Investing for the Long Term

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“For investment success and above average returns, investors should invest and grow their money over the long term.”

Long-term investing is the best way to build wealth and is a strategy that has for decades withstood the test of time. It’s instrumental in planning for retirement and building wealth and a legacy. Long-term investing require patience and has the potential to pay off with a much higher returns.

Long-term investing is the practice of buying and holding investments like stocks for many years and decades. The exact definition of how many years or decades you must hold an investment for it to qualify as a long-term investment varies. Generally, it is between ten and twenty years, though it can be much longer.

“Investors would be better off…to just keep their investments long-term and not worry about what happens in the short-term. It’s the hardest thing to do, but sitting on your hands and staying long-term focused pays the highest dividends.”  Mark Matson

Common sense says that long-term investing is more conservative. Sometimes that’s true, but not always. You can invest in the stock market, generally considered one of the riskier investment assets, with the intention of holding the stocks for the long term. There is still a good amount of risk involved even though it’s technically a long-term investment if you hold the stocks for a longer period of time.

Patience

Long-term investments require patience. That patience is a trade-off for potentially lower risk and/or a higher possible return. You aren’t going to see the quick increases in portfolio value and it isn’t always going to be the most exciting type of investing.

It’s important to keep your eyes on long-term goals (or prize) like retiring, paying for your education and passing on some of your wealth to your family.  “Investors need to stay focused on the next 10 to 20 years, not the next 10 to 20 minutes,” says Mark Matson, veteran market strategist of Matson Money.

Investors hold long-term investments for a period of several decades. Long-term investing is about buying and holding securities rather than selling at the first sign of profit.

Long-term investing is about patience and waiting out volatility, corrections and bear cycles. You have to focus on how an investment will appreciate down the road. There are a number of possible long-term investments you can make. Just think about your own financial situation before deciding which of them is right for you.

Market declines can be unnerving. But bull markets historically have lasted much longer and have provided positive returns that offset the declines. Also, market declines often represent a good opportunity to invest. Strategies such as dollar cost averaging and dividend reinvestment can help take the emotion out of your investing decisions.

As the chart below illustrates, no one can accurately “time” the market. An investor who missed the 10 best days of the market experienced significantly lower returns than someone who stayed invested during the entire period, including periods of market volatility. Staying invested with a strategy that aligns with your financial goals is essential.

Missing the best days

Value of $10,000 investment in the S&P 500 in 1980

Source: Ned Davis Research, 12/31/1979-7/1/2020.

Successful long term investing equates to decades and is extremely boring.

The path to build wealth required you to take the laziest, simplest approach to stock investing imaginable, and have a little patience. Ever since Vanguard introduced its S&P 500 index fund 45 years ago, ordinary investors have been able to invest in broad stock indexes in a tax-efficient manner, with extremely low fees.

Investors who committed to large-cap stocks of the S&P 500 index for 35 years saw returns equal to or higher than the long-term return (94 years) of 10.2% in 87% of the rolling 35-year periods between 1926 to 2019 (there were 60 of them), according to Barron’s.

If only investing for 30 years, returns were 10.2% or higher in only 74% of the rolling 30-year periods. It falls to 60% when the time frame is 25 years.

The historical success rate of achieving the long-term return also increased for investors willing to stay in the saddle for at least 35 years. In general, if an investment portfolio has at least a 60% equity allocation, the needed investment period is at least 25 years to have a 70% or higher chance of achieving the long-term return.

Long-term investing means holding stock in a portfolio for a period of at least 10 to 35 years.  Long term investing represents some of the best investing advice investor should heed.  Investors need to stay focused and base their investment decisions on the next 10 to 30 years, not the next 10 to 30 days.

The power of compounding

Compounding can work to your advantage as a long-term investor. When you reinvest dividends or capital gains, you can earn future returns on that money in addition to the original amount invested.

Let’s say you purchase $10,000 worth of stock. In the first year, your investment appreciates by 5%, or a gain of $500. If you simply collected the $500 in profit each year for 20 years, you would have accumulated an additional $10,000. However, by allowing your profits to stay invested, a 5% annualized return would grow to $26,533 after 20 years due to the power of compounding.

“Good investing isn’t necessarily about earning the highest returns…It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time”, according to Warren Buffett. “That’s when compounding runs wild.”

