Category Archives: Investing

Wealthy Recommend Index Investing

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For the most part, many wealthy Americans and ‘next door millionaires’ favor for their own investment portfolios and recommend for small retail investors to invest in market index funds or ETF. An index fund is a mutual fund or exchange-traded fund (ETF) that mimics the behavior of an underlying index such as the S&P 500.

Investing in index funds is a winning strategy when playing the stock market for two reasons:

  • They’re broadly diversified, eliminating the risk of picking individual stocks, and
  • They’re lower in cost.

If someone does not have the time or inclination to research companies financial balance sheets, management effectiveness and business operations, they should buy index funds. I’ve invested in Vanguard’s ETF (VOO) because of its low fees and its return track the S&P 500 market index. In short, the average American doesn’t have the time, knowledge, and desire to properly invest in individual stocks.

Beating the market versus moving with the market

When you invest in index funds, your goal is to keep pace with the market. That’s very different from the approach taken by stock traders and active mutual fund managers. Stock traders don’t want to keep pace with the market; they want to beat the market.

The trouble is that few people can consistently beat the market over a five or ten year period. According to S&P Indices Versus Active (SPIVA), 80.6% of actively managed large-cap mutual funds underperformed the S&P 500 over the past five years. In other words, beating the market is hard for anyone and especially hard for the part-time investor.

When you invest in an index fund, you’re signing up for the good and the bad. That’s why it’s important to invest for the long term and only invest funds you don’t need for seven years or more. That way, you can ride out the inevitable downturns calmly, without having to liquidate at a low point.

Warren Buffett’s recommendation

Billionaire investor Warren Buffet is a strong proponent of of investing in the market index for most retail investors. At Berkshire Hathaway’s 2016 shareholder meeting, Buffett said that most investors’ best option is to put their money into a low-cost index fund.

Buffett’s reasoning for index fund investing, and for S&P 500 index funds in particular, is that they will match the market’s performance over time — no more, no less. This may sound boring, but the reality is that the market’s performance has been quite good over time, producing annualized returns of 9%-10% on average. And with rock-bottom management expenses, investors will be the beneficiary of virtually all of the gains.

Essentially, investing in a broad basket of stocks, such as the S&P 500 index, is a bet on American businesses, which Buffett feels is sure to do well over time. “American business — and consequently a basket of stocks — is virtually certain to be worth far more in the years ahead,” Buffett said in his 2016 letter to shareholders.

I’ve been a disciple and follower of Warren Buffett since 2007. I invested in his company back in 2008 when I found myself wondering how I could get the sweet stock warrant deals like Warren received from Bank of America. Then one day it dawned on me that I could get the benefit of his sweet stock deals by investing his Berkshire-Hathaway stock. 

In short, we concur with Warren in the most part. But, I also believe that every American should save and be invested in the U.S. equity stock market if they invest and want to accumulate wealth and achieve financial security. 

References:

  1. The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 9.9 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 3.4 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
  2. https://www.marketwatch.com/story/warren-buffetts-latest-advice-could-help-you-retire-much-richer-2020-03-16
  3. https://www.fool.com/investing/2017/06/25/warren-buffett-on-index-funds.aspx
  4. https://www.businessinsider.com/millionaires-investment-strategy-low-cost-stock-index-funds-building-wealth-2018-12
  5. https://apple.news/ANEWc5MJtRM2erbrPfyjxvA

Setting Financial Goals | Mass Mutual

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Every successful investing journey starts with a set of clear goals.

When it comes to planning for your financial future, it’s essential to have clear, concise and measurable financial goals — and a good comprehensive financial plan and strategies for reaching them.  Sometimes the hardest part is just knowing where to start and what is the destination.

