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Markets are Unpredictable: Pullbacks, Corrections and Bear Market Happen

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Pullbacks and corrections are commonplace, and investors always say “this one feels different” until it’s forgotten in the next pullback.  Since 1920, the S&P 500 has recorded a 5% pullback three times a year on average and a 10% correction once every year and a half, according to Fidelity Investments.

Corrections, as opposed to bear markets, often leave no lasting damage. According to
Schwab, since 1974, the S&P 500 has risen an average of 8% one month after a market correction and more than 24% one year after a correction. Investors see sell-offs as a way to rewind the valuation spring, while also shaking out coattail-riding stocks that
were not rising on merit.

According to Fidelity, from Jan. 1, 1980, through Aug. 31, 2020, if you missed only the best five days in the market your performance would be 38% lower for the time frame. It’s far better to focus on developing a strategy that you can stick with over the long run than trying to predict what the market will do on a day to day basis.

Many investors have the urge to tinker with their investments. This is especially true when the markets are volatile. Watching your holdings gyrate widely in value can make anyone uneasy. That helpless feeling causes many to want to trade more frequently or make portfolio tweaks or running to safety. However, sitting on your hands and not doing anything is usually the best approach.

During turbulent times, it’s crucial to avoid the big mistakes. Usually those missteps stem from succumbing to emotion (fear of loss) and doing too much, not doing too little.

Warren Buffett put it best when he said, “be fearful when others are greedy, and greedy when others are fearful.” As markets sell off or correct, it’s critical to focus on long-term time horizons. If you have available cash, it would be a great time to buy more stocks. Understandably, the act of investing more money after seeing your portfolio drop so dramatically is very difficult. The comments received by financial advisors included, “Why add money to something that keeps dropping in value?” and “Shouldn’t we cut our losses and move to cash?”

While every fiber of your being is telling you to run for the hills, reaffirming your strategy by adding money is generally the best decision when markets are in a selling frenzy or correction.

References:

  1. https://www.fidelity.com/viewpoints/investing-ideas/six-tips

What to Expect after Getting a COVID-19 Vaccination

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Adverse reactions are usually mild to moderate in intensity and resolve within a few days following receipt of the Moderna COVID-19 vaccine, according to the CDC. The most common adverse reactions reported after vaccination in clinical studies included:

  • Pain at injection site (92.0%)
  • Fatigue (70.0%)
  • Headache (64.7%)
  • Muscle pain (51.5%)
  • Joint pain (46.4%)
  • Chills (45.4%)
  • Nausea/vomiting (23.0%)
  • Axillary swelling and tenderness of the vaccination arm (19.8%)
  • Fever (15.5%)
  • Injection site swelling (14.7%)
  • Injection site redness (10.0%)

It takes time for your body to build protection after any vaccination. COVID-19 vaccines that require 2 shots may not protect you until about 2 weeks after your second shot.

After receiving the COVID-19 vaccination, the side effects you may experience are normal signs that your body is building protection and they should go away in a few days.

References:

  1. https://www.cdc.gov/coronavirus/2019-ncov/vaccines/expect/after.html

Investing Rules of the Road

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“Invest for the long term, seek quality investments and manage risk through diversification.”

The market changes every day, but what you want for your future probably doesn’t. The same goes for your investment / financial mindset, strategy and goals.

Your investment / financial mindset, strategy and goals are as unique as the route you take to reach them. But regardless of your course, the following 10 investing “rules of the road”, according to financial-services firm Edward Jones, can help you get where you want to be.

1. Develop your long-term goals and strategy

Determine your long-term goals, investment time frame and comfort level with risk – before deciding on a strategy. The more you can outline and clearly define what you are trying to achieve, the more you can tailor your strategy.

It’s tempting to chase the market, but most successful investors make their money over time, not overnight. Long-term investing with an emphasis on quality and diversification is a proven and time tested course of action.

The best way to build and preserve your financial future is with a long-term approach to investing. That’s why you don’t follow investment fads. But “buy and hold” doesn’t mean “buy and ignore.” You should still review your portfolio at least once a year to make sure you’re on track for the long haul.

Before you put your money in the market, you need to have a clear plan of what you want to accomplish and how you are going to do it. This is where creating an investment plan comes in.

The best investment plan is one that is customized to your lifestyle, so it’s necessary to create an individualized strategy that will set you on the path to success.

  1. Evaluate your current financial standing to understand how much risk you can take.
  2. Determine your goals and how long it will take you to realistically achieve them.
  3. Figure out which types of investments and strategies are the best way to get you to where you want to be.

Having a clear investment plan will give you a ton of clarity as you begin investing. By creating a specific plan, you will be ready to make your retirement goals a reality when that day comes.

2. Understand the risk and your risk tolerance

As a rule, the higher the return potential, the more risk you’ll have to accept. To determine what makes sense for you, you will want to know:

  • What is your comfort level with risk? Understanding this can help you determine how you may react to market ups and downs over time.
  • How much risk are you able to take? The amount of time you have to invest plays an important role in determining how much risk you’re able to take.
  • How much risk do you need to take? Your financial advisor will want to determine the return, and therefore the risk, that may be necessary to reach your long-term goals.

