Things Savvy Investors Understand

To be a good investor, add these insights to your mental quiver of wisdom.…

There is no need to trade within your portfolio as a normal course of events. Buying and selling investments is the way everyone portrays the investing world. Movies, TV, internet, radio, publications, you name it. Buy low, sell high, watch the markets, time the markets, what’s the latest trend, what sectors are up or down, what’s the next hot stock tip… It’s exhausting trying to keep up. Relax. You can stop trying to keep up because trading is unnecessary and a losing proposition over time.
The trading mentality leads people to think investing is a short-term game but it’s not. Short-term means you have to be ready to pounce when opportunity knocks. How do we know when opportunity knocks? We don’t. Investing is actually a long-term game. It’s based on a lifetime of work, having a plan, being thrifty, patient and disciplined. There are no shortcuts or get-rich-quick schemes.
The knowledge and processes required behind success in investing are not that complicated. The financial service firms and media would have to believe it is because they need you to think that. Successful investing does not have to be complicated. In fact, the more complicated investing gets the greater likelihood that you will fail. Find articles on this site about averaging down, portfolio allocation and rebalancing to build a strong base of knowledge and start an action plan. A good adviser can help build a solid a plan for you and help maintain your discipline when you feel emotionally weak in the knees.
You can’t always stick with a good fund manager. This would be great but good fund managers eventually leave or retire. Some […]

Four financial ways to say “I love you”

Chocolates get eaten and flowers wilt—but financial responsibility can be a lasting way to show someone you care.

Put your wallet where your heart is with these valiant financial acts of love.

Bare all—financially.

A solid financial foundation can only strengthen your relationship—and that foundation should start with trust and partnership in money matters. But many married couples don’t even known the financial basics about their spouse: more than four in 10 couples don’t know exactly how much their partner makes.

It’s fine to maintain financial autonomy, but make sure that you both have a clear understanding of your money situation—and that you’re both on the same page. You may have very different ideas about debt, saving, and spending, but thinking about the goals you’ll be able to achieve together may help you meet in the middle. Get the conversation started by talking with your partner about your assets and liabilities: “what you earn, what you own, and what you owe”.

Being in a partnership comes with a few financial advantages over being single—especially if you have two incomes. Knowing how much money is coming in and going out is the first step in setting up a spending and saving plan that works for both of you.

Lose your baggage.

Money that goes to paying interest on debt could be used in much more efficient ways—like saving for an emergency or putting money away for the future.

Having debt is sometimes unavoidable. But making minimum payments on high-interest debt and failing to save for emergencies are money mistakes that could lead to more debt in the future. Make a plan with your partner to knock out debt together so you can save more money or even spend more on fun stuff today.

Invest […]

Don’t Let the Headlines Distract You

From a strictly economic and financial markets perspective, history suggests that the party in the White House has little impact on broad long-term investment outcomes. However, an administration can have significant impacts on individual industries through regulatory change and other tools. The current administration appears different from others in their willingness to speak directly to certain industries and companies in unconventional ways. Off the cuff comments have seemingly harmed certain stocks for short periods of time, though their stock prices have bounced back in short order.

More broadly, this administration has talked down the value of the U.S. dollar, suggesting an end to the “strong dollar” policy that harkens back to the Clinton administration. Here too we think the long-term effects will be limited. While some countries actively manipulate their currency, the value of the U.S. dollar is driven by a complex array of market forces, which should overwhelm political commentary.

In our open system, markets overpower rhetoric. Global demand for U.S. dollars and central bank policy have real implications for the value of the U.S. dollar relative to other currencies. As far as we can see, stricter bank capital requirements and disparate central bank policies should keep demand for the greenback at high levels, which supports the value of the U.S. dollar.

Meanwhile, fundamentals continue to improve. The January employment report released on February 3rd showed 227k jobs created versus 175k expected. At the same time, wage pressure is not so strong that the U.S. Federal Reserve (the Fed) should feel threatened by inflation at this point. With the Fed still on hold and economic fundamentals improving, our economy can continue to grow with markets rewarding risk assets like equities.