Tax control advantages

Investing is a terrific way to build wealth and financial security, but it’s also a way to create a hefty tax bill if you don’t understand how and when the IRS and state tax departments impose taxes on investments.

  • Tax on capital gains – Capital gains are the profits from the sale of an asset — shares of stock, a piece of land, a business — and generally are considered taxable income. Essentially, the money you make on the sale of any of these items is your capital gain.
  • Tax on dividends – Dividends usually are taxable income in the year they’re received. Even if you didn’t receive a dividend in cash — if you automatically reinvested your dividend to buy more shares of the underlying stock, such as in a dividend reinvestment plan (DRIP) — you still need to report it. And, there are generally two kinds of dividends: nonqualified and qualified. The tax rate on – nonqualified dividends is the same as your regular income tax bracket. The tax rate on qualified dividends usually is lower.
  • Taxes on investments in a 401(k) – Generally, you don’t pay taxes on money you put into a traditional 401(k), and while the money is in the account you pay no taxes on investment gains, interest or dividends. Taxes hit only when you make a withdrawal. With a Roth 401(k), you pay the taxes upfront, but then your qualified distributions in retirement are not taxable. For traditional 401(k)s, the money you withdraw is taxable as regular income — like income from a job — in the year you take the distribution.
  • Tax on mutual funds – Mutual fund taxes typically include taxes on dividends and capital gains while you own the fund shares, as well as capital gains taxes when you sell the fund shares. Your mutual fund may generate and distribute dividends, interest or capital gains from the investments inside the fund. Accordingly, you may owe taxes on these investments — even if you haven’t sold any of the shares or received any cash from them. The tax rate you pay depends on the type of distribution you get from the mutual fund, as well as other factors. If you sell your mutual fund shares for a profit, you might incur capital gains tax.

With stocks, you control when to buy and sell, and can reduce your tax burden and are very cost efficient.

You can reduce capital gains taxes on investments by using losses to offset gains. Tax-Loss Harvesting is a tool that can significantly lessen the tax burden and the pain of corrections or down markets. The primary benefit of tax-loss harvesting is you can capture current losses in your portfolio without changing the risk and return characteristics of your portfolio. These recognized losses can be used to reduce your taxes. They can be applied to up to $3,000 of ordinary income and an unlimited amount of capital gains each year. Unused losses may even be carried forward indefinitely.

Very few investors realize their true account value is the aggregate value of their securities plus the aggregate tax savings from their harvested losses (i.e. their harvested losses * their marginal federal + state ordinary tax rate). For example, if you invested $10,000 and harvested losses of $2,000, and your marginal tax rate is 40% and your account has traded down to $9,500 then you are actually above water despite appearing to have lost 5%. That’s because you should add the $800 of tax savings ($2,000 * 40%) to your securities value of $9,500 to get a total tax adjusted value of $10,300 – greater than the $10,000 you invested. This is why tax-loss harvesting provides an opportunity for an offsetting economic benefit.

References:

  1. https://smartasset.com/investing/long-term-investment
  2. https://www.barrons.com/articles/financial-advisors-tell-clients-to-invest-for-the-long-term-but-how-many-years-is-that-51604003385?mod=article_signInButton
  3. https://finance.yahoo.com/news/a-president-trump-or-biden-doesnt-matter-to-the-stock-market-just-invest-for-the-next-20-years-strategist-161541443.html
  4. https://www.edwardjones.com/us-en/market-news-insights/guidance-perspective/benefits-investing-stock
  5. https://mentalpivot.com/book-notes-the-psychology-of-money-by-morgan-housel/
  6. https://www.nerdwallet.com/article/taxes/investment-taxes-basics-investors
  7. https://www.nytimes.com/2021/02/04/upshot/stock-market-winning-strategy.html

Investing Involves Managing Your Behavior and Emotions

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“90% of investing involves managing yourself, not your money.” Nick Murray

Investing in stocks won’t make you wealthy. Your behavior around investing in stocks makes you wealthy, according to Nick Murray, a behavioral financial services professional and author of eight books for financial services professionals. Stocks need your help. The only thing you control – your behavior – is the biggest factor in your investing success.

This is a recurring theme repeated by all great investors – 90% of investing involves managing your emotions and yourself, not your money. A simple investment plan helps manage that 90% so the other 10% can be left alone to grow your money. As Nick Murray said about investors not following a plan, “human nature is a failed investor”.

“Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.” Morgan Housel, author of The Psychology of Money

In other words, behavior trumps other considerations in the pursuit of financial success. “Doing well with money has a little to do with how smart you are and a lot to do with how you behave”, Morgan Housel explains in his book The Psychology of Money. “Engage in the right behaviors and you are likely to succeed. Similarly, no amount of intelligence, savvy, or inside information will save you from the wrong set of behaviors.”

Margin of Safety

Warren Buffett said, “The three most important words in investing are ‘margin of safety’.” That means that you buy stuff like stocks while they’re on sale. That also means paying less than what it’s worth. That means to buy $10 dollar bills for $5 dollars. In a nutshell, that’s the secret to great investing.

“If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger the margin of safety you’d need. If you’re driving a truck across a bridge that says it holds 10,000 pounds and you’ve got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay; but if it’s over the Grand Canyon, you may feel you want a little larger margin of safety.” Warren Buffett

The Margin of Safety is a measure of how “on sale” a company’s stock price is compared to the true intrinsic value of the company. You need to be able to determine the intrinsic value of a company and from that value determine a “buy price”. The difference between the intrinsic value and the buy price is the margin of safety.

Margin of Safety is a value investing principle strategy. If the total value of all shares of a company is 30% less than the intrinsic value of that company, then the margin of safety would be 30%. In other words, if the stock price of a company is below the actual value of the cash flow and assets of a company, the percentage difference is the Margin of Safety.  This is the discounted price at which you are buying a share in the company.

The Margin of Safety is the percentage difference between a company’s Fair Value per share and its actual stock price. If a company has profits and assets that outweigh a company’s stock market valuation, this represents a Margin of Safety for the investor. The higher the margin of safety, the better.

Margin of safety is only an estimate of a stock’s risk and profit potential. Most value investors believe that the higher the margin of safety, the better.  And, the larger the margin of safety, the more irrational the market has become. 

One of the keys to getting a great margin of safety is to understand that price and value is not the same thing. Price is what you pay for something, but the value is what you get.

The stock market rises about four out of every five years or about 80% of the time, according to Murray. Said another way, the market only falls 20% of the time. You can fear that 20% or cheer for it.

No one ever got wealthy paying full price or top dollar for assets. Most successful investors got that way buying assets that were distressed, out of favor, and therefore on sale. Unfortunately, few people see it that way. You need to take advantage of the sale during market selloffs and corrections when it occurs. Your money literally goes further because you can buy more share at lower prices that lead to market-beating returns later on.

Managing your emotions and financial planning

It’s paramount to insulate yourself against uncertainty, greed and fear – so that you can prosper by continuously implementing your financial plan, and managing your behavior by not reacting to random circumstances and volatility of the markets.

Failing to financially plan is planning to fail financially. For people in the accumulation phase of life, that means a written, date-specific, dollar-specific retirement accumulation plan, premised on long-term historical returns, according to Murray. Once in retirement, it has to become a retirement income plan which, at historic returns, defends and even accretes purchasing power.

Financial planning is essential to managing your behavior and ensuring your financial success.

References:

  1. https://novelinvestor.com/10-lessons-learned-nick-murray/
  2. https://mentalpivot.com/book-notes-the-psychology-of-money-by-morgan-housel/
  3. https://www.ruleoneinvesting.com/blog/how-to-invest/how-to-invest-margin-of-safety-the-growth-rate/
  4. https://www.liberatedstocktrader.com/margin-of-safety/
  5. https://www.fa-mag.com/news/a-talk-with-nick-murray-20921.html

Wealth Mindset

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“Developing the right frame of mind is critical to successfully investing for the long term and achieving your financial goals.”

Many people do not obtain financial freedom because they do not have the one thing that matters most: the Right Mindset. Everything about attaining financial freedom starts with how you think about managing your money (budgeting), saving for the future, investing for the long term, and accumulating wealth.

Your mindset is a big part of what’s gotten you to where you are right now financially. It’s largely responsible for the financial success (or lack of it) that you already have. So, if you want your financial life to change, your mindset will also need to change or adjust.

Altering your perspective and mindset can help you overcome the majority of financial, health or emotional challenges you may face. An individual’s perspective, how we face challenges, and how we choose to live is a choice. That mindset shapes how we deal with life’s hardships, whatever storms come our way.