3. Diversify for a solid foundation

Your portfolio’s foundation is your asset allocation, or how your investments are diversified among stocks, bonds, cash, international and other investments. Your mix should align with your goals and comfort with risk.

While diversification can’t protect you against a loss, it can help reduce your risk. If your money is invested in just one or a few investments, and one of them struggles, your entire financial strategy could be in trouble. So most financial advisors recommend building a portfolio that includes different types of investments that perform differently over time.

4. Stick with quality

Believe in long-term investing with an emphasis on quality and diversification. Of all the factors to consider when investing, quality is one of the most important factor. It’s also one of the most overlooked. Although it may be tempting to buy a popular investment, it may not fit with the rest of your portfolio, and it may be riskier than you expect. If it sounds too good to be true, it probably is.

5. Save and Invest for the long term

It’s tempting to chase the market, but despite stories of fortunes made on one or two trades, most successful individual investors make their money over time, not overnight. One of the biggest mistakes you can make is trying to “time” the markets.

Timing the market is difficult or simply impossible for even the most seasoned professional investors and smart money. Rather than waiting for the best time to invest, it can often be a better idea to just take the plunge into the market and get invested. Waiting for the best time will lead to a lot of missed opportunities.

6. Establish realistic expectations

You’ll need to determine the return you’re trying to achieve – which should be the return you need to reach your long-term goals. Then you can base your expectations on your asset allocation, the market environment and your investment time frame.

The average stock market total return (e.g. S&P 500 historical returns), from 1950 to 2020 was 8.9%.

7. Maintain your balance portfolio and asset mix

Your portfolio’s mix could drift from its initial objectives from time to time. You can rebalance to reduce areas where your investments are overweight or add to areas where they are underweight. By rebalancing on a regular basis, you can help ensure your portfolio remains aligned with your objectives and on track to reach your long-term goals.

8. Prepare for the unexpected

When things are going well, emergency savings can seem unimportant. But in addition to your regularly occurring expenses, like rent/mortgage and utility bills, you’ll often deal with unforeseen events and unexpected costs.

Unforeseen events can derail what you’re working so hard to achieve financially. By preparing for the unexpected and building a strategy to address it, you’ll be better positioned to handle the inevitable bumps along the way.

No one wants to think about car breakdowns or job loss. But as much as we’d like to avoid thinking about them, emergencies do happen. Building an emergency savings account that is dedicated to handling unexpected costs is important.

9. Focus on what you can control

You can’t control market fluctuations, the economy or the political environment. Instead, you should base your decisions on time-tested investment principles, which include:

  • Diversifying your portfolio
  • Owning quality investments
  • Maintaining a long-term perspective

Additionally, taking control of your spending habits and weighing them against your dreams for the future can determine how to align your spending goals. Perhaps you might decide that it’s more important for your family that you retire by a certain age, and you could drive one car for a longer time or cut back in other areas. That way, more money would be available to make that bigger dream a reality.

If you have “bad” debt from credit cards and high interest personal loans that will get you in trouble with interest payments, pay that off before you put money in the stock market. 

Don’t fall into the common money traps of trying to keep up with the Joneses: buying the latest phone, shiniest car, biggest house. These are money traps because they are things that will take all your money so you have nothing left to invest. Spending money wisely is one of the most important steps you can take to put yourself in the best possible financial situation before you begin investing.

10. Review your strategy regularly

The one constant you can expect is change. That’s why it’s so important that you review your strategy on a regular basis. You should still review your portfolio at least once a year to make sure you’re on track for the long haul.

Realizing your dreams starts with smart investing. By regularly reviewing your strategy and make the adjustments you need, you can have a clearer picture of where you stand and what you need to do to help reach your goals.

No matter what your path forward looks like, tailor your strategies – so you can see the road ahead and move forward with confidence.

References:

  1. https://www.edwardjones.com/us-en/market-news-insights/personal-finance/investing-strategies/investing-rules
  2. https://www.edwardjones.com/us-en/why-edward-jones/investing-approach/investment-philosophy
  3. https://www.ruleoneinvesting.com/blog/how-to-invest/get-started-investing-with-these-10-steps/

7 Social Security Rules

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The earlier you claim your Social Security retirement benefits, the more you — and perhaps also your spouse — stand to lose. 

For many Americans, Social Security represents the largest share of their retirement income. Some people believe in starting to collect Social Security as early as possible, which is generally at age 62 because they’re afraid they won’t get their share, but doing so means that you won’t get the full monthly benefit amount, even once you reach full retirement age. But there’s really no “right” time.

You should plan to need about 70% of your pre-retirement earnings to maintain your standard of living. And if you have average earnings, your Social Security benefits will replace only about 40%.

Additionally, The Wall Street Journal reports that a rapid increase in retirement-age Americans along with a decrease in working-age adults contributing into the system is putting pressure on Social Security and the promise of lifetime income.