The U.S. economy is showing broad signs […]

Get Invested, Stay Invested: Preparing for Market Volatility

“A smooth sea never made a skilled sailor”

A market without volatility would be unnatural, like an ocean without waves. The free market, like the open ocean, is constantly churning. For some investors, market-moving waves can be exciting, providing a buying opportunity for mispriced securities. For other investors, the waves might feel violent; but truthfully, for long-term investors, market volatility should be irrelevant.

The degree of market volatility varies from small ripples, to rolling waves, to a financial crisis-sized tsunami. While all volatility feels uncomfortable in the near term, the important question for long-term investors is how to respond to it. In this bulletin we outline four principles that will help investors navigate a choppy market.
Expect bigger waves
We are entering the later stages of a long economic expansion. While we expect a healthy, growing economy in the coming year, it is important to acknowledge that volatility tends to be elevated in the second half of the business cycle. To expand upon our nautical metaphor, we liken the cyclical nature of volatility to the ocean tide. Volatility ebbs with the positive and steadfast economic news that characterizes the beginning of the business cycle, and it flows when the market is mired by slowing economic momentum and fears of recession.

Skittish investors who are skeptical of the prospects of future economic growth are the main cause of the bigger waves at the end of the cycle. When there are fears of a recession, investors’ “edge of seat” mentality causes quick and sometimes irrational decision making, and the subsequent herd behavior can amplify the market drawdown and ultimately cause tsunami-magnitude volatility.
Grab an oar! Here is what you will need to do…
Actually, as a long-term investor you’ll need to do less […]

What Big Investors Are Thinking and Feeling

We love hearing from investors — retail and professional — because they’re in the trenches, with views that often differ from the group-think that prevails in Washington. We’ve been on the road, as usual, and have the following observations:

GOLDILOCKS RULES: Strongly contrasting with Donald Trump’s dark view of America, a majority of investors we talk with see decent GDP growth, moderate inflation, a solid labor market, tolerable interest rates, good corporate earnings and a stock market that should move erratically higher.

Virtually no one we talk with senses an imminent recession, not with interest rates this low.

WHO’S AFRAID OF HIGHER RATES? A bit of a surprise — a large percentage of investors, especially on the retail side, would welcome higher interest rates. They agree with industry titan Charles Schwab and others who have complained that low rates punish savers and seniors, who are frustrated in their quest for higher yields. Could higher rates hurt the market and the economy? They’d have to go a lot higher, investors agree.

INVESTORS TO TRUMP — COOL IT A LITTLE: We get the same message — Trump’s policies are exciting and long overdue, but his constant tweeting and polarizing statements are exasperating. While there’s investor optimism over the economy, there’s anxiety that Trump could say or do something that rattles the markets. “Who knows what’s next from this guy,” one client says; she, like many others, worries that her clients are confused by the frenetic pace in Washington.

REGULATORY REFORM — TOO LATE: There’s a consensus that regulatory reform in general is a good thing, but we’re struck by attitudes on the Fiduciary Rule. “We’re already in compliance,” everyone says. Whether the rule is killed or modified, our industry is ready for it and has embraced most […]

Emotions have no place in investing…

…But they do! The investment industry often fails to remember that people invest their money to grow and that their investments become an extension of their ability to improve, or harm, their futures. While growth is paramount, avoiding devastating losses is just as critical.

Academically, buy-and-hold and strategic investing with a well-diversified portfolio makes perfect sense. However, as Behavioral Science has taught us, people react differently to gains and losses. Often referred to as fear and greed, there are many subtleties to our emotional spectrum. The common denominator is that people cannot handle large losses. We panic, we pray, we react. Most often, investors do the worst possible thing at the worst possible time…they sell at or near the bottom of a bear market or sometimes during much smaller declines.

Emotions can also creep into investment decisions based on external events. Whether it is politics, terrorism or other world events, these rarely play a positive role in deciding what to do in your portfolio.  People react stronger to negative news than good news. Today, with political angst at a crescendo, it becomes especially important to resist urges to buy or sell based on outside, emotional news and/or events.

Our new President continues to challenge the press, and the media’s reactive noise is beginning to weigh on the investor psyche. Regardless of your political views, to the world’s stock and bond markets this is just loud noise! From an economic, company earnings and market standpoint, things are pretty good and expectations for improvement are high. Recent economic data has been better than expected and should bolster stocks. In short, regardless of your political views, don’t let political noise, however exacerbated by the press and our new President, cloud […]

Patriots Super Bowl victory bad for the Dow?

