Ponderings For the Week of June 22 to 28, 2020

Stocks Inch Higher, Led by Technology Shares

Stocks crept up about 1% last week on several encouraging reports suggesting that some lagging sectors were showing signs of resurgence. These included health care, airlines, and energy. While the gains were small, investors were nevertheless encouraged after being shocked by the June 11 selloff.

Federal action and rumored plans also supported stock prices. The Federal Reserve announced an expanded corporate bond-buying program. Sentiment was also improved with rumors that the Administration was devising a $1 trillion infrastructure spending plan.

But the predominant stock price stimulus is attributed to technology stocks. Memories of the dot com debacle have faded, and technology is deemed the new safe investment. The companies have strong worldwide business models, rock solid balance sheets, and a knack for making money in all economic environments. They’re Wall Street darlings, indeed.

Some Investment Matters to Keep in Mind

Your investments are the key to your financial security, and there are a few maxims about the investment markets that you should keep in mind.

First, all types of investments can and will lose money from time to time. As we learned in past bear markets, you can lose a lot of money awfully fast in the stock market. You can also lose money on bonds if interest rates rise or if bond issuers get into financial trouble. While you may think you can't lose money with safe investments like money market funds and Treasury bills, the interest they pay is usually so low that your money is losing ground to inflation, which can be detrimental as well.

The next truism is what I like to call "the golden rule of investing," which says that no one can consistently predict the near term future performance of the investment markets. If you start relying on someone’s prediction, you’re headed for trouble.

Finally, the stock market does not move in lockstep with the economy. The economy could stink and the stock market could rise handsomely. Or the economy could be ebullient while the stock market is a mess.

Now you might think that based on these maxims, you can't win. This is certainly not the case, particularly if you will need your money to last at least a decade.

Smart Money Tips

  • Life insurance is getting cheaper. Life insurance rates, particularly term insurance, are declining, thanks to longer life expectancies and fierce price competition among the life insurance companies. In fact, term insurance premiums have declined by as much as 50 percent over the past decade. It may be rewarding to survey the term insurance landscape if:

    - You need more life insurance coverage.  Don’t assume that you’re too old to obtain affordable term insurance. Low premiums make this coverage affordable even for people in their fifties and sixties.
    - You already have a term insurance policy.  Because premium rates are coming down so fast, you may be able to reduce the premiums on an older term policy as long as your health is still okay. Of course, never drop an old policy in favor of a new one until the new policy has been signed, sealed, and delivered.

  • Seniors: for whom are you investing? As much as I like to encourage retirees to figure out a way to spend all of their money, that’s easier said than done. Some retirees are blessed with more money than they’ll likely ever need. Whether your means are modest or immodest, you may have some money that will probably be passed on to younger generation family members. If so, be sure you’re investing that portion of your portfolio as if it were owned by the child, grandchild, niece, nephew, or whomever. In other words, the way you invest money you think you’re going to need is different from the way you should invest money intended for someone who is decades younger than you. If you find you’ve been investing that money too conservatively, consider changing your holdings somewhat to place more emphasis on capital appreciation. You’ll be doing your heirs a big favor by investing money you don’t expect to need to emphasize long-term growth since (sorry to bring this up) their investment horizon is considerably longer than yours.








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