In fact, the system’s board of trustees reports that the fund can only pay full benefits until 2034. State pension funds are also stretched—a $1.4 trillion shortage was reported in 2016.

Those who have plans to depend on these shaky resources could experience financial consequences if they don’t find an alternate income source. However, 40% nearing retirement have no formal retirement income plan, and 20% have no plan.

According to the Social Security Administration (SSA), the average woman reaching the age of 65 today will live until 86.5. The average man who is 65 today can expect to live until 84.

The longer you wait to start collecting Social Security, up to age 70, the larger your monthly check could be. Experts recommend that you wait to start claiming benefits as long as you can to maximize your payout for the rest of your life.

Your “full retirement age” falls somewhere between ages 66 and 67, depending on the year you were born. Retiring at your full retirement age will get you 100% of your monthly Social Security benefit.

If you can hold off on taking your benefits until after your full retirement age, your benefit increases by 8% each year you wait, up to age 70. After that, there’s no additional benefit to waiting — in fact if you don’t start collecting by age 70, you’re leaving money on the table.

To ensure you don’t run out of money is to postpone claiming your Social Security retirement benefits. There are advantages to waiting as late as 70 years old. The following are some reasons to wait until full benefit allowance before benefits:

1. Your social security benefit is based on your 35 highest-earning years

Social Security calculates your monthly checks with a formula that uses your 35 best-earning years — that is, the 35 years during which your income was highest. If your earnings record doesn’t include 35 years, missing years are replaced with zeros, lowering your potential benefit.

So, it’s worth staying in the workforce at least 35 years if you can. The more peak-earning years in your formula, the bigger your monthly benefit checks can be.

It is recommended that you check your earnings record once yearly to confirm that the Social Security Administration has recorded your earnings correctly

2. Your benefit might be taxed

You will be surprised to learn that your Social Security income may be taxed? About half of retirees pay federal taxes on their income from the program and up to 85% of your benefits could be considered taxable income by Uncle Sam.

Many states also tax at least some residents’ Social Security income. There are 26 states that do not tax benefits.  Choosing to delay collecting Social Security benefits until your full retirement age — or even beyond — might be the simplest way to avoid paying taxes on your Social Security benefits, at least for a while.

The extent to which your benefits are taxable is based on what the SSA calls your “combined income.” It includes taxable income, such as withdrawals from tax-deferred retirement accounts like traditional 401(k) plans and traditional individual retirement accounts (IRAs).

Depending on the amount of your combined income, up to 85% of your Social Security benefit could be taxed.

One way to dodge such a tax torpedo is to withdraw less money from your tax-deferred retirement account each year. And delaying claiming Social Security can help you do that because you’ll get a bigger monthly benefit.

3. You can claim benefits as early as 62

The earliest age at which you can start receiving Social Security benefits is 62 for most people, and 60 for those who claim survivor’s benefits.

The largest share of Americans — about 35% of men and nearly 40% of women — choose to claim at age 62.

If that’s your plan, understand that claiming early carries a penalty, one you’ll pay by receiving smaller monthly checks for the rest of your life. Check your online Social Security account to compare what you’d receive in monthly checks at age 62 with what you’d get from waiting until you are older.

Despite all that, there are circumstances when you have few choices — you need the money to live, for instance, or you don’t expect a long life — and claiming early makes sense.

4. Your full benefit amount is tied to your full retirement age

“Full retirement age,” or FRA, is a technical term in the context of Social Security. It refers to the age at which you are eligible to receive the full amount of your monthly benefit — meaning without any penalty applied for claiming early, or any bonus applied for delaying claiming.

In other words, claiming benefits before reaching full retirement age means your monthly benefit will be reduced — by as much as 30%. Claiming after you reach FRA means your monthly benefit will be increased by as much as 8% for each year you wait past FRA to claim, up until age 70.

So, what exactly is your full retirement age? That depends on the year you were born, but for most people it’s between age 66 and 67.

5. Your spouse’s work history can help you, too

Understanding your options can really pay off with Social Security. For example, if your spouse or ex-spouse earned more money than you, it may be better for you to claim spousal benefits — which are based on your spouse’s or ex’s earnings record — instead of claiming based on your own work history.

If you’ve been a stay-at-home spouse, or earned low wages or didn’t work for very many years, you may be able to receive up to half the amount of your spouse’s or ex-spouse’s monthly benefit. (In the case of an ex, you generally must have been married to the person for at least 10 years, as well as meet other conditions, to claim spousal benefits based on that person’s earnings record.)

It’s one more case where doing research and planning your Social Security claiming strategy is an investment in your future.

6. When you claim won’t affect your total payment

Some people think that taking Social Security at age 62 means more money overall.  But, starting benefits at age 62 makes your monthly checks smaller than if you’d waited until FRA. But whether you start early (and get smaller checks) or later (with bigger checks), you should receive about the same total payout over the course of your retirement.

The Social Security system was designed for you should get the same total amount of benefits over the course of your retirement regardless of the age at which you first claim benefits.

That doesn’t mean there isn’t a powerful reason to wait — ideally, even to age 70 if you can. If Social Security is going to be a big part of your retirement income, the bigger checks you’ll get from waiting will be valuable to your quality of life in old age.

