Jonathan Clements's Blog, page 239
January 3, 2022
Who You Should Know
AMONG THE MANY people around the world who can impact our success as investors, two rank as the most important to know and understand. Yet many investors fail to recognize this reality.
Sure, Warren Buffett and Janet Yellen and Burt Malkiel are well worth listening to and learning from. There are also many others at home and abroad who are important. But all serious students of investing would agree that the two I have in mind are much more important.
Who���s the most important person you need to know and understand? That would be you. ���Know thyself��� has long been recognized as the single most important step toward success in life and, of course, in investing. As 'Adam Smith' (the pen name of George Goodman) put it in his 1968 bestseller The Money Game, ���If you don���t know who you are, [the stock market] is an expensive place to find out.���
���Know thyself��� is particularly important because each of us is different from other investors. We differ in incomes, assets, spending and saving, age, family responsibilities, investment expertise, time for and interest in investing, risk tolerance and self-discipline.
Because we differ from other investors, each of us should develop and stick with a long-term investment plan that is unique to us. As investors, the first step toward success is to know and understand ourselves, and develop the plan that���s really right for us. The best plan will be in writing.
The next step is to be self-disciplined and stick with that plan. But both depend on knowing ourselves, particularly when and why we make mistakes. Of course, when there are major changes in our lives or in our assets, each of us should make time for a careful review of our plan to see if any modifications need to be made. Such changes should be rare.
That brings us to the other important person we need to know. Clever, flirtatious, intriguing Mr. Market is always looking for the chance to divert our attention away from the long term and the discipline of staying on plan. He wants us to focus on the short term. He wants us to change our investments. Any change will please him. Any change at all.
Originally identified by Ben Graham, author of The Intelligent Investor, Mr. Market wants to have fun. He enjoys tricking investors into all sorts of decisions to buy and sell. He doesn���t care when those decisions don���t work out. In fact, he likes it best when we investors are making the most mistakes. Meanwhile, his cousin Mr. Value does the hard work of creating value over the long term. Mr. Value soberly develops companies that produce the products and services that people want���work that Mr. Market is anxious for us to ignore.
Emotionally unstable, Mr. Market bounces around. Sometimes euphoric, sometimes depressed, he causes trouble if we let him. He knows our emotional buttons and how to push them, sometimes with fear, sometimes anxiety, sometimes high hopes. All he really wants is for investors to take action, any action. Once he gets us started, it gets easier and easier to keep us taking action after action after action, as we pay more and more attention to the always changing market.
Of course, the best way to protect yourself from Mr. Market���s manipulations is to be expert on that other important person: yourself. Of all the many people in the world, the most important is you. Sure, it���s important to study and learn about the market. But it���s even more important to study and learn about yourself, particularly your weaknesses. You need to figure out what���s really important to you and how you can improve your chances of avoiding mistakes, so you minimize costs and taxes, stick with your plan���and thereby enjoy the ample rewards that come with successful long-term investing.
Charles D. Ellis is the author of 18 books, including Winning the Loser���s Game,��which is now in its 8th edition, with 600,000 copies sold. Charley has taught investing courses at both Yale and Harvard business schools, and he served for 17 years on Yale���s investment committee. Check out his earlier articles.
Sure, Warren Buffett and Janet Yellen and Burt Malkiel are well worth listening to and learning from. There are also many others at home and abroad who are important. But all serious students of investing would agree that the two I have in mind are much more important.
Who���s the most important person you need to know and understand? That would be you. ���Know thyself��� has long been recognized as the single most important step toward success in life and, of course, in investing. As 'Adam Smith' (the pen name of George Goodman) put it in his 1968 bestseller The Money Game, ���If you don���t know who you are, [the stock market] is an expensive place to find out.���
���Know thyself��� is particularly important because each of us is different from other investors. We differ in incomes, assets, spending and saving, age, family responsibilities, investment expertise, time for and interest in investing, risk tolerance and self-discipline.
Because we differ from other investors, each of us should develop and stick with a long-term investment plan that is unique to us. As investors, the first step toward success is to know and understand ourselves, and develop the plan that���s really right for us. The best plan will be in writing.
The next step is to be self-disciplined and stick with that plan. But both depend on knowing ourselves, particularly when and why we make mistakes. Of course, when there are major changes in our lives or in our assets, each of us should make time for a careful review of our plan to see if any modifications need to be made. Such changes should be rare.
That brings us to the other important person we need to know. Clever, flirtatious, intriguing Mr. Market is always looking for the chance to divert our attention away from the long term and the discipline of staying on plan. He wants us to focus on the short term. He wants us to change our investments. Any change will please him. Any change at all.
Originally identified by Ben Graham, author of The Intelligent Investor, Mr. Market wants to have fun. He enjoys tricking investors into all sorts of decisions to buy and sell. He doesn���t care when those decisions don���t work out. In fact, he likes it best when we investors are making the most mistakes. Meanwhile, his cousin Mr. Value does the hard work of creating value over the long term. Mr. Value soberly develops companies that produce the products and services that people want���work that Mr. Market is anxious for us to ignore.
Emotionally unstable, Mr. Market bounces around. Sometimes euphoric, sometimes depressed, he causes trouble if we let him. He knows our emotional buttons and how to push them, sometimes with fear, sometimes anxiety, sometimes high hopes. All he really wants is for investors to take action, any action. Once he gets us started, it gets easier and easier to keep us taking action after action after action, as we pay more and more attention to the always changing market.
Of course, the best way to protect yourself from Mr. Market���s manipulations is to be expert on that other important person: yourself. Of all the many people in the world, the most important is you. Sure, it���s important to study and learn about the market. But it���s even more important to study and learn about yourself, particularly your weaknesses. You need to figure out what���s really important to you and how you can improve your chances of avoiding mistakes, so you minimize costs and taxes, stick with your plan���and thereby enjoy the ample rewards that come with successful long-term investing.
Charles D. Ellis is the author of 18 books, including Winning the Loser���s Game,��which is now in its 8th edition, with 600,000 copies sold. Charley has taught investing courses at both Yale and Harvard business schools, and he served for 17 years on Yale���s investment committee. Check out his earlier articles.The post Who You Should Know appeared first on HumbleDollar.
January 2, 2022
Resolved: Sleep More
I HAVE BUT ONE New Year���s resolution: I���ll be working on a habit that promises to lower my risk of cancer, boost my immune system and decrease the odds that I���ll succumb to Alzheimer���s disease. This activity has a host of other health benefits: lower blood sugar levels, reducing the risk of cardiovascular disease and aiding weight loss. It has also been shown to improve mood, memory and creativity.
What is this wonder drug and how much will it cost me? My resolution for 2022: Get more sleep. And not just more sleep, but higher quality sleep.
I���ll admit that I���ve been a lifelong skeptic on the importance of sleep. Since my teenage years, I���ve gotten by with less than seven hours of sleep, sometimes far less. Like many people, I wore my sleep-deprived state as a badge of honor and a necessary evil in the pursuit of lofty ambitions.
