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

Young Adults Driving New Cases of COVID-19| USAToday

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People under 40 now make up the majority of COVID-19 cases, according to a USA TODAY analysis of data from 17 states.  They found that the average age of a new person reported to have coronavirus has fallen significantly since March.

Although younger adults are less likely to develop severe infections of COVID-19, some do develop serious and even life-threatening complications.

Read more:  https://www.usatoday.com/in-depth/news/2020/07/07/younger-people-driving-new-cases-covid-19-putting-elderly-risk-cases-deaths/3285566001/?fbclid=IwAR17Db8MyyCviXun8o557bC1QKt2dpa53ewkUYX8TiFDMjL_MU7H6FqU5O8

Heart Disease is a Food and Nutrition Related Pandemic Disease in America

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Heart disease is caused by the foods we eat.

Heart disease is the leading cause of death of men and women in America. It kills more than 647K Americans annually according to the Centers for Disease Control and Prevention (CDC). It fills the nation’s critical care hospitals beds and exponentially increases healthcare costs. Heart disease has become a perennial pandemic in America.

Heart disease refers to several types of heart conditions. The most common type is coronary artery disease, which can cause heart attack.

Heart disease occurs most often when a substance called plaque builds up in your arteries. When this happens, your arteries can narrow over time, reducing blood flow to the heart.

According to Dr. Caldwell B. Esselstyn Jr., who directs the cardiovascular prevention and reversal program at The Cleveland Clinic Wellness Institute, heart disease and the build up of plaque in your arteries can be “prevented, arrested, and selectively reversed” by consuming a plant based diet and eliminating from the standard American diet the typical toxic and unsafe foods which are responsible for the disease.

“When we have a problem, our natural instinct is to add a new habit or purchase a fix. But sometimes, you can improve your life by taking things away. For example, the foods you avoid are more important than the foods you eat.” David Perell

Instead of the government’s universally accepted ‘food pyramid’, Dr. Esselstyn promotes just 3 food categories: safe, condiments, and unsafe.

  • Safe: grains, legumes, lentils, vegetables, and fruits
  • Condiments: nuts and seeds
  • Unsafe: oils, sugars, dairy and processed foods, meat, poultry, and fish

 

References:

  1. https://www.cdc.gov/heartdisease/docs/ConsumerEd_HeartDisease.pdf
  2. http://www.dresselstyn.com/site/study03/

COVID-19 Tracker | FIRST TRUST

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First Trust Economic’s weekly COVID-19 Tracker which contains charts and data that they think are important to gain some perspective on the coronavirus pandemic in the U.S. 

https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=a9e49836-abc7-41cf-8949-4497ddee0018

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

Color blind or color brave? | TED2014

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Mellody Hobson is President of Ariel Investments and an advocate for financial literacy and investor education.

The subject of race can be very touchy. As finance executive Mellody Hobson says, it’s a “conversational third rail.” But, she says, that’s exactly why we need to start talking about it. In this engaging, persuasive talk, Hobson makes the case that speaking openly about race — and particularly about diversity in hiring — makes for better businesses and a better society.

20 Habits of Successful Traders

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In a stock portfolio, large companies in mature industries provide typically provide earnings growth and steady cash flows. With a low beta, these companies also help in creation of a defensive portfolio. However, the objective of creating a diversified portfolio is to beat the index returns. It makes sense to invest in the index if investors can’t beat the index.It is likely to be a difficult task to beat the index without having medium and small size companies in the portfolio