Your monthly benefit will be reduced if you claim before reaching what the SSA calls your “full retirement age,” an age set by the SSA that depends on the year you were born. For example, full retirement age for a person born in 1955 is 66 years and 2 months, while full retirement age for anyone born in 1960 or later is 67.

7. You may be able to collect survivor’s benefits even after remarrying

The rules for remarriage and survivor’s benefits sometimes throw people off, probably because your age when you remarry is a big part of the equation.

Survivor’s benefits let a widow or widower collect up to 100% of the late spouse’s Social Security benefit amount. You generally can claim this type of benefit as early as age 60, but the benefit will be reduced if you claim it before reaching your full retirement age. (Social Security’s pamphlet “Survivors Benefits” has details).

But what if you remarry? Again, that depends on the age at which you remarry. The Social Security Administration explains:

“Usually, you can’t get widow’s or widower’s benefits if you remarry before age 60 (or age 50 if you’re disabled). But remarriage after age 60 (or age 50 if you’re disabled) won’t prevent you from getting benefit payments based on your former spouse’s work. And at age 62 or older, you can get benefits on your new spouse’s work, if those benefits would be higher.”

References:

  1. https://www.msn.com/en-us/money/retirement/7-social-security-rules-everyone-should-know-by-now/ss-BB1dPmG5?ocid=uxbndlbing#image=1
  2. https://www.moneytalksnews.com/5-ways-to-avoid-paying-taxes-on-your-social-security-benefits/
  3. https://www.moneytalksnews.com/why-its-dumb-to-claim-social-security-early/
  4. https://www.jackson.com/content/dam/dash/pdf/cmc20888/CMC20888%20-%20bridging%20the%20retirement%20gap.pdf
  1. Social Security Administration, ssa.gov, Benefits Planner: Retirement—Learn about Social Security Programs, 2018.
  2. Adamy, J., Overberg, P., Wall Street Journal, “Growth in Retiring Baby Boomers Strains U.S. Welfare Programs,” June 21, 2018.
  3. Social Security Administration, ssa.gov, “Summary: Actuarial Status of the Social Security Trust Funds,” June 2018.
  4. Reuters, “U.S. State Pension Funding Gap Rises to $1.4 Trillion in 2016: Pew,” April 12, 2018.

Black-White Inequality Wealth Gap

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“Wealth is a safety net that keeps a life from being derailed by temporary setbacks and the loss of income.”  Brookings Institute

The wealth gap for African Americans remains significant. A close examination of wealth in the U.S. finds evidence of persistent and staggering racial disparities and past racist federal policies, according to the Brookings Institute findings. Specifically, the disparities include:

  • At $171,000, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016.
  • Gap in stock market participation between the groups persists, with 55 percent of Black Americans and 71 percent of white Americans reporting stock market investments.

This disparity means that Black Americans will have less money saved and invested for retirement, and less accumulated wealth to pass onto the next generation than their white peers.

Figure 1. White families have more wealth than Black, Hispanic, and other or multiple race families in the 2019 SCF.

Notes: Figures displays median (top panel) and mean (bottom panel) wealth by race and ethnicity, expressed in thousands of 2019 dollars.

These gaps in wealth and investments between Black and White households reveal the effects of centuries’ of accumulated inequality, discrimination and racism, as well as differences in power and opportunity that can be traced back to this nation’s inception. The Black-White wealth gap reflects a society that has not and does not afford equality of opportunity to all its citizens.

It is important to note that it was never the case that a White asset-based middle class simply emerged, according to research based on a study of historical and contemporary racial inequality. Rather, it was extraordinary government policy, and to some extent literal government giveaways, that provided Whites the financial assets, educational opportunities, land grants and infrastructure to accumulate and pass down wealth.

In contrast, blacks were largely excluded from these wealth generating benefits. When they were able to accumulate land and enterprise, it was often stolen, destroyed or seized by government complicit in theft, fraud and terror.

Federally funded racism in housing and labor unions

In the mid-twentieth century, the government subsidized builders to construct suburbs of single-family homes  in scores of developments across the country on explicit federal condition that no homes be occupied by African Americans, according to the NAACP Legal Defense Fund. Over several generations, federally subsidized white homebuyers gained a quarter million dollars in home equity or more. In contrast, the government restricted African Americans, including war veterans, mostly to segregated urban apartment rentals where no wealth appreciated.

White homeowners were able to bequeath some of this federally subsidized wealth to subsequent generations, after using it for retirements, children’s college education, care for elderly parents, or medical emergencies. African Americans had to use current income for such expenses, if they could do so at all, pushing many into poverty. Largely because of twentieth century federal segregation policy, while average African American income is about 60 percent of white income, African American wealth is only 7 percent of white wealth.

Other federal policies forced African Americans into poverty, continuing for generations. In 1935, the government gave construction and factory unions the right to collectively bargain for higher wages and benefits. As proposed by Senator Robert Wagner, the law denied that right to unions that barred African Americans. Segregated unions lobbied to remove that provision and the Wagner Act was then passed, unconstitutionally empowering unions to exclude black workers — a policy that continued for over 30 years. Denied the best blue-collar employment, African Americans participated less in the collectively bargained income boom that raised white working class incomes in the three decades following World War II.