No more. My eyes were opened by a book by sleep scientist Matthew Walker called Why We Sleep . A professor at the University of California, Berkeley, and an eminent sleep researcher, Walker makes a compelling, evidence-based case for the importance of sleep and the costs we incur when we shortchange ourselves of its many benefits.
The World Health Organization has declared sleep loss an epidemic throughout industrialized nations. As Walker points out, ���It is no coincidence that countries where sleep time has declined most dramatically over the past century, such as the U.S., the U.K., Japan, and South Korea, and several in western Europe, are also those suffering the greatest increase in rates of the aforementioned physical diseases and mental disorders.���
More than four centuries ago, the great bard himself spoke of sleep: ���Balm of hurt minds, great nature���s second course, chief nourisher of life���s feast���.��� William Shakespeare was, as usual, far ahead of his time.
Getting more sleep may, in fact, save your life. I read with amazement that vehicular accidents due to drowsiness exceed those caused by alcohol and drugs combined.
But HumbleDollar is a site devoted to money. Assuming a longer, healthier and more fulfilling life are insufficient inducements to sleep more, consider how it might improve your finances. After adjusting for socioeconomic, educational and professional factors, economists Matthew Gibson and Jeffrey Shrader found that those who slept more earned more money on average. The return on investment? About 4% to 5% higher pay accrued to those who got an extra 60 minutes of sleep.
It may surprise you to learn that NASA has studied the occupational benefits of sleep. In the mid-1990s, NASA found that naps as short as 26 minutes could improve task performance by 34% and overall alertness by more than 50%. CEOs, please take note.
Should you see fewer articles by yours truly in 2022, rest assured: I���m not frittering away my time on social media or slaving away at work���but, rather, simply resting.
What is this wonder drug and how much will it cost me? My resolution for 2022: Get more sleep. And not just more sleep, but higher quality sleep.
I���ll admit that I���ve been a lifelong skeptic on the importance of sleep. Since my teenage years, I���ve gotten by with less than seven hours of sleep, sometimes far less. Like many people, I wore my sleep-deprived state as a badge of honor and a necessary evil in the pursuit of lofty ambitions.
No more. My eyes were opened by a book by sleep scientist Matthew Walker called Why We Sleep . A professor at the University of California, Berkeley, and an eminent sleep researcher, Walker makes a compelling, evidence-based case for the importance of sleep and the costs we incur when we shortchange ourselves of its many benefits.
The World Health Organization has declared sleep loss an epidemic throughout industrialized nations. As Walker points out, ���It is no coincidence that countries where sleep time has declined most dramatically over the past century, such as the U.S., the U.K., Japan, and South Korea, and several in western Europe, are also those suffering the greatest increase in rates of the aforementioned physical diseases and mental disorders.���
More than four centuries ago, the great bard himself spoke of sleep: ���Balm of hurt minds, great nature���s second course, chief nourisher of life���s feast���.��� William Shakespeare was, as usual, far ahead of his time.
Getting more sleep may, in fact, save your life. I read with amazement that vehicular accidents due to drowsiness exceed those caused by alcohol and drugs combined.
But HumbleDollar is a site devoted to money. Assuming a longer, healthier and more fulfilling life are insufficient inducements to sleep more, consider how it might improve your finances. After adjusting for socioeconomic, educational and professional factors, economists Matthew Gibson and Jeffrey Shrader found that those who slept more earned more money on average. The return on investment? About 4% to 5% higher pay accrued to those who got an extra 60 minutes of sleep.
It may surprise you to learn that NASA has studied the occupational benefits of sleep. In the mid-1990s, NASA found that naps as short as 26 minutes could improve task performance by 34% and overall alertness by more than 50%. CEOs, please take note.
Should you see fewer articles by yours truly in 2022, rest assured: I���m not frittering away my time on social media or slaving away at work���but, rather, simply resting.
The post Resolved: Sleep More appeared first on HumbleDollar.
The Year That Was
DECEMBER WAS a month to remember for the stock market. The S&P 500 returned 4.5%, while small caps were up a slightly weaker 3.4%. Foreign stocks rallied 3.7%, but emerging markets continued to lag, eking out a 1.5% return.
It was a stellar year for the bulls. The U.S. stock market posted a 25.7% return, as measured by Vanguard Total Stock Market ETF (symbol: VTI). Vanguard Small-Cap ETF (VB) started the year hot, handily beating large-company stocks, but lost its momentum by the second quarter. It was up 17.7% in 2021.
Foreign shares were the most notable laggards. Vanguard FTSE All-World ex-U.S. ETF (VEU) was up just 8.2% last year, while Vanguard FTSE Emerging Markets ETF (VWO) barely finished in positive territory���up 1%. Foreign small-company stocks were a relative bright spot, with Vanguard FTSE All-World ex-U.S. Small-Cap ETF (VSS) up 12.8%.
Commodities and energy stocks finally had their day in the sun. After oil prices dipped into negative territory in April 2020, the sector���s beaten-down stocks came roaring back. Energy was 2021���s best performing sector, with a more than 50% advance.
Remember how bullish investors were about clean-energy companies a year ago? As is so often the case, when almost everyone is excited about the prospects of a particular niche, it might be time to look elsewhere. Last year saw a massive 66.9% rally in the SPDR S&P Oil & Gas Exploration and Production ETF (XOP), while the iShares Global Clean Energy ETF (ICLN) lost 23.8%. Traditional energy companies trounced renewable energy stocks. The lesson we learned once again: Each year in the market is unique���and trying to predict returns is a fool���s errand.
It was a stellar year for the bulls. The U.S. stock market posted a 25.7% return, as measured by Vanguard Total Stock Market ETF (symbol: VTI). Vanguard Small-Cap ETF (VB) started the year hot, handily beating large-company stocks, but lost its momentum by the second quarter. It was up 17.7% in 2021.
Foreign shares were the most notable laggards. Vanguard FTSE All-World ex-U.S. ETF (VEU) was up just 8.2% last year, while Vanguard FTSE Emerging Markets ETF (VWO) barely finished in positive territory���up 1%. Foreign small-company stocks were a relative bright spot, with Vanguard FTSE All-World ex-U.S. Small-Cap ETF (VSS) up 12.8%.
Commodities and energy stocks finally had their day in the sun. After oil prices dipped into negative territory in April 2020, the sector���s beaten-down stocks came roaring back. Energy was 2021���s best performing sector, with a more than 50% advance.
Remember how bullish investors were about clean-energy companies a year ago? As is so often the case, when almost everyone is excited about the prospects of a particular niche, it might be time to look elsewhere. Last year saw a massive 66.9% rally in the SPDR S&P Oil & Gas Exploration and Production ETF (XOP), while the iShares Global Clean Energy ETF (ICLN) lost 23.8%. Traditional energy companies trounced renewable energy stocks. The lesson we learned once again: Each year in the market is unique���and trying to predict returns is a fool���s errand.