What is Wealth Mindset?

“Before you can become a millionaire, you must learn to think like one. You must learn how to motivate yourself to counter fear with courage. Making critical decisions about your career, business, investments and other resources conjures up fear, fear that is part of the process of becoming a financial success.” Thomas J. Stanley

Your mindset is the sum of the attitudes and ideas you bring to a situation related to your personal finances. It’s the mental habits you have for thinking about and responding to any financial circumstance; they’re usually created by your previous financial experiences.

A mindset, according to psychologist Carol Dweck, Ph.D, and popularized in her book, Mindset: The New Psychology of Success, “is a self-perception or “self-theory” that people hold about themselves. Believing that you are either “intelligent” or “unintelligent” is a simple example of a mindset”, according to Dweck. “People may also have a mindset related their personal or professional lives—“I’m a good teacher” or “I’m a bad parent,” for example. People can be aware or unaware of their mindsets”, Dweck wrote, “but they [mindset] can have profound effect on learning achievement, skill acquisition, personal relationships, professional success, and many other dimensions of life” including financial.

Mindset is one of the primary reasons more Americans don’t become wealthy and don’t reach their financial goals. They’re afraid – not of being wealthy and financially free, but of the changes in their lives they’ll have to make to get there.

There’s a saying: “We don’t see the world as it is. We only see the world as we are.” The money results you’re experiencing are a reflection of your internal framework or mindset. When you change your mental blueprint and financial self-image (a.k.a. your mindset), you transform external results. As John Maxwell says “You’ll never change your life until you change something you do daily. The secret of our success is found in your daily routine.”

If you keep telling yourself that you aren’t smart enough or good enough, or that you don’t know enough, it’s not going to be easy to turn on the steady stream of cash flow. And with a fixed, low-earning mindset and constant negative self-talk, you won’t be likely to achieve financial freedom.

So instead of all that unproductive thinking, implement a “wealth mindset” and put a high value on yourself. When you value yourself first and foremost, you increase your deserving level through a self-worth vibration and resonance.

Change Your Mindset

“Decide You Want It More than You Are Afraid Of It” Bill Cosby

The first thing we must do is change our beliefs. When we drop the mindset that says that in order to make money, we have to trade our time for it, our minds open up to the possibilities. There’s no rule that says that to make X dollars, we have to work X hours. In fact, it’s more important to spend time “un-learning” the old limiting or “fixed” mindset than “learning” the new positive mindset.

So, think about trading value for money, not time. 

  • Think about what value you can create for other people, and how you can deliver that value. 
  • Think about what assets, skills, knowledge, connections or ideas do you have that people value.
  • Recognize your strengths and competency, then go all-in. Bet on and invest in yourself.

Additionally, those who have accumulated wealth tend to develop the habit of “accumulating wealth slow” rather than “getting rich quick.” To assure this, they follow two of billionaire investor Warren Buffett’s rules with regard to their capital and assets. “Rule number one: Don’t lose money. Rule number two: If ever you feel tempted, refer back to rule number one, “don’t lose money.””

Climbing the economic ladder, even when the odds seem stacked against you is doable. But in order to become financially free, you have to have a serious heart-to-heart talk with yourself, according to Forbes. You want to get a few things clear in your head, including:

  • A definition of exactly what financial freedom means to you – following someone else’s definition won’t get you there
  • A realistic and accurate picture of your current financial situation
  • A realistic idea as to what you’ll have to give up to get where you want to go A realistic assessment of the obstacles in your path
  • A series of goals that will help you to become financially independent
  • The path to wealth and financial freedom depends on your financial mindset, what you learned about money management early in life, and what your willingness to delay gratification and exercise discipline to get to realize your goals.

    • Living life on your terms means being free to do the things that are most important to you.

    Make small changes over time

    No matter what changes you want to make, it’s better to make small ones over time than to try to make a huge one right away, according to leading personal finance author Laura D. Adams. Those who succeed the most make small incremental changes and build on that foundation.

    You might start with a financial goal to automatically save a certain amount of your monthly pay or to invest a few dollars in a low cost index fund. Small changes that become habits create momentum for additional improvements. Decide to implement one small change this month, like tracking spending each week, setting up a retirement or brokerage account, or figuring your net worth.