Wealth

“Black children are less economically upwardly mobile partly because of the multigenerational effects of federal and state government racist policies that purposely segregated their grandparents and great-grandparents into low-income communities and low paying jobs from which exit was difficult.”

Wealth is the sum of resources available to a household at a point in time; as such it is clearly influenced by the income of a household, but the two are not perfectly correlated.

Two households can have the same income, but the household with fewer expenses, or with more accumulated wealth from past income or inheritances, will have more wealth.

As a result, high- and middle-income white families are much wealthier than Black families with the same incomes. A few reasons are that White families receive much larger inheritances on average than Black families. Economists Darrick Hamilton and Sandy Darity conclude that inheritances and other intergenerational transfers “account for more of the racial wealth gap than any other demographic and socioeconomic indicators.”

For example, while 51 percent of white Americans say they have inherited wealth, just 23 percent of Black Americans have, according to an annual Ariel-Schwab Black Investor Survey.

All of this matters because wealth confers benefits that go beyond those that come with family income.

Wealth is a safety net that keeps a life from being derailed by temporary personal economic setbacks and the loss of income, according to Brookings Institute. This safety net allows people to take career risks knowing that they have a buffer when success is not immediately achieved.

Family wealth allows people (especially young adults who have recently entered the labor force) to access housing in safe neighborhoods with good schools, thereby enhancing the prospects of their own children.

Wealth affords people opportunities to be entrepreneurs and inventors. And the income from wealth is taxed at much lower rates than income from work, which means that wealth begets more wealth.

Education a Way to Weslth

Social science research indicates that blacks attain more years of education than whites from families with comparable resources. Essentially, blacks place a high premium on education as a means of mobility

Yet, the racial wealth gap between Blacks and Whited expands at higher levels of post secondary education. In short, Black families where the head graduated from college have less accumulated than wealth than white families where the head dropped out of high school.

One take-away…better mindsets regarding wealth and money alone can’t fix the legacy of unconstitutional and racist federal and state sanctioned economic policy.

References:

  1. https://www.brookings.edu/blog/up-front/2020/02/27/examining-the-black-white-wealth-gap/
  2. https://www.aboutschwab.com/ariel-schwab-black-investor-survey-2021
  3. Source: Federal Reserve Board, 2019 Survey of Consumer Finances.
  4. https://www.marketwatch.com/story/heres-why-black-families-have-struggled-for-decades-to-gain-wealth-2019-02-28
  5. https://www.epi.org/blog/is-poverty-a-mindset/

Financial Literacy: Six Principles of Personal Finance | TD Ameritrade

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Imagine operating a boat without the basic understanding of nautical rules of the road or even how to operate a boat. Scary thought.

Here’s another scary circumstance – one that is all too real. Many Americans are making financial decisions with minimal financial knowledge of investing, budgeting, and credit. The TIAA Institute conducted a survey on U.S. financial literacy, asking 28 basic questions about retirement saving, debt management, budgeting, and other financial matters. The average respondent answered only about half of the questions correctly.

Another study, conducted by Pew Research, found that one in four Americans say that they won’t be able to pay their bills on time this month.

It has been said that knowledge is power, and if that’s true, then too many Americans lack the power to control their financial futures. Financial success rarely happens by accident; it is typically the outcome of a journey that starts with education.

Talking about money is one of the most important skills to being a fiscally responsible and a financially literate person. However, 44% of Americans surveyed would rather discuss death, religion or politics than talk about personal finance with a loved one, according to CNBC.

Why? Two major reasons are embarrassment and fear of conflict, even though the consequences can be grave: 50% of first marriages end in divorce, and financial conflict is often a key contributor. Additionally, it is considered rude to discuss money and wealth.

The missing component is financial literacy education and training.

Mastering personal finance requires you to look at your financial situation holistically and come up with a plan for how to manage your money. In this TD Ameritrade video, we’ll look at helpful principles for six personal finance topics:

  1. Budgeting – focus on the big ticket items by cutting cost on the expensive costs such as cars and homes
  2. Saving and investing – be specific about your destination and your plan on achieving your goal and reaching your destination
  3. Debt and Credit – avoid high interest debt and loans on items that will quickly lose value
  4. Reduce taxes – find ways to legally pay less taxes on the income you earn,
  5. Avoid insurance for expenses you can pay out of pocket – purpose of insurance is to protect you in unfortunate scenarios.  60% of all bankruptcy is related to medical expenses
  6. Investing for retirement. – don’t just save for retirement, invest for retirement.

Make high impact adjustments to your finances to improve your financial future.

References:

  1. https://www.cnbc.com/2019/04/30/the-us-is-in-a-financial-literacy-crisis-advisors-can-fix-the-problem.html
  2. https://www.tiaainstitute.org/publication/financial-well-being-and-literacy-midst-pandemic
  3. https://www.pewtrusts.org/en/research-and-analysis/articles/2017/04/06/can-economically-vulnerable-americans-benefit-from-financial-capability-services

Invest in the Market

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“Are you investing the right way for your situation?”