Mass Mutual advises clients to set four basic financial goals; two short term goals (Income & Savings) and two long term goals (Retirement & Debt) — using their simple 5-10-15-20 guidelines:

  • 5: Increase your annual income from all sources by at least 5% each year.
  • 10: Save at least 10% (preferably 15%) of your net annual income each year.
  • 15: Target a retirement “nest egg” of about 15 times your annual income.
  • 20: Plan to have your debt (excluding your mortgage) paid down within 20 years at most.

Goal: 5% Income Increase

While many Americans see their salaries increase about 2% to 3% each year, setting the bar higher will help you maximize your biggest asset: your income. Setting a goal to increase in your total income 5% every year, whether it’s through your salary or other sources of income, can make a big difference over the long run. your personal financial situation.

10% Yearly Savings

A good rule of thumb is to save 10% to 20% of your net income each year. This could help you to take advantage of opportunities that may arise, like finding your dream home or investing in a new business venture. It also can provide a cushion in case of emergencies. You can increase the amount you save by setting aside a little more of your salary each month and cutting back on unnecessary expenses.

15x Salary Retirement Nest Egg

As you get older, you’ll have a better sense of your true retirement needs. For now, we suggest trying to accumulate a total of 15 times your current gross annual income for
retirement. The goal is to end up with a nest egg that could generate about 75% of your current annual income each year in retirement.

20-Year Debt Pay-Down

Many of us are burdened with debt, including student, credit card, auto and other loans. By understanding how long it will take to pay down your debt and working towards a debt elimination plan with set timelines, you’ll be better able to manage not only your debt, but your savings and retirement, too.

https://www.massmutual.com/financial-wellness/calculators/establishing-financial-goals

Most explosive stock market rally in history

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We’re witnessing the most explosive stock market in history. We’re seeing a spectacular stock market rally.

We’ve witnessed the greatest 50-day rally in the history of the S&P 500. The S&P 500 has increased 37% over the past 50-days.

Ten weeks ago, March 23, 2020, the Dow dropped all the way to 18,591 points. The biggest gain ever in such a short timeframe. Today, June 4, 2020, the Dow Jones index has peaked above 26,274 points.

Why…T.I.N.A. (There is no alternative to stocks)

There are fewer publicly traded companies to invest in today than thirty years ago. In the 1990’s, there were about 8,000 companies listed on American stock exchanges. Today, there are about 4,000 publicly traded companies on American stock exchanges which represents a fifty percent cut.

Furthermore, there are fewer shares of company stocks available to be traded. Share buy-backs by U.S. companies have taken 20% of companies’ shares off the market.

Essentially, the number of available shares have been dramatically cut, yet the demand for share have been vastly increased the demand for shares. The market is awash in cash from the Federal Reserve loose monetary policy and trillions of dollars from 401K plans.

Economics 101 reveals that cutting the supply of stocks while increasing the demand for stocks cause the price of stocks to go up.

And don’t forget about investor psychology, the economy has entered the return to work phase and the economy is on the move again. Animal Spirits are on the rise again.

Regarding the S&P 500 index, 159 stocks in the index are up for the year an average of 13% / 350 are down year-to-date an average of 20%. And, there are $4 trillion still sitting on the sidelines in money market accounts.

FOMO (Fear of missing out)

Fear of missing out can be extremely expensive. When the equity market has explosive moves where it goes up this high and this fast, an investor can feel that they’re “being left out and left behind”. As a result, they start paying top dollar for expensive and overbought stocks. That is no longer investing…investors are buying high hoping for higher.

Sources: CNBC and Fox Business News

Principles for Investing Success | Vanguard Investment Management Company

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Whatever financial challenge you’re facing, you can put yourself in a better financial position by setting goals, planning now and investing for the long term. The sooner you start, the sooner you’ll get on track.

Investing for the long term in order to grow your money is a marathon, not a sprint. An investment’s annual return provides perspective and growth over time.

https://vgi.vg/2Kyh3a3

Goals: Create clear, appropriate investment goals. Create appropriate investment goals you can measure and attain. Defining your goals clearly and planning realistic ways to achieve them can help protect you from common mistakes that could derail your progress.

