A calm investor may realize better long-term returns than an overly concerned one.
Investors are people, and people are often impatient. No one likes to wait in line or wait longer than they have to for something, especially today when so much is just a click or two away.
This impatience also manifests itself in the equities markets. When the S&P 500, Dow, or Nasdaq take a tumble, some investors grow uneasy. Their impulse is to sell, get out, and get back in later. If they give into that impulse, they may effectively pay a price.1
Across the twenty years ending in 2015, the annual return of the S&P 500 averaged 9.85%. During this same period, the average retail investor realized a yearly return of just 5.19%. (These numbers come from Dalbar, a respected investment analytics firm.) Why the difference? It could partly stem from impatience.1
Diversification still matters. One day, this bull market will end.
History is riddled with examples. Think of the dot-com bust of 2000, the credit crisis of 2008, and the skyrocketing inflation of 1974. These developments wiped out bull markets; this bull market could potentially end as dramatically as those three did.3
A 20% correction would take the Dow down into the 16,000s. Emotionally, that would feel like a much more significant market drop – after all, the last time the blue chips fell 4,000 points was during the 2007-09 bear market.4
Take these financial lessons to heart
You have a chance to manage your money better than previous generations have. Some crucial financial steps may help you do just that.
Live below your means and refrain from living on margin. How much do you save per month? Generations ago, Americans routinely saved 10% or more of what they made, either depositing those savings or investing them. This kind of thriftiness is still found elsewhere in the world. Today, the average euro area household saves more than 12% of its earnings, and the current personal savings rate in Mexico is 20.6%.1
In 1975, the U.S. personal savings rate hit an all-time peak of 17.0%; it has been below 4% since June. Easy credit is one culprit; the tendency to overspend in a strong economy is another. Remember to pay yourself first, not credit card companies. Collect experiences rather than possessions.1
Why do so many people choose it rather than a traditional IRA?
The Roth IRA changed the whole retirement savings perspective. Since its introduction, it has become a fixture in many retirement planning strategies. Here is a closer look at the trade-off you make when you open and contribute to a Roth IRA – a trade-off many savers are happy to make.
Your approach to building wealth should be built around your goals & values.
Just what is comprehensive financial planning? As you invest and save for retirement, you may hear or read about it – but what does that phrase really mean? Just what does comprehensive financial planning entail, and why do knowledgeable investors request this kind of approach?
While the phrase may seem ambiguous to some, it can be simply defined.
Comprehensive financial planning is about building wealth through a process, not a product.
Financial products are everywhere, and simply putting money into an investment is not a gateway to getting rich, nor a solution to your financial issues.
2016 has come and gone. It started out in a very rocky fashion, with comparisons to 2008 that were too numerous to count.
Let’s be clear. As I’ve emphasized in past summaries, markets don’t always trade in a quiet and orderly fashion. But, just because we run into turbulence doesn’t mean it’s time to retreat into cash. Volatility has been and always will be part of the investment landscape. It’s how we manage and mitigate risk that is critical.
For the 40+ year period of 1961 to 2002, health care expenses followed a pretty steady upward trend, thanks to things like the introduction of Medicaid, coverage expansion and occasional price increases.1
When the first index mutual fund was introduced 40 years ago by Vanguard, it opened with $11.3 million in assets. 1 Today, the Vanguard 500 Index Fund holds more than $252 billion, and index mutual funds and exchange-traded funds invest nearly $5 trillion in combined assets.2
Index funds are generally comprised of the same stocks or bonds in a benchmark index and tracks its buy and sell activity. As such, they do not require a lot of active management, and can offer lower fees than many other actively managed funds.3 However, while most actively managed funds aim to beat their benchmark index, the objective of an index fund is simply to match index performance.4
During the recession and for years afterward, many U.S. cities experienced a shortage of tax revenues due to high unemployment and low property values. Despite the fact that we still read about troubled regions, such as New Jersey and Chicago, it’s important to recognize that most U.S. municipalities have recovered well. As a result, the municipal bond market is thriving, with nearly 50,000 issuers in the U.S.
There’s a saying that with enough prodding, you can make statistics say whatever you want.
We believe this is especially true for the loads of data surrounding presidential elections. It’s possible to use the data to say two different things about the economy, depending on the point you’re trying to make.
For example, one analyst reported that since 1929, the S&P 500 gained an average of 1.58 percent in a president’s first year in office. Another claimed that since 1928, the first year of a new presidential term sees “the markets” rise by an average of 6 percent. Citing different indexes and years can change the story.
[CLICK HERE to read the article, “Why markets tend to fall during a presidential election year,” from CNBC, Jan. 13, 2016.]