What does the the second half of 2017 look like for investors?

There’s much to unsettle us these days in economics, politics, society, and international affairs.  North Korea is up there near the top of the list for many.  Slow economic growth with sticky wage appreciation for others.  Changing societal mores and values for others. But this morning’s Wall St Journal had some words that might be worth reading.

As I again and again point out: focus on the long term, not the next month.  And for the long-term, retirement investor, 2017 has been surprisingly good. So far, at least.

What’s that mean for the rest of the year? Let alone for the next five or ten years? Don’t know, of course.  But listen to what Ryan Detrick told the WSJ this morning:

The S&P 500 has climbed in each of the first six months of this year, a feat not accomplished for more than two decades, according to Ryan Detrick, a senior market strategist at LPL Financial. History is no guarantee, of course, but the last two times the S&P jumped every month in the first half of the year, in 1996 and 1995, the index went on to gain at least 12% in the last six months.

Seasonality also favors additional gains in the final six months of 2017. The S&P 500 ended the first half of the year with 8.2% price advance. Mr. Detrick notes that since 1950 the second half of the year has averaged an advance of 7.1% when the first six months see gains in excess of 8%. That’s well above the 4.5% average. More to the point, strong first half of the year has led to gains to close out the year 84% of all years when the S&P 500 has risen more than 8% from January through June.

“Strength usually begets strength, and we believe a large second-half pullback is unlikely,” Mr. Detrick says.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, stock rallies, Successful living | Leave a comment

Good advice and perspective

I try to share a sane perspective with my readers.  There are others out there worth listening to. Here’s one of them: Barry Ritholz in an interview with Vanguard.


From millennials to retirees, investment pro Barry Ritholtz offers deep insights

June 06, 2017-

Barry RitholtzThrough his columns, blogs, and podcasts, the prolific Barry Ritholtz has the attention of thousands of investors and access to some of the most notable names in business and finance.

The co-founder and chief investment officer of Ritholtz Wealth Management, a financial planning and asset management firm, Ritholtz is a columnist for Bloomberg and The Washington Post, hosts Bloomberg’s Masters in Business Podcast, and blogs daily at The Big Picture. He’s also the author of the 2009 book Bailout Nation.

In a recent interview with Vanguard, Ritholtz offered his thoughts on everything from uncertainty about the markets to the biggest worry for retirees to his best advice for millennials.

In a world beset by uncertainty, how do we cope? How do we help ourselves sleep at night?

I love this question, because it’s so important. First, you’re right, the world is beset by terrible uncertainty today. However, it always has been and always will be that way. That’s the default setting. You have to start at that point—start by recognizing that simple truth, which can be very humbling.

Given this uncertainty, what do we tell ourselves, to allow us to sleep at night? Well, there are a few things. First, we really need to understand what is and is not within our control. Stressing out about the things that are out of our control is a total waste of time, effort, and energy. Its psychologically debilitating, and is not how we should be using our finite amount of intellectual capacity and brain power. So, look, we can’t control if it’s going to rain tomorrow, but we can get up each morning, check the weather report, and decide whether to take an umbrella or not. That’s a better approach than stressing about the weather. It’s a simple form of risk management.

The questions we hear all the time goes back to that uncertainty issue: What’s the Federal Reserve going to do? How many rate hikes this year? Where’s the Dow going to be in 12 months? What’s your favorite stock pick?

All those questions are things that you as an investor simply are not going to be able to answer with any degree of accuracy—it’s really a crapshoot. And so, rather than guessing, wasting a whole lot of psychological emotion and energy on it, why not just recognize—and, again, it’s with great humility—recognize what we do know and what we can’t know—and try to adjust accordingly. This leads quite naturally to a portfolio that is balanced and robust enough to withstand the regular market turmoil.

Over the past 20 years, how many market booms and busts have we seen? There was the dot-com boom and bust; the 2008–2009 financial crisis. There have been several 20% pullbacks over the past few years. That is simply the normal state of affairs for U.S. markets. Investors must understand that volatility is part of investing; if you learn that truth about markets, it won’t surprise you when it finally arrives and it shouldn’t disrupt your sleep too much.

What’s the biggest worry for people near retirement or in retirement?