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Balance: Develop a suitable asset allocation using broadly diversified funds. Create a sound investment strategy by choosing an asset allocation in line with your financial objectives. Build your allocation based on reasonable expectations and diversify your portfolio to avoid exposure to unnecessary risks. Balance is the key:

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Costs: Minimize costs. Markets are unpredictable. Costs are forever. The lower your costs, the greater your share of an investment’s return. And research suggests lower-cost investments outperform higher-cost alternatives. You can’t control the markets, but you can control your costs and tax liability:

https://vgi.vg/2z6fQEv

Discipline: Maintain perspective and long term discipline. Investing can provoke strong emotions. During times of market uncertainty, you may find yourself tempted to make impulsive decisions or you may experience “paralysis by analysis,” unable to decide on how best to implement an effective investment strategy or when to rebalance your portfolio. Discipline and perspective can help you remain committed to a long-term investment philosophy through periods of market uncertainty.

https://vgi.vg/3c8ihFg

References:

  1. https://www.vanguard.com.au/adviser/en/article/cec-investment-philosophy/vanguards-principles-for-investing-success

6 habits of successful investors| Fidelity Investment

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Planning, consistency, and sound fundamentals can improve results.

FIDELITY VIEWPOINTS – 03/19/2020

For most people, achieving success as an investor means reaching their financial goals, like owning a home, paying for college, or having the retirement you want.

What separates the most successful investors from the rest are habits. It is the reason why some individuals successfully accumulate wealth while others seem unable to save and invest successfully. Essentially , it can be traced back to daily habits.

Here are the 6 habits of successful investors that we’ve witnessed over the years—and how to make them work for you. Read more: https://www.fidelity.com/viewpoints/investing-ideas/six-habits-successful-investors?immid=100864&imm_pid=272043316&imm_aid=a466972197&dfid=&buf=99999999

Investing can be complex, but some of the most important habits of successful investors are pretty simple. If you build a smart plan and stick with it, save enough, make reasonable investment choices, and be aware of taxes, you will have adopted some of the key traits that may lead to success.

References:

  1. https://grow.acorns.com/7-daily-rich-habits-anyone-can-adopt/

Don’t Panic

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Here’s the most important piece of advice for long-term investors: Don’t panic.

Both the current pandemic driven economic environment and equity market environment are incredibly uncertain. Likewise, the future is equally uncertain and unpredictable.

Unprecedented unemployment, declining oil prices, liquidity concerns in financial markets, and expanding federal debt represent a clear and present risk to future U.S. economic prosperity.

Moreover, the current uncertainty has had a negative impact on global economies and equity markets. The impact has created fear and caused investors to panic sell their positions and seek safe havens by moving into less riskier assets.

Yet, it is important to understand that market corrections happen on a regular basis. A stock market correction is a sudden drop in the value of stocks, usually by more than 10% from their most recent high.

Bottomline, it’s going to be okay. This too shall pass. Investors are advised to ‘stay the course’, follow your financial plan and focus on your long-term goals.

It’s best to be invested.

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The global financial crisis of 2008 proved no one can consistently predict how the market will perform. Thus, it is best for investors to stay invested in the markets.

“You always have to remember the markets are forward-looking, and you don’t know when they’re going to take off—just like you don’t know when they’re going to tumble. So it’s best to be invested than to try to time it, because it’s close to impossible.” Tim Buckley, CEO, Vanguard Investments

If you’re confident in your financial life plan and investment strategy, leaving your investments alone during short-term market corrections and Bear markets could help you accumulate wealth over the long-term and help ensure your retirement nest egg. 

Vanguard will offer Private Equity Investments

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Vanguard turns to what many view as the ‘dark side’ of investing, the world of complex, exclusive, expensive private equity investments

Vanguard Group plans to offer a private equity investments which will be managed by an outside firm called HarbourVest Partners. Initially, the private equity investment will be available only to institutions such as endowments and nonprofit foundations. But, Vanguard intends to move quickly beyond institutional investors.