The post The Year That Was appeared first on HumbleDollar.
A Modest Proposal
LOOKING BACK OVER the past two years, one word comes to mind:��extreme. It���s been a period of extremes in the market and the economy. Many have benefitted, but we���ve also seen excesses that aren���t necessarily healthy���from the rise in��NFTs��to the craze in��SPACs��to the boom in��day trading. That���s why, as you look ahead to the coming year, the theme I recommend is��moderation. Here are six ways you can apply this notion to your finances:
Shiny objects.��Among other things, this category includes the growth of��meme stocks��and the proliferation of��cryptocurrencies. Apparently, there are now more than��8,000��currencies. The gains in these investments have resulted in a fair amount of FOMO���fear of missing out���among investors. Nonetheless, as you might guess, my recommendation is to continue to keep things simple, tuning out the noise and sticking with less volatile choices.
I recognize that, in the middle of a market boom, someone urging caution risks sounding overly conservative. That���s why I think the recent decline in some of the most highflying investments, such as the ARK Innovation ETF, is instructive. In 2020, the fund rose 157%, easily beating the overall market. But last year, it dropped almost 24%, trailing the broad U.S. market by 49��percentage��points. If you���ve been feeling any amount of FOMO yourself, that���s a figure to keep in mind. The lesson: The overall stock market is volatile enough, so why seek out even more risk? Instead, seek moderation.
Politics.��To be sure, the political environment today is highly partisan. Still, and maybe surprisingly, there are some similarities between the parties���at least in terms of economic policy. President Trump appointed Fed Chair Jerome Powell, for example, and President Biden reappointed him. Congress���under Republicans in 2020 and under Democrats in 2021���supplied stimulus to the economy when it needed it most.
The similarities may end there. Nonetheless, I see an important lesson, which is to set aside politics when thinking about your finances. The reality is that the market has, on average, gone up under Democrats and it���s gone up under Republicans. Use that knowledge to keep your eye on the horizon. Don���t let your distaste for one party or another impact near-term financial choices.
Pandemic.��If there���s one thing that we can all agree on, it���s that the pandemic today is different from the way it was a year ago. It will be different again, in ways we can���t predict, over the coming year. The lesson: The country and the economy are resilient.
To be sure, the pandemic has generated an unusual amount of turbulence, but it hasn���t caused the depression that some feared. At the same time, it���s also been more serious than others predicted. On balance, though, we���ve collectively been putting one foot in front of the other to get through this.
That���s why, just as with politics, I recommend maintaining a moderate mindset. Should you hold more in your emergency fund today than you might have before? Sure. But should you sell everything and hide out in cash or gold? Definitely not. Instead, rely on the aphorism I referenced a few weeks ago: Nothing is as good or as bad as it seems.
Budgeting.��Last week on Twitter, I was surprised to see a��debate��break out on a topic I wouldn���t have expected to be so controversial: budgeting. Specifically, the question was, is it useful to track your household expenses or is it a waste of time that only feels productive? The debate generated dozens of comments.
Especially interesting was the number of replies prefaced by ���I respectfully disagree.��� Usually, when comments are prefaced that way, the disagreement��isn���t��so respectful. But in this case, the diversity of opinions was instructive. Some described how they had tracked every expense for more than a decade, while others said they���d never tracked expenses at all and saw no reason to. And there were several strategies between those extremes.
The lesson: In the world of personal finance, lots of people have opinions on how things��should��be done. But this debate illustrated a key truism: There are no one-size-fits-all answers. You shouldn't worry if someone else does things differently.
Retirement income.��Earlier this year, I talked about the 4% rule��for retirement spending and noted how partisan the debate had become. Fortunately, research continues on this topic and, in November, Morningstar released a��study��that should help retirees breathe easier.
Instead of declaring any particular portfolio withdrawal rate safe or unsafe, Morningstar's team offered a useful menu of strategies for boosting withdrawals. Their conclusion: ���Simple tweaks can have an appreciable impact on your withdrawal rate.��� This is thus another area where you can sidestep the shrill debate and instead chart a moderate path of your own.
Expectations.��Consult a measure of stock market valuation, such as Yale University professor Robert Shiller���s��CAPE Ratio, and you���ll find what looks like an alarming picture. According to the CAPE, the U.S. market is more overpriced today than it���s been at any point since the peak in 2000. It���s even higher than it was in 1929. But what does that mean for the future? Is the market headed for a significant correction? Should you be alarmed? That���s one view.
Another is to acknowledge that the market always has ups and downs and may indeed drop from today���s level. But unless you know when it will drop, when it will hit bottom and when it will recover, there isn���t a lot you can do about it. That���s the alternate view.
Between these two extremes, though, is another possibility. As Jonathan Clements described in a��blog post��back in September, the market doesn���t need to drop for its valuation to come back down to a more reasonable level. ���Suppose stocks treaded water at current levels, while corporate earnings climbed 5% a year. Five years later, at year-end 2026, the S&P 500 would be at 18.8 times earnings, below the 19.9 average for the past 50 years.��� In other words, we don't need to see a market crash for valuations to return to normal. We just need the economy to keep growing.
What will actually happen in 2022 and beyond? It���s anyone���s guess. But as Clements���s example illustrates, it doesn���t need to involve an extreme scenario. As a result, a moderate mindset may serve you well.
Adam M. Grossman��is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on Twitter @AdamMGrossman��and check out his earlier articles.
Shiny objects.��Among other things, this category includes the growth of��meme stocks��and the proliferation of��cryptocurrencies. Apparently, there are now more than��8,000��currencies. The gains in these investments have resulted in a fair amount of FOMO���fear of missing out���among investors. Nonetheless, as you might guess, my recommendation is to continue to keep things simple, tuning out the noise and sticking with less volatile choices.
I recognize that, in the middle of a market boom, someone urging caution risks sounding overly conservative. That���s why I think the recent decline in some of the most highflying investments, such as the ARK Innovation ETF, is instructive. In 2020, the fund rose 157%, easily beating the overall market. But last year, it dropped almost 24%, trailing the broad U.S. market by 49��percentage��points. If you���ve been feeling any amount of FOMO yourself, that���s a figure to keep in mind. The lesson: The overall stock market is volatile enough, so why seek out even more risk? Instead, seek moderation.
Politics.��To be sure, the political environment today is highly partisan. Still, and maybe surprisingly, there are some similarities between the parties���at least in terms of economic policy. President Trump appointed Fed Chair Jerome Powell, for example, and President Biden reappointed him. Congress���under Republicans in 2020 and under Democrats in 2021���supplied stimulus to the economy when it needed it most.
The similarities may end there. Nonetheless, I see an important lesson, which is to set aside politics when thinking about your finances. The reality is that the market has, on average, gone up under Democrats and it���s gone up under Republicans. Use that knowledge to keep your eye on the horizon. Don���t let your distaste for one party or another impact near-term financial choices.