  • Learning how to invest doesn’t have to be hard. In fact, it can be simple. Regardless of the current state of the stock market, you should still invest in the market.
  • Learn how to find and buy stocks, generate consistent returns, and reduce your risk.
  1. Always important to remember that equity markets are huge crowds of people attempting to make money at the expense of others.
  2. Be patient with winning trades and aggressively impatient with losing trades by cutting your loser immediately. Cut losses immediately.
  3. Making money is more important than being right. The market can stay wrong longer than you can stay solvent. Do what the market is telling you do.
  4. Look at charts as a picture of where traders are lining up to buy or sell. Charts are simply where traders are lining up.
  5. Before they enter any trade, they know exactly where they will exit for either a gain or a loss. Know where you’re going to exit before you get in.
  6. They approach trade number 5 with the same mindset they did on the 4 previous losing trades. Understand that statically chart patterns do not always work.
  7. Use naked charts and focus on zones. Successful traders rarely use anything but price.
  8. They realized a long time ago that being uncomfortable is okay. You have to be comfortable being uncomfortable. Will never have 100% complete information. They’re able to make decisions based on incomplete information.
  9. The markets are their workplace. They are a participant, not an on-looker.
  10. Stop trying to pick tops and bottoms. Trade when charts are trending. Trade with the trend.
  11. Stop thinking about the market or stock as being “cheap” or “expensive”. Is someone going to pay more or less for the stock at a later date.
  12. Buy higher highs and sell lower lows. Trade the trends. Things that are going higher tend to go higher. Things are going lower tend to go lower.
  1. Change your plan as market change. Be willing to change sides if the market tells them to do so. Wait to see what the market is going to do and trade the trend.
  1. Trade aggressively when trading is going well and modestly when trades are going badly. If I have three losing trades in a stock in a row, I will reduce trading size on that stock.
  2. They realize the market will be open again tomorrow. They do not succumb too the fear of missing out. Don’t beat yourself up.
  3. Never add to a losing trade. Never, ever add to a losing trade.
  4. Cash is the goal, but never the measure of success. The goal should be did you follow your rules getting into trades and getting out of trades.
  5. They read books about mobs and riots.
  6. Provide liquidity to the markets while watching price and volume. Treat trading as a market maker.
  7. They have a way to gauge fear, greed and speed of the markets: use Tick Charts 233, 612.
  8. They practice reading the right side of the chart, not the left. Become better at seeing, predicting and reading the patterns before they’re formed.
  9. Every wealthy trader has an “edge” that can explain to their mothers. As simple as a moving average crossing over another moving average.
  10. Businessman Risk. Avoid risking more than 2% on any trade. Position size is calculated exactly on risk tolerance. The objective amount they will risk, or willing to lose, on any one trade. An objective way to calculate risk.
  11. Profit targets are based on average range or something objective. Know the normal behavior of a stock before you trade it.
  12. One or two trades a month, make their month. Have many more small losers interspersed with big winners
  13. Confidence decision makers in the face of incomplete information.
  14. A losing trade does not mean you are a loser. Successful traders do not take the market or a stock loss personally.
  15. They buy higher highs and sell lower lows.
  16. Their business isn’t trading — it’s finding the right trades to make money.
  17. They write down or record every trade — price, thoughts, news, attitudes. Find patterns in your own behaviors.
  18. Their conviction pa an active trade remains unless something major changes.
  19. A winning trade does not result in taking on extra risk the next trade.
  20. Trade the reaction, not the news. Trade the aversion back to the mean. Don’t trade the initial reaction, trade the reaction to the initial reaction to the news.
  21. Make trading as objective as possible.
  22. Keep a journal: Price entry and exit, slippage, max profit, max loss,
  23. Learn as much as you can about trading by reading, listening to experts and seminars. Keep a degree of healthy skepticism.
  24. Do not get greedy and rush to trade. Take your time to learn how to trade.
  25. Develop a method to analyze the markets. Markets keep changing. Need different tools for Bull, Bear and transitional markets.
  26. First goal must be long term survival. Second goal is steady growth of capital. Third goal is making high profits.
  27. Trader is weakest leak in any trading system. Winner think, feel and believe differently. To be a winner, you must change your personality.
  28. Mass Psychology: Bulls are buyers, bets on a rally and profits from a rise in prices. Bears are sellers, bets on falling markets and profits fall in prices . Hogs are greedy. Sheep are passive followers.
  29. Ask is what a seller asks to sell. Bid is what a buyer offers to pay. Sellers sell because they expect prices to fall. Buyers buy because they expect prices to rise. Undecided

Coronavirus Rates Surge in West and South

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Several U.S. states continue to set daily records for coronavirus infections as outbreaks surge mostly across the South and West. As of Tuesday, at least 35 states are seeing increases in daily coronavirus cases. The increases are particularly steep Florida, Arizona, California, Mississippi, South Carolina, and Texas. Many of the states are reporting more cases than they’ve ever seen on a daily basis.

Those regions are experiencing higher seven day average infection rates and hospitalizations. The spike in new cases that have outpaced daily infection rates experienced in April.

The severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), which causes the coronavirus disease 2019 (COVID-19), has proven to be the type of virus that epidemiologists have always feared. The virus spreads easily, no one appears to have immunity to it and it’s much more stealthier than expected. The severity of COVID-19 symptoms can range from very mild to severe. Most people experience only a few minor symptoms, and some people experience no symptoms at all.

With the current level of spread in the West and South, Americans should expect this virus to continue to circulate. Dr. Anthony Fauci, head of the National Institute for Allergies and Infectious Diseases and the top U.S. infectious diseases expert, has warned that unless the current trend shifts, the U.S. could see its daily number of new coronavirus cases rise to 100,000 from its current level of around 40,000. However, people can help to curb the spread of infection by:

  • Practicing social physical distancing (6 feet or 2 meters)
  • Wash your hands often with soap and water for at least 20 seconds, or use an alcohol-based hand sanitizer that contains at least 60% alcohol.
  • Cover your face (nose and mouth) with a cloth mask in public spaces.
  • Avoid touching your eyes, nose and mouth.
  • Clean and disinfect high-touch surfaces, such as doorknobs, light switches, electronics and counters, daily.
  • Stay home from work, school and public areas if you’re infected, unless you’re going to get medical care.

Yet, it’s important to understand, according to Dr. Fauci, that the only way to successfully stop the spread of the coronavirus will be an effective vaccine that proves safe and has shown some efficacy by creating coronavirus neutralizing antibodies in people. There are currently 17 potential SARS-CoV-2 vaccines in clinical trials being tested on human patients across the globe.

References:

  1. https://www.cnbc.com/2020/06/29/cdc-says-us-has-way-too-much-virus-to-control-pandemic-as-cases-surge-across-country.html?__source=iosappshare%7Ccom.microsoft.onenote.shareextension
  2. https://www.upi.com/Top_News/US/2020/06/30/Dr-Fauci-warns-US-COVID-19-cases-could-reach-100000-a-day/1971593516091/
  3. https://www.mayoclinic.org/diseases-conditions/coronavirus/symptoms-causes/syc-20479963