  • Think about how long you plan to stay invested, your financial needs, and how much risk—or changes in portfolio value—you could tolerate.
  • Consider how much of your investment mix should be in different asset classes (such as stocks, bonds, and short-term investments) that offer the return potential needed to help you meet your goals with a level of risk you can live with.

You should get invested. Get in the markets. Stay in the market.

Investing can be one of the best ways to help achieve your financial goals. But first you have to figure out what to invest in.

Stocks have historically provided higher returns than less volatile asset classes like cash alternatives and bonds, and those higher potential returns may be necessary in order for you to meet your goals. But keep in mind that there may be a lot of volatility (market ups and downs) and there is a generally higher risk of loss in stocks than in investments like bonds. Over the short term, the stock market is unpredictable, but over the long term, it has historically trended up.

Bonds can provide a steady stream of income by paying interest over a set period of time (as long as the issuer can keep making payments). There’s a spectrum of risk and return between lower-risk bonds and those that are more risky.

Because bonds have different risks and returns than stocks, owning a mix of stocks and bonds helps diversify your investment portfolio, and mitigate its overall volatility. Adding different types of investments to your mix with varying levels of risk and potential return can potentially help your investment mix weather different types of market environments and help smooth out the ups and downs of your overall portfolio.

It’s important to understand that diversification and asset allocation do not ensure a profit or guarantee against loss—but they may help you reach your investment goals while taking on the least amount of risk required to do so.

Diversification can reduce the overall risk in your portfolio, and could increase your expected return for that level of risk. For instance, if you invested all your money in just one company’s stock, that would be very risky because the company could hit hard times or the entire industry could go through a rocky period.

Asset allocation refers to the way you spread your investing dollars across asset classes—such as stocks (US and foreign), bonds, and short-term investments (such as money market funds)—based on your time frame, risk tolerance, and financial situation.

“Stock market dips are part of the ride in stocks”

Before you get started investing, you’ll want to answer a few key questions:

  • If the stock market dips 30% or more and takes your account value down with it, how unsettled will you be? Your investment mix should be one you can live with through down markets and still hit your goals.
  • What is your financial situation like? If there’s a high chance that you may need to sell investments to make sure you can eat or keep your house, your investment choices should reflect that.
  • How long will you be invested? Your investment mix will be very different if the answer is 2 years or 20 years. All 3 factors are important but the amount of time you can stay invested is possibly the most critical when choosing an investment mix.

Keep your time horizon in mind when you’re investing in stocks for the long term.  Having most of your money in the stock market is essential when investing for retirement. Plus you should consider some exposure to stocks, even during retirement.

The equity markets are unpredictable and market volatility may be scary. But, you have to be in the market to have the magic of compounding.  While past performance is not guarantee of future results, there has never been a 20-year period when stock returns were negative.

You don’t have to invest all at one time for the fear that tomorrow is the day the market goes down. Instead, get in the habit of investing regularly by moving a portion of your cash savings into a diversified portfolio each month. Use a tactic called dollar-cost averaging to put that money to work for you. This approach of “dollar cost averaging” ensures you buy more shares of an investment when the price is low and fewer shares when the price is high. If you have a significant amount of money to invest, dollar cost averaging will reduce the impact of market volatility on large purchases.

But don’t sit on the sideline in cash for too long because no one can predict when the market will take off and melt up.

References:

  1. https://www.fidelity.com/spire/annual-financial-review
  2. https://www.fidelity.com/viewpoints/personal-finance/how-to-start-investing
  3. https://www.schwab.com/resource-center/insights/content/5-most-common-money-traps-to-avoid?cid=25175195%7C6069808%7C144436329%7C292984204

Investing involves risk, including risk of loss.

Option Investing 101 | Fidelity

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From Fidelity Investments

Learn the fundamentals of options trading. This introduction to trading option contracts is all about getting to know the basics of options investing and trading; learning the key terms and concepts essential for a new or novice options trader.

Put/Call Ratio

High put/call (P/C) levels are a sign of fear (bullish from a contrarian view), while low P/C levels are a sign of complacency (bearish from a contrarian view). The trend of P/Cs is more important than absolute levels. When the intermediate- to longer-term trend of P/Cs is lower, it is bullish for stocks. When the trend is higher, it is bearish for stocks from an intermediate-/longer-term basis.

COVID-19, One Year Later. Here’s What We’ve Learned.

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“The vaccines are our best hope to contain the virus; and while the CDC’s guidance may change based on new evidence, you should follow their current guidance: Keep wearing your mask, practice social distancing and wash your hands.”  Dr. Andrea Klemes

By Dr. Andrea Klemes, MDVIP’s Chief Medical Officer

It was March 11 last year when the World Health Organization first announced that the coronavirus had reached pandemic stage. At the time, there were 118,000 cases in 114 countries. A year later and there are more than 114 million cases and 2.5 million deaths worldwide.