Pandemic.��If there���s one thing that we can all agree on, it���s that the pandemic today is different from the way it was a year ago. It will be different again, in ways we can���t predict, over the coming year. The lesson: The country and the economy are resilient.
To be sure, the pandemic has generated an unusual amount of turbulence, but it hasn���t caused the depression that some feared. At the same time, it���s also been more serious than others predicted. On balance, though, we���ve collectively been putting one foot in front of the other to get through this.
That���s why, just as with politics, I recommend maintaining a moderate mindset. Should you hold more in your emergency fund today than you might have before? Sure. But should you sell everything and hide out in cash or gold? Definitely not. Instead, rely on the aphorism I referenced a few weeks ago: Nothing is as good or as bad as it seems.
Budgeting.��Last week on Twitter, I was surprised to see a��debate��break out on a topic I wouldn���t have expected to be so controversial: budgeting. Specifically, the question was, is it useful to track your household expenses or is it a waste of time that only feels productive? The debate generated dozens of comments.
Especially interesting was the number of replies prefaced by ���I respectfully disagree.��� Usually, when comments are prefaced that way, the disagreement��isn���t��so respectful. But in this case, the diversity of opinions was instructive. Some described how they had tracked every expense for more than a decade, while others said they���d never tracked expenses at all and saw no reason to. And there were several strategies between those extremes.
The lesson: In the world of personal finance, lots of people have opinions on how things��should��be done. But this debate illustrated a key truism: There are no one-size-fits-all answers. You shouldn't worry if someone else does things differently.
Retirement income.��Earlier this year, I talked about the 4% rule��for retirement spending and noted how partisan the debate had become. Fortunately, research continues on this topic and, in November, Morningstar released a��study��that should help retirees breathe easier.
Instead of declaring any particular portfolio withdrawal rate safe or unsafe, Morningstar's team offered a useful menu of strategies for boosting withdrawals. Their conclusion: ���Simple tweaks can have an appreciable impact on your withdrawal rate.��� This is thus another area where you can sidestep the shrill debate and instead chart a moderate path of your own.
Expectations.��Consult a measure of stock market valuation, such as Yale University professor Robert Shiller���s��CAPE Ratio, and you���ll find what looks like an alarming picture. According to the CAPE, the U.S. market is more overpriced today than it���s been at any point since the peak in 2000. It���s even higher than it was in 1929. But what does that mean for the future? Is the market headed for a significant correction? Should you be alarmed? That���s one view.
Another is to acknowledge that the market always has ups and downs and may indeed drop from today���s level. But unless you know when it will drop, when it will hit bottom and when it will recover, there isn���t a lot you can do about it. That���s the alternate view.
Between these two extremes, though, is another possibility. As Jonathan Clements described in a��blog post��back in September, the market doesn���t need to drop for its valuation to come back down to a more reasonable level. ���Suppose stocks treaded water at current levels, while corporate earnings climbed 5% a year. Five years later, at year-end 2026, the S&P 500 would be at 18.8 times earnings, below the 19.9 average for the past 50 years.��� In other words, we don't need to see a market crash for valuations to return to normal. We just need the economy to keep growing.
What will actually happen in 2022 and beyond? It���s anyone���s guess. But as Clements���s example illustrates, it doesn���t need to involve an extreme scenario. As a result, a moderate mindset may serve you well.
Adam M. Grossman��is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on Twitter @AdamMGrossman��and check out his earlier articles.The post A Modest Proposal appeared first on HumbleDollar.
January 1, 2022
December’s Hits
AMID THE HOLIDAY shopping, readers were still thinking about their financial future. What articles caught their attention? Here are December's seven most popular:
"Working out regularly increases our odds of living longer and having quality golden years," notes James Kerr. "What good is retiring early with a couple of million if we don���t have the health to enjoy it?"
"Chances are high that many investors are overly protective of themselves," contends Charley Ellis. "They are paying too high a price to feel secure���free from worries about market fluctuations."
Socialize. Stay active. Remain productive. Keep learning. Break routines. Mike Zaccardi details the key lessons he learned from spending a year in semi-retirement���at age 34.
"Most people could use a reality check on their retirement expectations," argues Dick Quinn. "Let���s face it: 25 to 30 years is a long time to live on someone else's assumptions."
"If you���re working with a financial planner and she says your probability of success is 50%, don���t panic," writes Rick Connor.��"It���s likely not a bad starting point as you approach retirement."
If you're leaving your job and your employer offers COBRA coverage, you can turn that to your advantage. How? Logan Murray read the fine print���and saved himself almost $1,000.
Does a degree from an elite college ensure career ? The evidence suggests experience and talent count for far more, says Tony Isola.
Among blog posts, the best read were Dick Quinn on living simply, Don Southworth on a Santa Claus rally, Dennis Friedman on enjoying retirement, John Yeigh on Roth IRAs for kids, Andrew Forsythe on the investing life, Dennis Friedman on investment courage, Rick Connor on measuring inflation��and Bill Ehart on car buying.
What about our weekly newsletters? The most popular were The Bogle Method and Mix and Match. Meanwhile, among Voices questions, the two that intrigued readers the most were about generating retirement income and defining enough.
"Working out regularly increases our odds of living longer and having quality golden years," notes James Kerr. "What good is retiring early with a couple of million if we don���t have the health to enjoy it?"
"Chances are high that many investors are overly protective of themselves," contends Charley Ellis. "They are paying too high a price to feel secure���free from worries about market fluctuations."
Socialize. Stay active. Remain productive. Keep learning. Break routines. Mike Zaccardi details the key lessons he learned from spending a year in semi-retirement���at age 34.
"Most people could use a reality check on their retirement expectations," argues Dick Quinn. "Let���s face it: 25 to 30 years is a long time to live on someone else's assumptions."
"If you���re working with a financial planner and she says your probability of success is 50%, don���t panic," writes Rick Connor.��"It���s likely not a bad starting point as you approach retirement."
If you're leaving your job and your employer offers COBRA coverage, you can turn that to your advantage. How? Logan Murray read the fine print���and saved himself almost $1,000.
Does a degree from an elite college ensure career ? The evidence suggests experience and talent count for far more, says Tony Isola.
Among blog posts, the best read were Dick Quinn on living simply, Don Southworth on a Santa Claus rally, Dennis Friedman on enjoying retirement, John Yeigh on Roth IRAs for kids, Andrew Forsythe on the investing life, Dennis Friedman on investment courage, Rick Connor on measuring inflation��and Bill Ehart on car buying.
What about our weekly newsletters? The most popular were The Bogle Method and Mix and Match. Meanwhile, among Voices questions, the two that intrigued readers the most were about generating retirement income and defining enough.
The post December’s Hits appeared first on HumbleDollar.
Crocs and Cats
THERE���S A PARABLE that I don���t claim to have authored, but which I think about at the beginning of each year.
