Building Wealth During Market Instability

Forget Warren Buffett and George Soros for a minute... We want you to think about a different investor – a young woman named Alexandra Bergson.

She arrived in the Nebraska plains with her brothers around the turn of the 20th century. Their parents were Swedish immigrants who had set out to become farmers. But early on, things looked bad...

Their corn crop failed. Trying to make up the loss, they planted a bigger crop the next year. But that failed, too.

Nebraska had gone barren. Farmers were going bankrupt. Many gave up on the land and moved back to Illinois or Iowa to find jobs.

During its second year of failed crops, the Bergson family was considering leaving as well. That was when Alexandra made a critical decision...

She traveled from the Nebraska highlands to the farms near the river and spent a week interviewing people there. These farms were doing better. Alexandra returned convinced her family could follow the example of the river land, which had been settled a few years before, and learn how to work the highland.

Alexandra pushed her family to mortgage its property and scoop up all the land it could from frustrated and scared farmers. Her brothers worried that everyone else would think they were crazy. But her plan prevailed...

And it paid off. Over the next 16 years, the Bergsons become among the wealthiest landowners in the area...

Even if it has been a few years since you sat in a high school English class, you might recognize Alexandra Bergson's story. She's the heroine of Willa Cather's 1913 novel O Pioneers!

Her story is in many ways the quintessential American dream... The notion that with some insight, hard work, and the courage to act at the right time, you, too, can build generational wealth.

As Alexandra tells her brothers when pushing them to expand their holdings...

The thing to do is to sell our cattle and what little old corn we have and buy the Linstrum place. Then the next thing to do is to take out two loans on our half-sections, and buy Peter Crow's place; raise every dollar we can, and buy every acre we can... As sure as we are sitting here tonight, we can sit down here 10 years from now independent landowners, not struggling farmers any longer. The chance that father was always looking for has come.

It also shows the virtues of capitalism. By providing a reward to risk-takers, land that would have been abandoned was coaxed into becoming a productive asset.

This month, instead of the wealth-building power of capitalism, you're likely feeling its instability. After President Donald Trump's tariff announcement last week, markets spent days in free fall.

Investing in stocks is always risky. And even some of the best blue-chip stocks in the world today clearly aren't immune to economic uncertainty...

The S&P 500 Index fell 12% after the announcement last Wednesday through Tuesday of this week.

Drawdowns in stocks happen. It's the cost of admission.

Don't fool yourself into thinking you can avoid them when they hit. Crises like these are unpredictable. And if you sell at every sign of fear, you end up selling little dips, buying back in at a higher price, and missing the good parts of the market.

To quote legendary investor Peter Lynch, "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."

Now, we could be entering a full-on recession...

But even this would not end society as we know it. During the financial crisis of 2008, the banking system nearly collapsed. And the COVID-19 pandemic shut down borders around the world. But we came back from these crises.

As before, the economy will come back... and the stock market will, too. It's part of the reason why I always tell my Retirement Millionaire subscribers that at its core, investing is simple...

Buy great businesses at reasonable prices and hold for a long time.

It doesn't have to be any more complex than that. You can find great businesses all around you. Companies that you use and can understand are the ones you should be buying during market turmoil like this.

Our advice is to own companies whose business models you could explain to a complete stranger. And we also think you should own companies with lots of cash – businesses that can survive a recession and even gain market share as competitors struggle.

That's what we've done in our Retirement Millionaire portfolio. We own those types of businesses. And we're prepared to hold them for the long haul.

Instead of selling everything and going to cash, take a breath.

While the market has already started to recover thanks to Trump's 90-day pause on most of the "reciprocal" tariffs, you still might find some of your favorite businesses trading at huge discounts. We recommend you put any extra cash into those types of stocks rather than sitting on the sidelines.

And if you're wondering what great opportunities are out there right now, make sure you're a Retirement Millionaire subscriber.

On Wednesday, I recommended what I call a "forever stock." This industry leader has rewarded shareholders for decades. And at the price you can get it for today, you shouldn't ever have to think about selling it.

If you're not already a subscriber, click here to get started with Retirement Millionaire and read all about our latest recommendation.

Now, let's get into this week's Q&A... As always, keep sending your comments, questions, and topic suggestions to feedback@healthandwealthbulletin.com. My team and I read every e-mail.

How to Treat Stop Losses for Options

Q: Occasionally, you recommend setting a stop on stocks that are subject to being called away. How does one exercise a stop when the stock in question might be called away? – L.S.

A: Whatever investing strategy you pursue, I always urge you to choose an exit strategy before you open a trade. In my advisories, I use sell stops – the maximum loss I'm willing to accept before exiting a position. That includes my options-trading service, Retirement Trader.

In Retirement Trader, I recommend that people set stop losses between 20% and 25%. These losses are based on the total cost of opening and closing the trade.

Let's look at how this works...

In this case, you asked about a stock that could be called away. That means you sold what's known as a covered call. For readers who aren't familiar with options trading, a call is a contract to sell stock at a certain price. When you set up a covered call, you're selling someone the right to buy 100 shares of a stock you own.

Say you sold December $25 covered calls on stock XYZ and decided to use a 25% stop loss. You bought shares of XYZ for $25, then collected a premium of $1 for the call option you sold. That means your total outlay – basically what you spent to open the trade – is $24... the $25 stock price minus the $1 you received in the call premium.

To figure out the 25% stop limit, take the total outlay and multiply it by 75%.

In this case, the combined value was $24 (cost of the shares minus the premium income)... $24 multiplied by 75% is $18.

Now, closing a covered-call trade is a two-step process... Before you can sell your shares, you first need to buy the option back. So you have to factor that into your calculation.

Let's say that the option is trading for $0.25. You'd need to spend $0.25 to buy back the option. So following a 25% stop loss, you'd want to close the trade if shares hit $18.25 (the $18 calculated previously plus the $0.25).

If that sounds daunting, keep this in mind... If you subscribe to Retirement Trader and follow my trade recommendations, I'll send you an update when you need to close or adjust a trade.

What We're Reading... 

• Did you miss it? Here's what comes after the bloodbath.

• Something different: Five ways to spot a fake masterpiece.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig and the Health & Wealth Bulletin Research Team
April 11, 2025