    Once you have success accomplishing a small financial change or goal then add more, such as creating a spending plan, cutting unnecessary expenses, and building credit.

    And, it is imperative to get started now since it’s human nature to procrastinate—especially when the deadline for getting something done like saving for retirement is decades away. But procrastination never works in the case of saving money for retirement, because building wealth is inherently a long-term process.

    In other words, accumulating wealth is difficult or virtually impossible without upfront thought, planning and discipline. The earlier you get started, the more time your investments have to exponentially grow and benefit from the magic of compounding. The key to building wealth for the future is to start early and to slowly but surely increase your net worth over the long term.

    You cannot realize your wildest dreams or reach your most audacious goals with a negative mindset.

    References:

    1. https://www.edglossary.org/growth-mindset
    2. https://lauradadams.com/money-mindset-tips-tools-for-financial-success
    3. https://www.forbes.com/sites/jrose/2016/03/25/financial-independence/?sh=1e589742984b
    4. https://www.entrepreneur.com/article/244745
    5. https://www.ruleoneinvesting.com/blog/personal-development/4-valuable-tips-for-a-healthy-money-mindset/
    6. https://www.amazon.com/Wealth-Choice-Success-Secrets-Millionaires/dp/1137279141/ref=nodl_
    7. https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm

    Beginner’s Guide to Investing

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    “Successful investors had to start somewhere, and it’s never too early or too late to start planning for your financial future and learning how to invest wisely.” Phil Town

    Getting started investing can be intimidating. The learning curve combined with the fact that you are putting your own money at risk is often enough to scare many people away from one of the safest ways to put ‘your money to work for you’ and financial freedom.

    However, the most successful investors like Peter Lynch and Warren Buffett had to start somewhere, and it’s never too early or too late to start planning for your financial future and learning how to invest wisely.

    This beginner’s guide to investing, according to investment advisor and NY Times Best-Selling author Phil Town, covers everything you need to know to start investing on your own and make smart investing decisions.

    Step 1: Pay Off Bad Debt and Avoid Money Traps

    Don’t even think about making any major investments before you have paid off unnecessary debt.

    These things shouldn’t hold you back from starting to invest, but 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.

    Additionally, don’t fall into the common money traps. People of all ages trying to keep up with the Joneses: buying the latest phone, shiniest car, biggest house.

    “Money traps are things that will take all your money so you have nothing left to invest.” Phil Town

    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.

    Step 2: Create an Emergency Fund

    If you have figured out how to spend your money wisely, you have probably figured out how to save it. An emergency fund is part of your savings that you set aside in case of an emergency.

    It’s a good idea to put 3-6 months of your living expenses into your emergency fund (it can just be in a savings account) should something crazy happen a pandemic!

    If your car breaks down, you get laid off, or you have unforeseen medical expenses, you will have the funds you need. An emergency fund will also come in handy in case of a recession.

    Even if you don’t have to tap it, you will have peace of mind knowing there is a cushion available if you need it.

    Step 3: Learn the Investing Basics

    You wouldn’t start driving a truck without knowing the basics driving, so you shouldn’t jump in the stock market without knowing the basics of investing.

    Before you begin building wealth, it’s important to understand the basic goal of investing as well as the basic process that you will use to reach that goal.

    Step 4: Embrace a Positive Investing Mindset

    Your investing psychology (mindset and behavior) and how it affects your investing are important aspects to understand and appreciate. It will dictate how you as an investor will actually behave, the reasons and causes of that behavior, why the behavior can hurt your wealth and what you can do about it.

    Understanding the psychological aspects and how psychology affects investing are an important and critical aspect of investing. Knowing that you belong in the market and that your capable of investing in the market are important first steps.

    Successful investing has much to do with you needing to be a pretty good amateur psychologist of both your own biases and the market’s, according to Nick Murray. Virtually all market tops and bottoms occur at emotional extremes:

    • Bottoms coincide with widespread panic while
    • Tops tend to be associated with some unjustified level of overconfidence or greed.

    The theory behind sentiment analysis is quite simple. Market peaks occur when buying power has become exhausted. This happens because those buyers have become either complacent, overconfident or just plain greedy. Once they’ve all bought in, who’s left to buy?

    Step 5: Create an Investment Plan

    Once you have a positive investing mindset and know you know how investing works, you can move on to the next steps, but don’t get your wallet ready just yet.