A man became justifiably upset when he realized his home had been invaded by crocodiles. He wasn���t sure where they came from, but they were there, lurking and menacing him.
He went to a local store to ask for a solution. The salesman enthusiastically proffered his answer: kittens. Kittens are cute, their purr is soothing and, best of all, the store had a lot of them. The man bought some and took them home.
When he saw a crocodile, the man grabbed a kitten or two and stroked them. They were cuddly, but they didn���t help. The man could still see crocodiles move in the shadows. He could hear them hiss. Even when he didn���t see or hear them, he worried about accidentally stepping on one. The croc���s numbers seemed to be growing.
He went back to the store, but the salesman just said the man didn���t have enough kittens to get his mind off the crocs. Many successful people, the salesman added, have lots of kittens, so the man bought more.
The cycle kept going���more crocs, more kittens���until one day the man realized he didn���t have enough money or room for yet more kittens. As he sat desperately wondering what to do, a croc slid right up to his feet and offered a menacing smile. The man, exasperated and full of frustration, jumped up, grabbed the crocodile by the tail and hurled it out the window. The croc disappeared from his life.
Inspired, the man then went to each crocodile in his home and threw them out. Some were out in the open and easily found. Some were hidden and had to be rooted out. Eventually, though, the man freed his house and his life of crocodiles.
He was content for the first time in a long time. He didn���t have to avoid places in his home. He felt like a worrisome burden had been lifted. He did still have to figure out how to feed and care for all the kittens, though.
I wish you a great 2022���and I hope you take time to address the crocodiles in your life before you buy too many kittens.
A man became justifiably upset when he realized his home had been invaded by crocodiles. He wasn���t sure where they came from, but they were there, lurking and menacing him.
He went to a local store to ask for a solution. The salesman enthusiastically proffered his answer: kittens. Kittens are cute, their purr is soothing and, best of all, the store had a lot of them. The man bought some and took them home.
When he saw a crocodile, the man grabbed a kitten or two and stroked them. They were cuddly, but they didn���t help. The man could still see crocodiles move in the shadows. He could hear them hiss. Even when he didn���t see or hear them, he worried about accidentally stepping on one. The croc���s numbers seemed to be growing.
He went back to the store, but the salesman just said the man didn���t have enough kittens to get his mind off the crocs. Many successful people, the salesman added, have lots of kittens, so the man bought more.
The cycle kept going���more crocs, more kittens���until one day the man realized he didn���t have enough money or room for yet more kittens. As he sat desperately wondering what to do, a croc slid right up to his feet and offered a menacing smile. The man, exasperated and full of frustration, jumped up, grabbed the crocodile by the tail and hurled it out the window. The croc disappeared from his life.
Inspired, the man then went to each crocodile in his home and threw them out. Some were out in the open and easily found. Some were hidden and had to be rooted out. Eventually, though, the man freed his house and his life of crocodiles.
He was content for the first time in a long time. He didn���t have to avoid places in his home. He felt like a worrisome burden had been lifted. He did still have to figure out how to feed and care for all the kittens, though.
I wish you a great 2022���and I hope you take time to address the crocodiles in your life before you buy too many kittens.
The post Crocs and Cats appeared first on HumbleDollar.
December 31, 2021
New Year’s Tweaks
LET���S NOT CALL THEM resolutions because that imposes a sense of obligation. Rather, think of these as adjustments that could give you���and maybe your kids���a smoother ride in 2022:
Check the beneficiaries on your employer���s retirement plan, IRAs and life insurance policies. Sometimes money winds up with an ex-spouse or maybe a younger child gets left off the list. This is an easy fix���while you���re alive. After that, it���s a mess.
How much do you pay for your investments���in dollars, not percentages? If it isn't clear from your annual statement, why not give the investment company a call? If the answer seems large, ask how it might be reduced. As Vanguard Group founder Jack Bogle liked to say, ���In investing, you get what you don���t pay for������because lower costs leave more money for the investor.
If you have a young adult home for the holidays, one who has a job with a 401(k), ask if he or she knows the match. If that draws a blank, explain that matching contributions are ���free money.��� A third of retirement plan savers miss the��full match���even when they���re automatically enrolled in the plan.
The 401(k) contribution limit is increasing by $1,000 to $20,500 in 2022. If you get a year-end raise or bonus, this could be a great time to boost your contribution rate without feeling any loss in income. The contribution limit is $27,000 if you���re age 50 or older and your plan allows catch-up contributions.
Many experts advise rebalancing back to your target asset allocation once a year or so. This controls your portfolio���s risk level, while pushing you to sell a sliver of your winners and add money to lagging investments. This year, it would likely mean selling stocks to buy bonds. If that sounds terrible, think of it this way: Sell high and buy low. There are no taxes for rebalancing within a 401(k), IRA or other tax-deferred accounts. But in a taxable account, make sure you understand the tax cost before making any investment sales.
Look up the performance of your actively managed mutual funds. If they���ve consistently earned less than their benchmark, maybe it���s time to join the exodus to indexing. Again, there are no taxes owed if you switch funds within a 401(k) or IRA, but you���ll want to know the tax costs before making any changes in your taxable account.
Check the beneficiaries on your employer���s retirement plan, IRAs and life insurance policies. Sometimes money winds up with an ex-spouse or maybe a younger child gets left off the list. This is an easy fix���while you���re alive. After that, it���s a mess.
How much do you pay for your investments���in dollars, not percentages? If it isn't clear from your annual statement, why not give the investment company a call? If the answer seems large, ask how it might be reduced. As Vanguard Group founder Jack Bogle liked to say, ���In investing, you get what you don���t pay for������because lower costs leave more money for the investor.
If you have a young adult home for the holidays, one who has a job with a 401(k), ask if he or she knows the match. If that draws a blank, explain that matching contributions are ���free money.��� A third of retirement plan savers miss the��full match���even when they���re automatically enrolled in the plan.
The 401(k) contribution limit is increasing by $1,000 to $20,500 in 2022. If you get a year-end raise or bonus, this could be a great time to boost your contribution rate without feeling any loss in income. The contribution limit is $27,000 if you���re age 50 or older and your plan allows catch-up contributions.
Many experts advise rebalancing back to your target asset allocation once a year or so. This controls your portfolio���s risk level, while pushing you to sell a sliver of your winners and add money to lagging investments. This year, it would likely mean selling stocks to buy bonds. If that sounds terrible, think of it this way: Sell high and buy low. There are no taxes for rebalancing within a 401(k), IRA or other tax-deferred accounts. But in a taxable account, make sure you understand the tax cost before making any investment sales.
Look up the performance of your actively managed mutual funds. If they���ve consistently earned less than their benchmark, maybe it���s time to join the exodus to indexing. Again, there are no taxes owed if you switch funds within a 401(k) or IRA, but you���ll want to know the tax costs before making any changes in your taxable account.
