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Ponderings For the Week of November 11 to 17, 2019

Trade Deal Continues to Obsess Wall Street

While there’s lingering doubt about a “phase one” trade agreement with China by the end of the year, traders harbor no doubts and continued to embrace equities. Stocks were also helped by additional encouraging third quarter corporate profit reports and outlooks and an increase in bond yields which was viewed as positive for the lending activity of financial stocks.

For the week, domestic stocks added another 1% to what is turning out to be a very good year (so far, we hasten to add, recalling the December 2018 stock market whupping). Foreign stocks advanced as well for the week, but over the past couple of years have underperformed U.S. equities. Market professionals aver that opportunities to profit overseas are far more abundant than they are here on a relative valuation basis. Investors often devote scant resources to international stocks which they may regret.   
  

Getting Rich is Boring

Despite all of the infomercials and wealth seminars that purport to tell you the secrets of instant riches through real estate, reverse mortgages, gold coins or llama farming, the truth is that getting rich is boring, and it takes time to get rich – decades for most of us. It’s boring to be sure, but it’s also almost a certainty that you will accumulate a lot of money over the years. Moreover, as you are amassing your fortune, you’ll be able to sleep well knowing that you’ll have the wherewithal to meet any financial challenges that arise along the way. If you want to pursue the boring way to wealth, follow these five mundane steps. Please pass this article on to any younger generation family members who might benefit – and who have ample time to get rich: 

  1. Eliminate debt. First, eliminate any debt that doesn’t provide long-term benefits. The list or worthies is short and includes a home, a college education for your children or you, and worthwhile home improvements. Even if you have borrowed for these purposes, plan now to have all debt paid off by the time you retire or, better yet, before you retire.  
  2. Maintain adequate insurance. Always maintain adequate insurance coverage, leaving no potential risk uncovered. Losing years of hard-earned savings because of a gap in your insurance is too awful to contemplate.  
  3. Find ways to reduce your spending. If you think there’s no way you can cut your spending, look harder. Take your lunch to work and quit paying five bucks every day for a designer coffee. Our national savings rate may be low, but that doesn’t give you an excuse to save at a low rate unless you’re perfectly happy to retire solely on Social Security. The national average Social Security retirement benefit in 2019 is a bit less than $1,500 a month.
  4. Build up and diversify your investments. If you start out with Lilliputian investments, that’s okay. It doesn’t take much money to have a well-diversified investment “portfolio,” particularly with target date and other “all-in-one” funds offered by most employer retirement savings plans as well as mutual fund and brokerage companies.
  5. Own a home. Finally, owning a home is for most, but not all, a wise financial move as is resisting the temptation to trade up to a more expensive home. Worried about the possibility that home prices might decline again? All worthwhile investments will periodically decline in value, and so it is with homes. But any future malaise in the housing market, like the stock market, will be temporary.

The above tasks are indeed boring, but if you adhere to them, you’ll end up being the envy of your less-disciplined acquaintances. Getting rich the old-fashioned way isn’t very exciting, but the results will be. Finally, realize that your financial decisions won’t always be perfect. We all make boneheaded money decisions from time to time, like taking out a lengthy car loan. Just don’t make a habit of it. Take the advice of Eleanor Roosevelt who said “Learn from the mistakes of others; you can’t live long enough to make them all yourself.”

 

 

   

Smart Money Tips

  • “Pay as You Earn” and “Revised Pay as You Earn” college loan repayment programs may help beleaguered borrowers.  Under rules implemented by the federal government, any American who borrowed directly from the federal government for college or graduate school may be able to enroll in programs called “Pay as You Earn” (PAYE) or “Revised Pay as You Earn” (REPAYE).  To sign up for PAYE, the borrower must demonstrate financial distress to the point where he or she can’t afford to make the payments required on a standard 10-year repayment plan. The REPAYE program eliminated the financial distress requirement

        While there are some differences in PAYE and REPAYE requirements, the programs generally set the monthly payment at 10% of a borrower’s discretionary income. Monthly payments extend to a maximum 20 years for those with undergraduate loans and 25 years for those with graduate loans. Any remaining balances at that point are forgiven.

  • This may not be a good time to be buying mutual funds in your brokerage accounts.  Mutual fund purchases made late in the year may be risky since you could be buying shortly before the fund pays a dividend. Most mutual funds distribute dividends in December. This is not a concern with your retirement accounts, since you don’t pay taxes on them until you begin making withdrawals. But you could risk an unwanted tax bill if you buy a fund for your taxable brokerage account late in the year. Therefore, you should ask the mutual fund company how much of a gain it anticipates distributing in 2019. If there’s any doubt, wait until January to make the purchase.

 

 

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