    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.

    • Evaluate your current financial standing to understand how much risk you can take.
    • Determine your goals and how long it will take you to realistically achieve them.
    • 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.

    Step 6: Decide What Type of Investment to Make

    Next, you need to decide what type of investments will help you accomplish what you have set out to accomplish. There are several different types of investments that you should be aware of before you start investing your money.

    Step 7: Establish Your Investing Strategy

    Investing is more than picking a few stocks and hoping for the best. If you’re doing it right, there’s a real strategy involved. Now, you can choose from a plethora of investment strategies for investing beginners. These investment strategies include:

    • Impact Investing: Investing in companies with a measurable environmental or charitable impact
    • Growth Investing: Investing in companies that exhibit signs of above-average growth
    • Income Investing: Investing in securities that pay dividends
    • Small-Cap Investing: Investing in small companies that are new and potentially grow faster
    • Value Investing: Investing in great companies when they are on sale for prices lower than they are worth

    There is one investment strategy that is recommended which follows the principles of value investing.  When you value invest, you buy growth companies, small-cap companies, and impactful companies, but you buy them when they are on sale.

    This investing strategy will give you the highest rates of return with the lowest amount of risk.  When you buy wonderful high-value companies for half or even a quarter of their value, you can ensure big returns.

    Step 8: Determine Where To Invest

    Once you decide that you are ready to start buying and selling stocks, you need to choose what platform or service you will use to make your investments.

    For most investors, an online broker will be the best option because online brokers allow you to place trades for a relatively small fee while still offering all of the resources and information you need to make wise investments.

    There are many online brokers available to choose from and most are fairly competitive in regards to the fees they charge and the services that they offer. And, you really can’t go wrong with any of the major online brokers.

    Step 9: Build a Stock Watchlist

    It’s time to start investing. If you decided stocks are the right type of investment, you can start picking stocks…carefully. A stock watchlist is your own personal list of companies that you have researched and found to be worthy of your investment. Once you build your watchlist, you watch and wait for the companies on it to go on sale.

    To build a watchlist, you need to do your research

    The best companies to invest in for beginners are companies that have been around for at least ten years, companies that you understand, companies that exhibit past growth and the potential for future growth, companies that are run by trustworthy management, and companies that have been placed on-sale relative to their value.

    You can break down these qualifications into what we call the Four Ms of Investing. It will take a bit of research to discover the Four Ms for each company, but the payoff will be worth it.

    If you find a company that meets these qualifications, you will have found an ideal investment for any investor, beginners included.

    If you find a company that meets all of these qualifications, you will likely have found an ideal investment opportunity.

    Practice Patience and Wait

    Once you have found a company that meets your qualifications, it still may not be prudent to invest in it right away. Instead, you’ll want to put the company on your watchlist and wait until the stock market places it on sale.

    The good news is that the market puts wonderful companies on sale all the time. If you’re patient, the companies on your watchlist will eventually dip to a price that allows you to buy them up for a bargain rate and profit once the price of those companies goes back up to their true value.

    Investing Tip: Check Your Emotions

    By far, the most important investing tip for beginners to follow is this: keep your emotions in check.

    If you invest in wonderful companies at a point when the market has placed them on sale relative to their value, it’s hard not to make money; that is, if you don’t let your emotions get the better of you.

    Even great companies can experience dips in price over the short-term, and these dips often cause inexperienced investors to become afraid and sell off their shares.

    By the same token, greed causes many investors to buy into a company at times when the company is overpriced. This leads to lower returns or even losses.

    If you want to succeed as an investor, you have to avoid letting fear or greed drive your decision-making process.

    Remain patient and logical as you invest and you’ll be able to avoid many of the pitfalls that beginner investors often fall prey to.

    Step 10: Know When to Buy Your Stocks

    Succeeding at investing in stocks is all about choosing the right companies as well as the right time to invest, but the right time won’t last forever. Once a company on your watchlist goes on sale, it’s time to buy.

    Making money requires some degree of timing. Investment legends like Warren Buffett may condemn market timing, however, they would not disagree that there are far better times to enter a stock position and exit a stock position than others.

    Entering a new position when there is panic is a far better bet than when the stock price has increase to levels far above its intrinsic value due to fear of missing out.

    At this point, all you need to do is place your money in the company and keep it there for the long-term. If you made a wise investment, your money will grow in value for many years after you invest it in the company.