The post New Year’s Tweaks appeared first on HumbleDollar.
How We’re Doing
WHEN WRITERS SUBMIT their latest article or blog post, I often thank them for ���feeding the beast.��� While tiny by internet standards, HumbleDollar has indeed become something of a beast, larger and more time-consuming than I ever imagined, but also���I like to think���occupying a unique place in the financial world���s ongoing conversation. This, I tell people, is the place where money grows up.
Here���s a look at what happened at HumbleDollar in 2021, as well as a glimpse of what lies ahead in 2022:
Last year, the site garnered 4.4 million pageviews, up from 3.6 million in 2020, 2.6 million in 2019, 1.7 million in 2018 and 900,000 in 2017, which was our first year. Our free weekly newsletter now goes out to more than 16,000 readers, up from 12,000 a year ago, and has an open rate of over 70%, more than triple the average��for business and finance newsletters.
We made five notable website enhancements in 2021. The biggest was the introduction of shorter blog posts in July. These let the site tackle topics that don���t warrant a full-length article, while also allowing the site to be a little nimbler, covering recent developments in the economy and financial markets. The addition of blog posts has meant more editing than I could handle on my own. To help with the crush of copy, Greg Spears���onetime journalist and a longtime Vanguard Group employee until his mid-2020 retirement���has taken on the role of deputy editor.
Earlier in the year, we introduced the Voices section. It���s garnered a healthy number of comments, though not as many as I���d hoped. If you have a few minutes to spare, please check out the 118 questions, and perhaps share your financial wisdom and experiences with your fellow readers. Not sure how to comment? Click here.
What were the three other enhancements? We categorized all articles by financial topic, so readers can more easily find what they���re looking for. We introduced writer���s pages, so you can check out all the articles and blog posts by your favorite author. Finally, we introduced a ticker that scrolls across the top of the homepage. In good HumbleDollar fashion, it focuses on 12 exchange-traded index funds rather than individual stocks, giving you a quick read on what���s happening each trading day in a dozen key market sectors.
Some 50 writers contributed to the site in 2021. Atop the leaderboard sits Adam Grossman, the Cal Ripken of HumbleDollar, who continues to churn out great pieces every week and has now penned more than 200 articles. Dick Quinn and Dennis Friedman come next, with over 100 articles and blog posts each, while Rick Connor, Kristine Hayes, John Lim and Mike Zaccardi are at more than 50, and Jim Wasserman is almost there. Some of these folks work for free, some accept payment. But even the payments are just token amounts���though, bowing to inflation, I���m increasing them in 2022 to $60 per article and $30 per blog post.
Many of the site���s contributors have committed to writing essays for a new book titled My Money Journey: 25 Stories About Striving for Financial Freedom. Each essay will get an initial airing on HumbleDollar. Look for the first one next Saturday. I hope to have the book available for purchase by late November.
As I noted in last year���s report to readers, most online forums are a contentious cesspool, but discussions on HumbleDollar are almost always fairly civil���and I intend to keep them that way. I look at every comment and I occasionally delete one. When do I decide something has crossed the line? In the words of Justice Potter Stewart, ���I know it when I see it,��� though he���of course���was referring to hardcore pornography, not unnecessary internet snark and political buffoonery.
These days, half of HumbleDollar���s revenue comes from donations and half from advertising. Many, many thanks to those readers who support us financially. The revenue we garnered in 2021 just about covered our costs. I���ve been trying to figure out how I can put HumbleDollar on a more solid financial footing, so it could endure without my minimally paid labor.
Early in 2021, I explored turning HumbleDollar into a nonprofit, but soon realized that I had no appetite���and not nearly enough spare time���for the fundraising and administrative work that would be involved. As an alternative, I���ve been pondering whether HumbleDollar could partner with a larger website, which could then drive enough traffic in our direction to make the site a viable business. But that���s tricky.
As things stand, we eschew many of the revenue ���opportunities��� exploited by other financial sites, including sponsored articles, sponsored links and affiliate marketing relationships. But if we���re to survive long term, we may need to bend a little. I���ll keep you posted.
Latest Posts
HERE ARE THE SIX other articles published by HumbleDollar this week:
"It���s a mistake to judge the quality of a decision solely by its outcome," argues Adam Grossman. "Bad decisions can have good outcomes simply because of good luck."
Never book a trip with connecting flights. Find a smaller airport near your destination.��Don���t stop at the first restroom you see after deplaning. Plus six other tips from airline pilot Tom Kubik.
"If investors have come to associate quantitative easing with higher stock prices, won���t they view the absence of QE as the death knell for stocks?" asks John Lim. "We���re now learning the answer."
Can't find what you want because of supply chain disruptions? Jim Wasserman offers three strategies. The key: Look for ways to expand your choices.
"What bugs me more than the minor physical decline is the vibe I get from others," writes Dick Quinn. "I can tell from the way they talk to me and offer to help that they���re thinking 'senior citizen'."
James McGlynn had a choice: Receive a small pension or get a lump sum. Here's why he opted for the lump sum���and what happened next.
Also be sure to check out the past week's��blog posts, including Kristine Hayes on how her��salary��stacks up, Dennis Friedman on buying a car, Mike Zaccardi on overpriced funds, John Lim on the year that will be and Don Southworth on living with uncertainty, as well as our list of the most popular articles from the past five years.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.
Here���s a look at what happened at HumbleDollar in 2021, as well as a glimpse of what lies ahead in 2022:
Last year, the site garnered 4.4 million pageviews, up from 3.6 million in 2020, 2.6 million in 2019, 1.7 million in 2018 and 900,000 in 2017, which was our first year. Our free weekly newsletter now goes out to more than 16,000 readers, up from 12,000 a year ago, and has an open rate of over 70%, more than triple the average��for business and finance newsletters.
We made five notable website enhancements in 2021. The biggest was the introduction of shorter blog posts in July. These let the site tackle topics that don���t warrant a full-length article, while also allowing the site to be a little nimbler, covering recent developments in the economy and financial markets. The addition of blog posts has meant more editing than I could handle on my own. To help with the crush of copy, Greg Spears���onetime journalist and a longtime Vanguard Group employee until his mid-2020 retirement���has taken on the role of deputy editor.
Earlier in the year, we introduced the Voices section. It���s garnered a healthy number of comments, though not as many as I���d hoped. If you have a few minutes to spare, please check out the 118 questions, and perhaps share your financial wisdom and experiences with your fellow readers. Not sure how to comment? Click here.
What were the three other enhancements? We categorized all articles by financial topic, so readers can more easily find what they���re looking for. We introduced writer���s pages, so you can check out all the articles and blog posts by your favorite author. Finally, we introduced a ticker that scrolls across the top of the homepage. In good HumbleDollar fashion, it focuses on 12 exchange-traded index funds rather than individual stocks, giving you a quick read on what���s happening each trading day in a dozen key market sectors.
