Ponderings For the Week of October 12 to 18, 2020

Stocks Thrive as Earnings Season is Nigh

Optimism over a new stimulus package and progress on the coronavirus vaccine front spurred stocks higher last week as the Standard & Poor’s 500 Stock Index had its best weekly gain in three months. Advances were across-the-board for stocks of all sizes both in the U.S. and overseas. At week’s end, stimulus plan negotiations continued to be debated in public, but investors were hoping for the best as the new trading week dawned.

This week marks the unofficial start of the third quarter earnings season. While year-over-year comparisons will be awful thanks to the pandemic, company management has recently been particularly adept at downplaying quarterly earnings forecasts for 2020. Beating these forecasts has thus been fairly easy so stock prices could benefit. If you think that lowballing profit forecasts is a lousy way to boost stock prices, you’re right. We’ll soon find out if this “strategy” works for third quarter reports.  

By the way, the election is a mere three weeks away. So many investors have been in a dither over the outcome of the election. Our mail box is full of dire predictions of what will happen depending on who wins. One stated that the election outcome will be tied up in the courts for four years and, therefore, there will be no change in the administration. Another concluded that no matter who prevails in November, a massive increase in capital gains taxes is a certainty, so the advice is to sell all investments that are subject to taxes now and pay capital gain taxes at this year’s lower rates. No matter what your feelings may be, here’s another strategy to consider, compliments of the late John Bogle: “Don’t do something, just stand there.” History has shown that any market reaction in the immediate aftermath of an election will be nullified soon thereafter. In other words, presidential elections in and of themselves, have scant impact on the stock market.     

When is it Okay to Cosign a Loan?

When is it okay to cosign a loan? The simple answer is almost never. That even applies to cosigning loans for family members. The primary reason for this hard (the borrower may say heartless) stance is that a cosigner assumes a tremendous amount of risk for little or no reward. If the borrower falls behind on the payments, the lender will usually sue the cosigner first because the cosigner is deemed to have a better ability to make the payments. Perhaps more importantly, cosigning provides ample opportunity to impair, if not destroy a friendship or family relationship.

If the above caveats are insufficient to dissuade you from cosigning a loan, consider the following two matters before proceeding. First, has the borrower been trustworthy so far? After all, the need for a cosigner may be an indicator of past credit problems or the inability to convince the lender of one’s creditworthiness. Second, and most important, can you easily afford to repay the cosigned loan in its entirety without harming your future financial wellbeing? For example, if you want to cosign a $200,000 mortgage but have several times that amount sitting in a savings or investment account (not retirement accounts for which taxes would have to be made for any withdrawals), you could probably make good on the loan if necessary. In that situation, however, you may want to simply loan the money to the borrower in order to eliminate any potential unpleasantries with a lending institution.


Smart Money Tips

  • Your career is your best investment. With all my prattling about money matters, I don’t want you to lose sight of your best source of future financial security and that’s your career. Keeping up to date in your field, striving to advance, and, if necessary, changing careers will provide you with the wherewithal to achieve your financial aspirations. This is doubly important if you’re unemployed, underemployed, or worry that you might lose your job – far more common under current employment conditions..
    Younger persons who are not yet in the workforce need to take a dispassionate look at the long-term prospects for any career they’re considering. Times have changed – for the worse. When I was in school (my kids say that was so long ago that I must have taken notes on cuneiform tablets), you could major in just about anything and get a job. To be blunt, some courses of study are unlikely to land a newly-minted graduate a promising job, much less a career.
  • Withdrawals from retirement accounts require careful planning. A lot of people are going to be retiring over the next several years, and the decisions they make when they retire can make a big difference in their future financial security. It’s crucial, therefore, for all pre-retirees to plan carefully how you’re going to handle your retirement account withdrawals. A general rule of thumb is that the amount of money you can safely withdraw from all your retirement-earmarked accounts in your first year of retirement is about 4% and no more than 5% of your nest egg. Excessive spending is a lot harder to curtail for retirees since the die is cast in the first few years of retirement. Those who withdraw too much risk outliving their money and stories abound of those who have…or will.









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