In the year since the pandemic officially started, doctors, researchers and the American public have learned a lot about the virus. We know how it spreads — through droplets and in the air; we know how it likely doesn’t spread — on surfaces (you should still wash your hands regularly); we know the virus isn’t seasonal like flu – it didn’t go away during the summer; and we know that we can fight it, both through prevention and treatment.

Speaking of treatment, we’ve learned a lot about what works in the fight against COVID-19, the condition caused by the coronavirus. The anti-inflammatory steroid drug dexamethasone, for example, works in many patients on supplemental oxygen or ventilators. Antibodies — either from convalescent plasma or man-made ones from monoclonal antibody treatments — seem to keep some patients from more severe illness. These treatments have been granted emergency use authorization by the Food and Drug Administration.

Even simple things, like turning patients prone (lying face down) have turned out to be lifesaving for many people hospitalized with the disease.

But there’s still much we don’t know. And there’s still a lot of misinformation and myths swirling around 12 months after the pandemic began. I thought it would be helpful to recap some key learnings.

Vaccines are here, but the virus isn’t going away any time soon.

See the source image
It’s hard to believe that in a little less than a year scientists created numerous vaccines to combat the coronavirus. In fact, the Food and Drug Administration approved a third vaccine last week — and this one, from Johnson & Johnson, is a single-dose vaccine that’s easier to transport and store. It should help vaccines become more widely available in the next couple of months.

If you’ve already gotten your vaccine, your behavior shouldn’t change — that’s the advice of the Centers for Disease Control and Prevention. That’s because the vaccines prevent severe illness from infection. You may still be able to get the virus and spread it.

This advice may change. Promising but unpublished studies suggest that vaccinated individuals carry lower viral loads and may be at lower risk to spread the virus. If you’re thinking, why get the vaccine if I still have to wear a mask? Get the vaccine when it’s your turn. The vaccines are our best hope to contain the virus; and while the CDC’s guidance may change based on new evidence, you should follow their current guidance: Keep wearing your mask, practice social distancing and wash your hands.

One rule that has changed for those who have been vaccinated: You may not have to quarantine after exposure if you meet certain criteria and it’s been more than two weeks since your last dose.

Eating at a restaurant increases your risk of getting the virus.
We love eating at restaurants, but many are poorly ventilated and crowded with people. Even at reduced capacity, the CDC rates eating inside at a restaurant to be higher risk than other activities. A study from six months ago suggested that COVID-19 positive patients were twice as likely as those who tested negative to have eaten at a restaurant in the two weeks leading up to their illness.

It’s possible that people who eat at restaurants during the pandemic take other risks that increase their chances of getting the virus, but there are also early studies that track breakouts to restaurant eaters.

It’s still safer to get your food to go — or eat outside away from other diners.

So does gathering with your family.
Just like eating out, there are plenty of studies showing the transmission of the virus when families get together. Among adults with COVID-19, 42 percent reported close contact with a person with COVID-19 — and most of those close contacts were with family members.

In one case study from last summer, a single COVID-positive adolescent on a family vacation with three different families spread the illness to 11 other family members. There are dozens of cluster studies like these from contact tracing efforts — weddings, reunions, holiday parties, barbecues and even more intimate gatherings. Getting together with family without proper protocols can result in spreading events.

Even without gatherings, household members are often the point of contact for new COVID cases. Household transmission of this coronavirus is 16.6 percent higher than with past pandemics like SARS and MERS.

To be fair, more infections have been traced to other kinds of activities than seeing family — from workplaces to prisons to assisted living facilities to colleges. But you shouldn’t let your guard down when you’re around your family.

Six feet of distance probably isn’t enough.
Early guidance from the CDC defined close contact as spending 15 minutes or more within six feet of a person infected with COVID-19. The six-foot distance was based on COVID transmission from droplets, which we emit when we talk, sneeze or cough. We’ve been studying viral transmission by droplets since the 1890s.

Of course, there are plenty of studies over the years that suggest droplets can travel further. The problem with COVID is that you can become infected from aerosol transmission — smaller droplets and particles can float in the air for minutes and hours and travel far from the source. Still, the CDC says that most transmission comes from close contact with infected individuals.

As for time, that one’s trickier. Some school systems and employers liberally interpreted the 15 minutes to mean that as long as you kept contact brief, you were okay. But repeated exposure can also result in an infection, which is one reason the CDC changed the guidance last fall to 15 minutes over a 24-hour period. Here’s the bottom line: The more you interact with others and the longer that interaction lasts, the greater your chance of contracting COVID.

The best way to prevent spread is to avoid unnecessary exposure.

Yes, masks help prevent the spread of the virus.
I know a lot of people have had a hard time warming up to face masks. Early in the pandemic, public health officials lacked clear evidence about the effectiveness of masks and hesitated to recommend them. But 12 months later, there’s a raft of evidence that masks (double ply cloth, surgical and N95) reduce the transmission of the coronavirus. In fact, the Proceedings of the National Academy of Sciences of the U.S., which recently published a review of studies about masks and COVID-19 transmission, concluded:

“The preponderance of evidence indicates that mask wearing reduces transmissibility per contact by reducing transmission of infected respiratory particles in both laboratory and clinical contexts.”