    References:

    1. https://www.ruleoneinvesting.com/blog/how-to-invest/get-started-investing-with-these-10-steps/
    2. https://www.markonomics101.com/2018/10/08/the-psychology-of-investing/

    7 investing myths and realities about stocks | Fidelity

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    Investing is less complicated than you think.

    Key takeaways

    • You don’t always have to take on a lot of risk to hit your financial goals.
    • You don’t have to be an expert to invest in the stock market—you don’t even have to manage your own investments. You can get low-cost investment management in several ways.
    • Investing is for everyone—no matter how much or how little money you start with.

    Would you rather have $100 today or $125 in one year? Rationally, earning $25 in one year on a $100 investment represents a 25% annual rate of return, not typical for the stock market. But research has found that a lot of people would take the $100 today when you frame the question this way.

    “The future is nebulous,” says Andy Reed, vice president of behavioral economics at Fidelity. “But we know what our needs are today. So some people feel more comfortable sitting on a pile of cash because they know exactly what it can buy them today versus jumping into the market and who knows what it’ll turn into,” he says.

    But to reach your goals it may be necessary to invest for growth. Could your financial beliefs be holding you back? See if you believe any of these commonly held myths.

    Myth #1: Investing in the stock market is too risky

    Investors react much more strongly to losses than to gains. The fear that putting money into the stock market could lead to financial ruin keeps many people out of the market and that may keep them from reaching their goals.

    The good news is there are things you can do to help manage the amount of risk when investing. For instance, some types of risk can be mitigated with diversification. If all your money was in one stock and the company went out of business, you would have lost your entire investment. But if you own many different stocks, one company likely represents only a small portion of your portfolio. Similarly, adding different types of investments, like bonds and short-term investments, can also reduce the amount of risk in your mix.

    When it comes to investments, stock picking is not necessary—or even encouraged. Investing through mutual funds or exchange-traded funds lets you invest in many companies at once—getting professional management and diversification. Keep in mind that diversification and asset allocation do not ensure a profit or guarantee against loss. That’s why it’s important to build a mix of investments that you can live with—with the potential to hit your goals.

    To find out more, read Viewpoints on Fidelity.com: The guide to diversification

    The amount of time you plan to allow your investments to stay in the market makes a difference too. With a very long time in the market, history suggests that your chance of permanently losing money in a diversified mix of investments goes down. That’s because stocks have tended to rise over time. And as long as you don’t sell your investments, they may recover from market downturns.

    Myth #2: It’s safer to keep money in a savings account

    Many people believe cash is safe. But having too much of your money in cash or a low-yielding savings account can mean your purchasing power shrinks due to inflation. Some people may be more likely to have a lot of cash in savings or checking accounts than others. For instance, Fidelity’s research on women and money has found that 56% of women who have significant savings outside of their retirement accounts and emergency funds do not invest those savings in the market.2

    Since 1985, the average annual inflation rate has been 2.7%, according to the Bureau of Labor Statistics. Right now, inflation is less than 2% but it could rise in the future, given rising government deficits and stronger economic growth.

    Prices on things like housing, food, and education tend to go up over time. If you have $100 today, it may buy less in 5 years than it does now. If prices increased by the annual average inflation rate each year, an item that cost $100 today would cost $114.25 after 5 years. Investing $100 at a .5% rate of return yields just $3 after 5 years.3 By investing in assets that offer the potential to earn a return above the rate of inflation, you have the chance to keep up with price increases.

    So the potential boost from investing part of your savings in riskier investments like stocks could help. You don’t have to bet the farm looking for double- and triple-digit returns—slow and steady may really win the race.

    The key is to find a mix of investments, blending stable investments with those that are more risky, that you are comfortable with and could stick with over time.

    Saver Investor
    Annual contribution $15,000 $15,000
    Years contributing 40 40
    Average annual rate of return 2% 7%
    Accumulated balance after 40 years $924,150 $3,204,144

    This hypothetical illustration assumes that the saver and the investor each make one annual contribution of $15,000 at the beginning of the year. Taxes and fees are not considered. This example is for illustrative purposes only and does not represent the performance of any security. Consider your current and anticipated investment horizon when making an investment decision, as the illustration may not reflect this. The assumed rate of return used in this example is not guaranteed. Investments that have potential for 7% annual rate of return also come with risk of loss.