Some 50 writers contributed to the site in 2021. Atop the leaderboard sits Adam Grossman, the Cal Ripken of HumbleDollar, who continues to churn out great pieces every week and has now penned more than 200 articles. Dick Quinn and Dennis Friedman come next, with over 100 articles and blog posts each, while Rick Connor, Kristine Hayes, John Lim and Mike Zaccardi are at more than 50, and Jim Wasserman is almost there. Some of these folks work for free, some accept payment. But even the payments are just token amounts���though, bowing to inflation, I���m increasing them in 2022 to $60 per article and $30 per blog post.
Many of the site���s contributors have committed to writing essays for a new book titled My Money Journey: 25 Stories About Striving for Financial Freedom. Each essay will get an initial airing on HumbleDollar. Look for the first one next Saturday. I hope to have the book available for purchase by late November.
As I noted in last year���s report to readers, most online forums are a contentious cesspool, but discussions on HumbleDollar are almost always fairly civil���and I intend to keep them that way. I look at every comment and I occasionally delete one. When do I decide something has crossed the line? In the words of Justice Potter Stewart, ���I know it when I see it,��� though he���of course���was referring to hardcore pornography, not unnecessary internet snark and political buffoonery.
These days, half of HumbleDollar���s revenue comes from donations and half from advertising. Many, many thanks to those readers who support us financially. The revenue we garnered in 2021 just about covered our costs. I���ve been trying to figure out how I can put HumbleDollar on a more solid financial footing, so it could endure without my minimally paid labor.
Early in 2021, I explored turning HumbleDollar into a nonprofit, but soon realized that I had no appetite���and not nearly enough spare time���for the fundraising and administrative work that would be involved. As an alternative, I���ve been pondering whether HumbleDollar could partner with a larger website, which could then drive enough traffic in our direction to make the site a viable business. But that���s tricky.
As things stand, we eschew many of the revenue ���opportunities��� exploited by other financial sites, including sponsored articles, sponsored links and affiliate marketing relationships. But if we���re to survive long term, we may need to bend a little. I���ll keep you posted.
Latest Posts
HERE ARE THE SIX other articles published by HumbleDollar this week:
"It���s a mistake to judge the quality of a decision solely by its outcome," argues Adam Grossman. "Bad decisions can have good outcomes simply because of good luck."
Never book a trip with connecting flights. Find a smaller airport near your destination.��Don���t stop at the first restroom you see after deplaning. Plus six other tips from airline pilot Tom Kubik.
"If investors have come to associate quantitative easing with higher stock prices, won���t they view the absence of QE as the death knell for stocks?" asks John Lim. "We���re now learning the answer."
Can't find what you want because of supply chain disruptions? Jim Wasserman offers three strategies. The key: Look for ways to expand your choices.
"What bugs me more than the minor physical decline is the vibe I get from others," writes Dick Quinn. "I can tell from the way they talk to me and offer to help that they���re thinking 'senior citizen'."
James McGlynn had a choice: Receive a small pension or get a lump sum. Here's why he opted for the lump sum���and what happened next.
Also be sure to check out the past week's��blog posts, including Kristine Hayes on how her��salary��stacks up, Dennis Friedman on buying a car, Mike Zaccardi on overpriced funds, John Lim on the year that will be and Don Southworth on living with uncertainty, as well as our list of the most popular articles from the past five years.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.The post How We’re Doing appeared first on HumbleDollar.
Lump It or Leave It?
AS THEY APPROACH retirement age, workers sometimes get to choose between a monthly pension and a lump-sum payout. It���s a choice I recently made���one I researched carefully. In the end, I made an unusual decision that took a few extra steps.
Let me start at the beginning. In 1984, I began working for American National Insurance Company as an investment analyst. I left the company in 1991, but still qualified for a small pension. Now, at age 62, I was offered three choices. I could receive a monthly pension of approximately $300 starting at 65, or I could take the pension earlier and receive a smaller monthly benefit, or I could take a lump sum of nearly $50,000.
To start, I wanted to know if one offer was considerably more valuable than the others. To compare, I went to a website that provides��quotes for immediate annuities. It turns out my company pension would pay more each month than an immediate annuity I could buy for $50,000, but not a lot more.
Still, having an additional stream of monthly income sounded appealing. But there were other considerations. I���m already getting a larger monthly pension payment from another insurance company���Union Central, now part of Ameritas Life���where I worked from 1999 to 2015.
I also plan to take Social Security at age 70, which will give me a healthy stream of inflation-indexed income. Finally, I���ve purchased three deferred-income annuities that will begin paying me income starting at ages 76, 80 and 85, respectively. Should I live until 85, I���ll be receiving guaranteed income from five different sources.
Viewed from this perspective, another payment of less than $300 a month started to seem less significant. Besides, my old employer had announced it'll be acquired by another company. I didn���t want to monitor a small pension from a company that wasn���t my prior employer.
That���s when I decided to take the lump-sum payment. My planning, however, wasn���t done. Instead of receiving the lump sum directly, I opted to have my old employer deposit a tax-deferred payment into my IRA. Why? I wanted to convert that money to a Roth IRA while I still had time to avoid a potential extra expense.
What extra expense? Like most retirees, I���ll be eligible for Medicare at age 65, which is just over two years away. Medicare Part B and Part D premiums are higher if you have a high taxable income. But Medicare���s income lookback period is two years, which meant that I could convert the $50,000 to a Roth IRA without facing higher Medicare premiums���but only if I was quick about it and did the conversion this year.
There was one further wrinkle. The stock market had recently declined, so I converted $50,000 and immediately put the money in stocks. If the stocks rebound, the gains will be tax-free. How will I pay the tax owed on the Roth conversion? I realized a hefty long-term capital gain. I���ll use that money to pay the conversion tax bill.
James McGlynn, CFA, RICP, is chief executive of
Next Quarter Century LLC
��in Fort Worth, Texas, a firm focused on helping clients make smarter decisions about long-term-care insurance, Social Security and other retirement planning issues. He was a mutual fund manager for 30 years. James is the author of��
Retirement Planning Tips for Baby Boomers
. Check out his earlier articles.
Let me start at the beginning. In 1984, I began working for American National Insurance Company as an investment analyst. I left the company in 1991, but still qualified for a small pension. Now, at age 62, I was offered three choices. I could receive a monthly pension of approximately $300 starting at 65, or I could take the pension earlier and receive a smaller monthly benefit, or I could take a lump sum of nearly $50,000.
To start, I wanted to know if one offer was considerably more valuable than the others. To compare, I went to a website that provides��quotes for immediate annuities. It turns out my company pension would pay more each month than an immediate annuity I could buy for $50,000, but not a lot more.
Still, having an additional stream of monthly income sounded appealing. But there were other considerations. I���m already getting a larger monthly pension payment from another insurance company���Union Central, now part of Ameritas Life���where I worked from 1999 to 2015.