Some study highlights:

Masks were 79 percent effective at preventing household transmission, if used by all members of the household before symptoms showed.

The devil is in the details. We know from COVID studies and previous viral studies that masks reduce risk of transmission for the wearer and for the people around them if the wearer is sick.

Double masks may even be better.
One mask works if you wear it correctly. Two might actually be better.

The CDC recently released new masking guidelines based on studies it did to determine how to improve their efficacy. The agency looked at wearing a cloth mask over a medical procedure mask (often called a surgical mask, but not an N95) and whether knotting the ear loops of a medical procedure mask and then tucking in and flattening the extra material close to the face would reduce risk.

Both modifications improved the masks effectiveness. According to the CDC’s experiments, an unknotted medical procedure mask blocked 42 percent of the particles from a simulated cough. A cloth mask blocked 44.3 percent. Knotting the surgical mask alone blocked 63 percent of particles. When the cloth mask was combined with the knotted surgical mask, it blocked 92.5 percent of particles.

The CDC has since updated its recommendations. If you use an N95 or KN95 mask, the agency does not recommend double masking. It also doesn’t recommend doubling up surgical masks.

Testing negative doesn’t mean you stay negative.
This may be one of the hardest things for people to understand. A lot of people get tested after they’re exposed, but you can test negative one day and positive the next, depending on the time from when you were exposed, the course of the infection and the type of test you took.

When you’re exposed to someone with the virus and become infected, symptoms may show a few days after exposure or up to two weeks later. If you test too soon, a test may not pick up the infection. If you’re asymptomatic, a rapid antigen test may not pick up your infection at all. Accuracy is lower in antigen tests than PCR tests, especially in those who aren’t showing symptoms.

That’s why it’s so important to observe CDC guidelines when it comes to testing and exposure. If you’ve been exposed to the virus, the CDC recommends you quarantine for 10 days, provided you remain asymptomatic. You can reduce this time to seven days if you show no symptoms and do not test positive for the virus on day 5 or later.

The new variants are a reason to be vigilant.
The new variants are more than troublesome. Many of them are more communicable and one, the British variant, is looking like it may be more virulent. This is why we need to keep washing our hands, wearing masks and practicing social distancing. And why we should get the vaccine when it’s our turn. Don’t let up now!

With a little extra effort from all of us, I believe we can beat back this virus, and we’re well on the way. We’re better at treating it, and we know how to stop its spread. If enough of us do these things, there’s a chance these variants won’t make the impact that some researchers currently fear.

We may have to take booster shots in the future, but that’s a lot better than where we were a year ago when we had no vaccine, few promising treatments and knew very little about COVID-19.

What a difference a year makes.

Reference:

  1. https://www.mdvip.com/about-mdvip/blog/what-you-need-know-about-coronavirus-or-covid-19

Looming Threat of Inflation

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“Inflation destroys savings, impedes planning, and discourages investment. That means less productivity and a lower standard of living.” Kevin Brady

Brian Wesbury, Chief Economist at First Trust Advisors, is concerned about inflation increasing faster than the Federal Reserve anticipates. Wesbury said that he is focused on the rapid increase in the M2 measure of the money supply. This measure has soared since COVID-19 hit the US, up about 25% from a year ago, the fastest growth on record.

From his viewpoint, the rapid increase in M2 is the key difference between the current situation and the situation in the aftermath of the Financial Crisis of 2008-09. During that first round of Quantitative Easing and big spending bills (like TARP), the M2 measure remained subdued because the Fed kept banks from lending, in part by raising capital standards. As a result, inflation remained subdued as well.

The late great economist Milton Friedman stress that policy makers watch M2: Nominal economic growth and inflation will tend to track M2 broadly over time, adjusted for any fluctuations in the velocity of money, the speed with which money circulates through the economy.

The US economy is healing faster than expected, while the US Congress and President Biden are intent on pouring at least one more massive government spending stimulus into the system, according to Wesbury. They are doing this even though the pandemic is waning, and a double-dip recession seems highly unlikely.

The big risk for the next couple of years is an upward surge in inflation that’s larger than anything we’ve experienced in the past couple of decades.

“I think the inflation prospects for the U.S. over the next five or six, seven years, are quite serious. You cannot have a bumper crop in apples without the value or the price of each apple falling. The Fed has had the largest increase in the monetary base in the history of the U.S., from colonial times to the present, times ten.” Arthur Laffer, an Economist known for his tax revenue theory called the Laffer Curve

He still project 2.5% CPI inflation for 2021, as the government’s measure of housing rents holds the top-line inflation number down. But commodity prices are likely to continue rising and overall inflation will as well in in 2022 and beyond. There is an old saying: When the Fed is not worried about inflation, Wesbury states, “the market should be worried.”

References:

  1.  https://www.ftportfolios.com/Commentary/EconomicResearch/2021/3/1/powell-disses-uncle-milty