    Myth #3: Investing is too complicated and time consuming

    Investing can be really complicated. But it’s only as complicated as you want to make it. You can build and maintain a diversified investment mix made up of mutual funds or ETFs—or for many investors it may be easier to turn to a target date fund for retirement goals or an asset allocation fund to handle the investment decisions.

    Both types of funds offer a professionally managed, diversified mix of investments based on your goals and financial situation but target date funds gradually shift to a more conservative mix over time. Asset allocation funds maintain a consistent level of stock investments.

    To learn more, read: Diversification through a single fund

    Managed accounts are another way to get professional investment management. Some types of managed accounts offer ongoing advice to help you stay on track with your finances. Read Viewpoints on Fidelity.com: 4 benefits of financial advice

    Robo advisors are a type of managed account—they generally only manage the investment piece for you without advice. The benefit is low-cost, hands-off investing. Generally you can get an investment mix that fits your goals and financial situation with rebalancing done for you at regular intervals.

    Myth #4: You need a lot of money to start investing

    This used to be true. Back when it cost $50 to place a trade and you had to call a stockbroker, investing was out of reach for many people.

    But these days, competition has driven the cost to invest way down. Investment minimums are nonexistent for many mutual funds, and exchange-traded funds (ETFs) offer another way to invest with no minimum fees.

    At many financial institutions, it’s possible to start investing with just a few dollars—even with professional investment management if you choose a robo advisor.

    Myth #5: I can wait for the best time to get in the market

    Timing the market is difficult or even impossible. Rather than waiting for the best time to invest, it can often be a better idea to just get invested. Waiting for the best time can lead to a lot of missed opportunities.

    If you’re extremely nervous about investing a lump sum of money, consider dollar cost averaging, or investing a set amount at regular intervals over time. Studies have found that, most of the time, investing a lump sum results in higher returns. But if you need to ease into the market, other research has found that dollar cost averaging may mitigate some risk.4 It’s important to understand though that periodic investment plans—like dollar cost averaging—do not guarantee a profit or protect against loss in a declining market.

    At the end of the day, whatever helps you get invested and stay invested may be the best strategy for you. That’s because missing just a couple of the best days in the market can have significant impact on long-term returns.

    Myth #6: Investment advisors are just trying to sell products

    Some people feel comfortable managing their investments, others are happy to choose diversified, professionally managed funds, while another group may prefer the services offered by financial professionals. But many people don’t know who they can trust in the financial services world and that could keep them from investing.

    The good news is that there are several different models for the way financial professionals are paid and the services they provide. Some are paid a commission when they sell certain products or do trades, others may charge an hourly fee or a flat fee, while still others charge a percentage of the money you invest with them. There are even more ways they can be paid as well.

    There isn’t one model that is best for everyone and their financial situation. The Securities and Exchange Commission (SEC) has a thorough series on how to evaluate investment professionals and questions to ask .

    The important thing to understand is that you can and should ask how they are compensated, how much you pay directly, and what it means for their recommendations to you.

    Read Viewpoints on Fidelity.com: 4 tips for your first meeting with a new advisor

    Myth #7: Men make better investors

    Men and women grow up with constant messages about what men are good at and what women are good at. Those messages can be damaging—to your self-esteem and net worth. But while women have historically taken a backseat to the men in their lives when it comes to finances—research shows that as a group, they are better investors.6

    That may be because women investors, on average, tend to trade less frequently and invest in more age-based allocation of investments than their male counterparts.

    Because women, on average, live longer than men it’s really important to understand how to manage money. Luckily women are investing nearly as much men: 58% of men say they own stocks vs. 52% of women.7

    The bottom line

    Investing is for everyone and it can help you reach your financial goals. When investing, you don’t have to have tons of money, trade a lot, or employ sophisticated strategies. Just doing the “boring” thing of determining an appropriate asset mix, owning well-diversified, professionally managed investments, avoiding the tendency to “tinker,” and sticking with that asset mix over time may help you reach your goals. Whether that’s through a managed account, a target date fund, or your own hand-picked mix of mutual funds, using this tried-and-true approach has the potential to lead to excellent results.

    Reference:

    1. https://www.fidelity.com/learning-center/personal-finance/myths-realities-stocks?ccsource=email_weekly

    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/