The Super Bowl indicator is a pseudo-economic indicator claiming the Dow rises for full years when the Super Bowl winner comes from the original National Football League. When a team that played for the old American Football League wins, the Dow falls. Since the two separate leagues of the past preceded the AFC and NFC conferences, expansion teams count based on the conference they play in.

I would be the first to admit that this indicator has no real connection to the stock market and the relationship is random. Nonetheless, the Dow has performed better when NFC teams have won over the past 50 years.

A simpler way to look at the Super Bowl indicator is to look at the average gain for the Dow when a team from the NFC has won versus when AFC teams win — ignoring the individual histories of the franchises.

This similar set of criteria has produced an average price return of 10.9% when an NFC team has won, compared with only 4.3% when there’s been an AFC winner.

An NFC winner has produced a positive year for the Dow 82% of the time. The Dow has advanced only 61% of the time when the winner came from the AFC.

Interestingly, the New England Patriots have an even worse record for markets than the AFC as a whole. Of the eight previous New England appearances in the Super Bowl, the Dow has been up for the full year only 50% of the time, with an average gain of just 0.3%. The years they were champions fared the worst, with an average loss of 4.1%.

Those who love Tom Brady will be glad to see him starting in his record seventh Super Bowl, but those […]

Now What After Dow Jones Industrial Average Hits 20,000?

The Dow Jones Industrial Average hit 20,000. The aftermath was a barrage of media stories—some encouraging, others less optimistic.

The positive stories prompted investors to buy more equities in expectation of more future gain; the cynics foretold the forthcoming correction with a warning: Get out of stocks. The one common theme all the articles share is that, yes, something is going to happen next. And this something will likely show gains and reverses, followed by more gains and more reverses.

The problem investors have to wrestle with is the “when”, the “how much” and the reasonable amount of risk they can handle based on their life’s circumstances, goals and values. Predicting the markets is a treacherous affair that may bring riches—but if history is any indication, it is more likely to leave your net worth plummeting.

But, we’re only human. We can smell a rally, a hot stock or a winning manager, right? It’s tough being a spectator, sitting on the sidelines while the whisper of riches is more of a shout.

We’re smart; we read the business journals, we watch cable news programs, we buy books and newsletters that may give us a competitive edge over those who miss out on the action. The noise swirling around the markets is like a cat smelling catnip—and rational thought becomes more than merely difficult.

When the urge hits and the image of a soaring market paints images of retirement in Bora Bora, stop and consider the following:

For every share of stock you buy, someone has decided to sell it.
Achieving your goals is less probable when your emotions are swayed to make decisions that can easily be regrettable.
While you might believe you can stand risk; chances are, you may not be […]

Four reasons to contribute to an IRA

It can pay to save in an IRA. There are tax benefits, and your money has a chance to grow. While the deadline for a 2016 traditional or Roth IRA contribution is the same as the tax-filing deadline—April 17, 2017—you don’t have to wait until the deadline to contribute. Here are some reasons to make a contribution now.
1. Put your money to work.
Eligible taxpayers can contribute up to $5,500 to a traditional or Roth IRA, or $6,500 if they have reached age 50, for 2016. It’s a significant amount of money, but think about how much it could grow to over time.

Consider this: If you’re age 35 and invest the maximum $5,500 2016 IRA contribution for growth, that one contribution could grow to almost $59,000 35 years later. If you’re age 50 or older, you can contribute $6,500, which could grow to more than $69,000 35 years later. We used a 7% long-term compounded annual hypothetical rate of return and assumed the money stays invested the entire time.

The age you start investing in an IRA matters: It’s never too late, but earlier is better. Even if you start saving early and then stop after 10 years, you may still have more money than if you started later and contributed many more years.
2. You don’t have to wait until you have the full contribution.
The $5,500 IRA contribution limit may seem like a significant sum of money, particularly for young people trying to save for the first time.

The good news is that you don’t have to make it all at once. You can automate your IRA contributions and have money deposited to your IRA weekly, biweekly, or monthly—or on whatever schedule works for you. Making many […]