Ponderings For the Week of September 28 to October 4, 2020

Stocks Decline for Fourth Straight Weeks Amid a Plethora of Worries

While the headline numbers were bad enough, the broad market took it on the chin last week with an average stock loss of 3½% domestically and over 4% overseas. As the election approaches, concerns abound over such things as a COVID-19 resurgence (already happening in Europe), lack of movement on another round of economic stimulus, a sudden Supreme Court replacement for Justice Ginsburg, and the election itself.

While the Standard & Poor’s 500 Stock Index reached correction territory – a loss of 10% since its most recent high – the week’s economic news continued to show a recovering economy, particularly the manufacturing and housing sectors.

Investment professionals, as usual, offer conflicting outlooks for the near-term equity markets. Some see a buying opportunity now that stocks have declined to a more palatable level. Others are more cautious, concerned about how many things could go wrong between now and the end of the year. But our erudite readers realize that the Wall Street crowd is concerned about stock market action over ensuing weeks or months, not the longer term. Don’t let them either embolden or terrify you.  

Safe Money in Tough Times (First of a Sporadic Series)

Here we go again. While the causes vary, events that create substantial financial angst for most of the populace and financial hurt for many millions are fast upon us, an unwelcome pestilence that plagues us every decade or so, always for a different reason, it seems. The worldwide pandemic has already caused massive misery. But it’s reasonable to say that, with respect to pocketbook challenges, the worst is yet to come. If there’s any benefit from these debacles, it is that people once again dedicate themselves to emerging from their current malaise and endeavor to improve their future financial stability.

Many individuals and families enhanced their financial lot after the Great Recession of 2008 as they had after the dot com collapse of 2000. But the subsequent years of prosperity before the pandemic caused too many to load up on debt yet again, only to find themselves in untenable positions. Recent news stories reported on families who had high incomes, but the mortgage, multiple car loans, and credit card debt consumed over three quarters of their income. A job loss or pay cut caused the house of cards to tumble in just a couple of months.

Observers could see the double whammy of too much debt and two little savings coming. While the Great Recession forced people into an austere existence, many, if not most, reverted to their former immoderate ways when their personal finances recovered. Those who continued to live well within their means are by and large faring relatively well in 2020. While it’s easy to complicate the ways to avoid financial exigency, it really boils down to greatly reducing, if not eliminating, debt and building up a sufficient and accessible emergency fund.    

 

Smart Money Tips

  • The surest way to build up your investments. Articles abound on how poorly prepared so many people are for retirement. Those who have accumulated retirement savings and benefited from the long bull market harbor the fear that another big drop in stock prices could wipe out many years of gains. But before concluding that you’ll never be able to afford to retire, keep in mind that there is one surefire way to build up your wealth and that is to save regularly and regularly increase the amount you’re saving. Also, there is an advantage to continuing to make contributions when investment values are depressed. In effect, you’re buying more shares of a fund for the same amount of money compared with what you would have bought in the more ebullient past. This is known as dollar cost averaging, and it’s a tried and true way to be a successful investor.
  • Help your children and grandchildren learn about investing.  Here’s an easy way to help your children or grandchildren learn about investing. Just don’t make money a taboo subject. Discuss family finances and investments in their presence. Several years ago, I surveyed over a thousand mutual fund managers. One of the questions I asked was how they first learned about investing. Most of the managers attributed their early knowledge to hearing their parents and grandparents discuss the family’s investments. The vast majority of the money managers who responded to the survey did not grow up in wealthy households; rather, their parents and grandparents were of average financial means. Whatever your financial circumstances may be, involve the younger persons in your life in family money matters.

 

 

 

 

 

 

 

 

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