I’m telling ya, there is no stopping the stock market. It seems like for the past two years all the prognosticators have been calling for a market correction, and still the market keeps on setting record highs.
Through the end of November, the S&P 500 had recorded eight straight weeks of gains. According to The Wall Street Journal, it hasn’t had a run like this in over a decade.
But with each passing day that the stock market sets a new record, another market guru seems to come out of the weeds and scare us into thinking the market is overdue for a big correction. Today the guru happens to be Bill Gross who is telling us to watch out for a stock market bubble.
Here are some thoughts to ponder . . .
First, while the stock market IS overvalued, it isn’t by much, at least according to Vanguard. With large cap stocks sporting a price-to-earnings ratio of 17.6, this is hardly bubble territory.
The stock market has had quite a run, up over 20% so far this year. Time to take profits? Maybe, maybe not. According to Jeffrey Keintop, chief market strategist at LPL Financial, the average return on common stocks after a yearly gain of 20-25%, is 13% the following year.
Oh, and one more thing . . .
Why all the fuss over a market drop? Isn’t that what stock markets are supposed to do every once in a while. The stock market is two steps forward, one step back. Always has been, always will be. Sometimes the steps are big, sometime the steps are small.
If you are squirming over a potential market drop, it means one of two things. Either you need to get on with your life and ignore the market, or reallocate dollars out of the market so that you don’t need to sell stocks for living purposes during the next market decline (and then get on with your life.)
That is where your financial plan comes in handy.
What matters most when integrating all this stuff into your portfolio and into your life, is not what the stock market does over the next 4 months, but what it does over the next 10-15 years. Almost assuredly, stocks will significantly outperform bonds during this stretch, and good reason to have a healthy chunk in your portfolio today.
With the city of Detroit falling into bankruptcy, there is a lot of discussion on what will happen to the pension benefits of city employees.
But Detroit isn’t the only municipality that is struggling to meet its pension obligations. It seems to be endemic across our country’s state and local landscape.
For the most part, state and local municipalities are saving too little caused in part by rates of return on projections that are too high. This causes future pension balances to be overinflated base on what is likely to unfold.
As individual investors, we can learn from the pension struggles of municipalities. In my work as an advisor with Soundmark Wealth Management, I address these issues with folks every day.
It is important to keep portfolio growth expectations in check when putting together your financial plan. Using return expectations of 7% or 8% can provide for a rosy outlook on your worksheet projections, but this will only require you to save substantially more than you anticipated, closer to retirement, if the returns don’t come to pass.
There has been a lot of commotion recently regarding the increase in interest rates.
For instance, the 10-year Treasury note has increased in yield from 1.64% to 2.55% over the past eight weeks.
Lots of people seem to be up in arms over these increases, but much of this angst is brought on by a financial media that stokes fears of a bond bubble bursting.
I am not saying that this is much ado about nothing, but the fact that interest rates might continue to go up isn’t necessarily the worst thing in the world for your portfolio.
In fact, in the long run, it will likely be to your advantage, because you get the benefit of higher rates, that is, of course, if you don’t have your entire bond portfolio in 30 year Treasury bonds.
Tara Siegal Bernard, wrote an insightful piece in a recent New York Times article that puts all the above in perspective, and reminds us of the important role bonds have in most portfolios.
Every so often, when I sit down at my computer and open up my e-mail, I find a letter from a Coffeehouse Investor sitting in my inbox. Their comments and “thank-you’s” for the efforts I put forth in creating the Coffeehouse Investor 14 years ago spur me on to do more with our three simple principles.
And while these e mails are sent from investors of all types and all ages, it is especially gratifying to know that so many female investors tune in to The Coffeehouse Investor.
On this day when we celebrate Mother’s Day, it is particularly important to give Moms the knowledge, resources, and confidence to be smart investors of their financial resources.
Doing good work as a Mom is a full-time job several times over. I look at the effort my Mom put in to raising eight children on that farm in Southeastern Washington state, and I have no idea how she managed to do it, day after day, and keep her sanity. But she was there for us, and still is, day after day. Her presence continues to be a vibrant force in the lives of her children and grandchildren as we get on with living our own lives.
(For instance, just yesterday I received a note in the mail from her with some stretching exercises for golfers – how sweet is that?)
Why is The Coffeehouse Investor especially meaningful for women? It allows the female investor to invest with confidence without getting caught up in the “male-dominated” energy of Wall Street. It is no secret that this energy can be condescending at times, an attitude of “I know better than you do, so follow my advice.”
When you become a Coffeehouse Investor, you aren’t following anyone’s advice except your own – including your own confidence in people and economies and countries around the world, and that the creativity and productivity of these people will be reflected in the long term growth of the stock market.
Not surprisingly, I have found, in working with countless investors including many Moms, that this confidence in one’s own ability to build successful portfolios spurs them on to not only take control of their household savings, but the impetus to save more.
Thanks to all the great Moms out there. Keep up the great work.
I am loving this time of year, and with the heat wave sweeping Seattle, new signs of life are springing up all over the place.
Today I want to talk about one component of life that is as important and essential as it is inevitable.
It is a bold and final statement to everyone’s life while alive.
It is our own dying.
I could write a couple of chapters (heck, we all could) about how death has touched and moved me, but for now I will just say that 21 years ago a close friend and director of a local Hospice Agency invited me to serve on the advisory board of Providence Hospice of Seattle.
That experience of serving people who are embracing the final act of life changed my life.
I started to deal with the fact that I wasn’t going to live forever, and that I better get on with my life, a catalyst that caused me to step away from my job as a stockbroker and eventually create The Coffeehouse Investor.
Last week a good friend of mine who has been intimately involved in nurturing hospice patients sent me a link to this article, written by a doctor, on the subject of dying – a healthy reflection on a topic many of us will be faced with sometime in our lives.