, D% = 10%, E% = 15%, F% = 15%, G% = 15%, H% = 15%, I% = 20%.

If the overall stock market risk you assigned in step 3 is RED: A% = 20% or more, B% = 20% or more, C% = 20% or more, D% = 20% or more, E% = 20% or more.

If the overall stock market risk you assigned in step 3 is GREEN, then do nothing.

Every time you sell or have new additional savings, put the cash in a low-risk fixed income investment and await another substantial market drop before buying (e.g., you can use the structured strategy for buying investments if desired: https://brighterdayslifecoaching.com/a-structured-market-based-buying-strategy-for-investing-well-with-minimal-effort/). The low-risk fixed income investments to potentially buy include a highly-rated 2-10 year bond, 2-10 year CD, low-cost bond ETF (IEF and AGG are two examples), or money market fund (if the yield on the money market fund is similar then all cash should go there but if the yield is substantially higher for bonds, CDs, or bond ETFs then consider placing at least some of the cash there). Note: No more than 75% of your overall investment account should be invested in bonds, CDs, and bond ETFs.

VERY LOW-RISK INVESTOR (what you presently have in total across your investment accounts equals or exceeds your investment goal – after making adjustments in accordance with the note above). For example, if your investment goal is $2M and you presently have $2M or more in total across your investment accounts then you would be a very low-risk investor.

If the overall stock market risk you assigned in step 3 is AMBER: C% = 20% or more, D% = 20% or more, E% = 20% or more, F% = 20% or more, G% = 20% or more.

If the overall stock market risk you assigned in step 3 is RED: A% = 33.4% or more, B% = 33.3% or more, C% = 33.3% or more.

If the overall stock market risk you assigned in step 3 is GREEN, then do nothing.

Every time you sell or have new additional savings, put the cash in a low-risk fixed income investment and await another substantial market drop before buying (e.g., you can use the structured strategy for buying investments if desired: https://brighterdayslifecoaching.com/a-structured-market-based-buying-strategy-for-investing-well-with-minimal-effort/). The low-risk fixed income investments to potentially buy include a highly-rated 2-10 year bond, 2-10 year CD, low-cost bond ETF (IEF and AGG are two examples), or money market fund (if the yield on the money market fund is similar then all cash should go there but if the yield is substantially higher for bonds, CDs, or bond ETFs then consider placing at least some of the cash there).

Again, the specific values presented above, and the process overall is notional in nature – so, it might appropriate to adjust these to best meet your specific investing goals. One reason why it can be wise to update your investment strategies over time is the more successful investors stay ahead of the crowd. They are willing to zig when others are zagging, and vice versa when good opportunities present themselves. If, instead, you are doing what most everybody else is doing, then your gains will be marginal at best and you can experience substantial losses during stock market downturns. So, it’s important to avoid being a “go along with the crowd “ type investor. Investors that are very patient and who tend to be more logical and mechanical in nature – as opposed to being compulsive and emotional in nature – will stay well ahead of the crowd and do well for themselves. Because most individual investors do not possess these key qualities.

The above process offers a notional, structured strategy for selling investments. However, for a more complete process, you will also need a structured strategy for buying investments. This is discussed in the following post: https://brighterdayslifecoaching.com/wp-admin/post.php?post=22935&action=edit. By alternating between the sell strategy and the buy strategy to approximate potential sell and buy points (based on your investment risk category in coordination with overall stock market indicators when appropriate) and promptly acting on these, you are likely to achieve your long-term investment goals more quickly and create a brighter future for yourself and others in your life.

You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing: https://brighterdayslifecoaching.com/published-books-and-life-coaching-services/.

Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities

I wish you much investing success for 2025 (and beyond!).

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