Over time and as regulations change, Vanguard hopes to offer these private equity strategies to its individual, non-qualified retail investors.

Typically, private equity firms charge fees that are 2% of assets a year in management fees, plus 15% to 20% or higher of total returns in annual performance fees. Generally, money is locked up for years with little liquidity. This is why the U.S. Securities and Exchange Commission has long kept smaller, non qualified investors out of them.

In a statement, Vanguard chief executive Tim Buckley said, “Private equity will complement our leading index and actively managed funds, as we seek to broaden access to this asset class and improve client outcomes. While this strategy will be initially available to institutional advised clients, we aim to expand access to investors in additional channels over time. For individual investors in particular, this partnership will present an incredible opportunity — access and terms they could not get on their own.”

Contrasting Viewpoint

Eric Walters, founder of Silvercrest Wealth Planning, believes Vanguard’s move is “fraught with risks.” He added, “I think it could work if they are able to access top-quartile private equity managers, most of which are closed to new subscriptions”. Additionally, he added, “Managers below the top quartile often don’t do any better than public equities and often do worse. When you add the high fees and long holding periods, accessing lower-tier managers would be a bad deal for Vanguard clients.”

About Vanguard

Vanguard is one of the world’s largest investment management companies. As of December 31, 2019, Vanguard managed $6.2 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers 424 funds to its more than 30 million investors worldwide. For more information, visit vanguard.com.

About HarbourVest

HarbourVest is an independent, global private markets investment specialist with over 35 years of experience and more than $68 billion in assets under management, as of December 31, 2019.

References:

  1. https://www.forbes.com/sites/antoinegara/2020/02/05/vanguard-pushes-into-private-equity-by-accessing-dealmakers-like-stephen-schwarzman-robert-smith-and-orlando-bravo/#3431f0bf2760
  2. https://www.harbourvest.com/news/vanguard-and-harbourvest-announce-private-equity-partnership
  3. https://www.inquirer.com/business/vanguard-harbourvest-mortimer-tim-buckley-private-equity-20200206.html
  4. https://www.investmentnews.com/vanguard-puts-private-equity-investments-on-the-menu-187888

Make Money in Stocks | Forbes

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Everyone can grow life-changing wealth and have strong investment results over the long term.

Investing in stocks is one of the most important financial skills you need to master. History has shown that the earlier you start and the longer you stay invested in the market the better your investments will be. On average, stocks have given an annualized return of around 10%. At that rate, your investments would double every 7.2 years.

Let’s say you start with $10,000. After a 40 year career, that turns into at least $320K from doubling 5 times. That’s from a single $10,000 investment.

And, it is important to understand that you can’t accumulate wealth off just your salary. Savings and bonds won’t do it either, the return isn’t high enough to make an impact during your lifetime.

But, you should not invest in stocks in a vacuum. It is important to develop a financial road map to help you invest to meet a goal, whether this means sending the kids to college, retire well, buy a house, get that BMW or some marvelous combination thereof.

When you have a financial plan, you have a road map to guide your investing to help you reach your financial goals. The important thing is that you keep your investments on track in order to reach your financial goals. 

Nick Murray may have said it best when he said,

“All financial success comes from acting on a plan. A lot of financial failures come from reacting to the market.”

Whether in real estate, stocks or even owning a business, you will never be able to achieve financial freedom without investing in assets and benefiting from the magic of compounding interest.

Few people will be able to save enough for a secure retirement without investing.

To read more: https://www.iwillteachyoutoberich.com/blog/make-money-in-stocks/

Sources:

  1. https://www.forbes.com/sites/davidrae/2020/03/10/4-investor-mistakes/#129fd4df15bb
  2. https://www.forbes.com/sites/davidrae/2020/03/22/is-now-the-time-to-buy-stocks/#3fca8a8d1829