I also plan to take Social Security at age 70, which will give me a healthy stream of inflation-indexed income. Finally, I���ve purchased three deferred-income annuities that will begin paying me income starting at ages 76, 80 and 85, respectively. Should I live until 85, I���ll be receiving guaranteed income from five different sources.
Viewed from this perspective, another payment of less than $300 a month started to seem less significant. Besides, my old employer had announced it'll be acquired by another company. I didn���t want to monitor a small pension from a company that wasn���t my prior employer.
That���s when I decided to take the lump-sum payment. My planning, however, wasn���t done. Instead of receiving the lump sum directly, I opted to have my old employer deposit a tax-deferred payment into my IRA. Why? I wanted to convert that money to a Roth IRA while I still had time to avoid a potential extra expense.
What extra expense? Like most retirees, I���ll be eligible for Medicare at age 65, which is just over two years away. Medicare Part B and Part D premiums are higher if you have a high taxable income. But Medicare���s income lookback period is two years, which meant that I could convert the $50,000 to a Roth IRA without facing higher Medicare premiums���but only if I was quick about it and did the conversion this year.
There was one further wrinkle. The stock market had recently declined, so I converted $50,000 and immediately put the money in stocks. If the stocks rebound, the gains will be tax-free. How will I pay the tax owed on the Roth conversion? I realized a hefty long-term capital gain. I���ll use that money to pay the conversion tax bill.
James McGlynn, CFA, RICP, is chief executive of
Next Quarter Century LLC
��in Fort Worth, Texas, a firm focused on helping clients make smarter decisions about long-term-care insurance, Social Security and other retirement planning issues. He was a mutual fund manager for 30 years. James is the author of��
Retirement Planning Tips for Baby Boomers
. Check out his earlier articles.The post Lump It or Leave It? appeared first on HumbleDollar.
December 30, 2021
Back to the Future
AS 2031 WINDS DOWN, it���s time to look back at the major investment stories and themes that characterized the year and to look ahead to 2032.
Stocks had another banner year in 2031. Emerging markets led the way yet again, with the MSCI Emerging Markets index soaring 31%. This is the fourth year in a row that emerging markets were the top performer. Since 2022, emerging markets have returned 25% a year for more than a seven-fold gain.
Brett Trendy, director of global equity strategies at Milkem Stanley, expects more of the same: ���Emerging markets have truly emerged. Favorable demographics, clean sovereign balance sheets and higher GDP growth are all tailwinds that will power emerging markets higher. Stellar returns over the past several years have proven that emerging markets stocks are far less risky than previously thought. Count me a bull.���
Stocks in Europe, Japan and Australia also had a strong year. The MSCI Europe, Australasia and Far East (EAFE) index rose 28% in 2031. International developed market stocks have, as a group, trounced the U.S. over the past decade, with the MSCI EAFE index rising 22% a year since 2022, while U.S. stocks have gone nowhere.
���International stocks are really where the action is,��� says Elaine Late, a financial advisor with Global Macro Strategy Partners. ���Last year, we moved our clients out of U.S. stocks and into international and emerging markets for the first time in years. Their patience with U.S. markets has grown thin, as has our own."
After a lost decade for U.S. stocks, a growing stampede of investors have abandoned U.S. shares. Outflows from U.S. stock funds reached record levels in 2031, with average outflows of $20 billion per month, according to Chicago investment researchers Morningstar.
But one corner of the U.S. market has seen impressive inflows recently: U.S. large-cap value shares. No wonder. Funds specializing in U.S. value have outpaced their growth peers by huge margins over the past 10 years, to the tune of 7.8 percentage points per year.
But the really big news in the world of value investing was that Katie Forest, a onetime growth-stock wunderkind, opened a new investment shop geared toward value investing. Her major holdings? Wells Fargo, Berkshire Hathaway and TotalEnergies. When asked to explain, she gushed enthusiastically, ���It all boils down to a four-letter word: moat. These companies have it in spades. They simply cannot be disrupted.���
The other big story of 2031 was the buyout of struggling online commerce firm Amazon.com by the global behemoth Alibaba. The price tag was a cool $800 billion in an all-stock offer. Investors responded by pushing Alibaba stock to new highs, closing the year at $1,022 a share.
On the final trading day of 2031, the S&P 500 finished slightly higher at 4,625 and the Nasdaq closed down at 12,332. The 10-year Treasury note ended the year yielding 5.6%. Gold was unchanged at $2,932 an ounce.
Stocks had another banner year in 2031. Emerging markets led the way yet again, with the MSCI Emerging Markets index soaring 31%. This is the fourth year in a row that emerging markets were the top performer. Since 2022, emerging markets have returned 25% a year for more than a seven-fold gain.
Brett Trendy, director of global equity strategies at Milkem Stanley, expects more of the same: ���Emerging markets have truly emerged. Favorable demographics, clean sovereign balance sheets and higher GDP growth are all tailwinds that will power emerging markets higher. Stellar returns over the past several years have proven that emerging markets stocks are far less risky than previously thought. Count me a bull.���
Stocks in Europe, Japan and Australia also had a strong year. The MSCI Europe, Australasia and Far East (EAFE) index rose 28% in 2031. International developed market stocks have, as a group, trounced the U.S. over the past decade, with the MSCI EAFE index rising 22% a year since 2022, while U.S. stocks have gone nowhere.
���International stocks are really where the action is,��� says Elaine Late, a financial advisor with Global Macro Strategy Partners. ���Last year, we moved our clients out of U.S. stocks and into international and emerging markets for the first time in years. Their patience with U.S. markets has grown thin, as has our own."
After a lost decade for U.S. stocks, a growing stampede of investors have abandoned U.S. shares. Outflows from U.S. stock funds reached record levels in 2031, with average outflows of $20 billion per month, according to Chicago investment researchers Morningstar.
But one corner of the U.S. market has seen impressive inflows recently: U.S. large-cap value shares. No wonder. Funds specializing in U.S. value have outpaced their growth peers by huge margins over the past 10 years, to the tune of 7.8 percentage points per year.
But the really big news in the world of value investing was that Katie Forest, a onetime growth-stock wunderkind, opened a new investment shop geared toward value investing. Her major holdings? Wells Fargo, Berkshire Hathaway and TotalEnergies. When asked to explain, she gushed enthusiastically, ���It all boils down to a four-letter word: moat. These companies have it in spades. They simply cannot be disrupted.���
The other big story of 2031 was the buyout of struggling online commerce firm Amazon.com by the global behemoth Alibaba. The price tag was a cool $800 billion in an all-stock offer. Investors responded by pushing Alibaba stock to new highs, closing the year at $1,022 a share.
On the final trading day of 2031, the S&P 500 finished slightly higher at 4,625 and the Nasdaq closed down at 12,332. The 10-year Treasury note ended the year yielding 5.6%. Gold was unchanged at $2,932 an ounce.
The post Back to the Future appeared first on HumbleDollar.