The biggest issue we hear from clients the past few years is a concern with outliving their money. By the time many of our clients retire—we have a huge age range among clients but I would guess the median is mid-50s—by the time these folks retire, human life spans will be closer to 90 than to 70. People have to plan for much longer retirements. Some folks are having trouble wrapping their heads around it, but that’s the overall trend.

What’s a potential answer? Although the traditional 60/40 portfolio is lagging somewhat because of the ultra-low-rate environment we’ve been in for the past decade, maintaining a fairly robust equity exposure that is global and intelligent in its construction really seems to be the best choice for most people. A conservative 50/50 model when you retire no longer makes a lot of sense.

We’ve seen active managers face a lot of questions and challenges in recent years. How do you think active management is going to evolve?

In any one year, 30%, 40%, even 50% of managers might beat their benchmark, but doing so consistently over time has proved quite elusive. That said, some people have demonstrated an ability, which is obvious after the fact, to select stocks or sectors or asset classes that have outperformed their benchmark.

If people want to take a percentage of their portfolio and put it in some form of active management, we don’t tell them that’s the worst idea, but we do want people to recognize the uphill challenge. Active managers tend to have much higher fees than you’d find with passively managed index funds. Be aware of the effect of fees, and the drag they put on returns.

I think the entire active space wildly overexpanded in the postwar period. They pay big salaries, charge big fees, attract a lot of the best and brightest, and suddenly it’s really hard to beat the market because 10,000 other people are doing exactly what you’re doing. There just isn’t that much outperformance to go around.

Bottom line, the shift to indexing is far from over, but I also don’t think active management is going away.

What’s your best advice for a millennial who is just starting out as an investor?

You have a time horizon of 40 to 50 years before you’re going to draw that money down. I would say start investing early, with a heavy emphasis on equities. Root for a market crash, which will let you buy stocks at a 30% or better discount. The reason people have a 60/40 or a 70/30 mix of stocks and bonds is that the bonds offset the volatility of the stocks. As you get closer and closer to retirement, you want to see less and less volatility.

Young investors don’t really need much of a bond portfolio. They should look at it as something that they’re not going to touch for decades. The ups and downs should be irrelevant. Don’t be afraid of crashes. When you’re young, they’re your best friend because they allow you to buy at sales prices. Learn to embrace volatility.

Stocks can be highly volatile and some investors wonder why they should take the risk. In your view, what makes stocks a good long-term investment?

Essentially, you’re betting on human ingenuity. Stop and think about how humans progress and how technology and societies move forward. One of the main purposes of Wall Street is to bring together the people who create new inventions and have new ideas with the people who have the capital. The stock market is essentially the place where ideas get funded, and those ideas subsequently change the world.

When you think about the standard of living that has consistently risen over the past century and a half, that typically takes place because some idea is funded and that funded idea becomes a company, and that company continues accessing the capital markets to grow. Its how prices for food and manufactured goods have fallen so significantly over the past century. And the pace of this is accelerating.

The stock market reflects all of the various growth engines of the economy of the country and of the world, and it’s most likely to generate the highest return relative to the risk investors assume over the course of their lifetime.

We live in an age of wonders. I love the idea that capital plus invention equals a raised standard of living with a side dish of dividends and economic growth.

When it comes to investing, most of us are naturally focused on getting the highest returns, but what do you think is really important?

You know, a lot of this goes back to the question: “What is money?” And I think a lot of people really misunderstand that very basic, very simple question. I look at money as a tool. Money exists; people accumulate money or work for money in order to exchange it for certain goods and services. Included in the list of goods and services are things like health care, security, education, experiences, etc. And so to just pursue returns for their own sake, while it’s fun and exciting and certainly entertaining for the people who engage in that, the question is what purpose does that serve for the average investor? And at what cost?

In the pursuit of outperformance, the typical investor underperforms. It seems like a kind of wasted effort with real negative ramifications for most people.

Putting returns aside for a moment, the reality is that most people need to start saving more. And depending on your situation, you may have to ratchet down your expectations of where you’re going to be at the end of a 20-year period.

But again, the relentless pursuit of outperformance, as we’ve seen in so many studies, as so much academic data has shown us, typically generates less returns than merely accepting the overall average market returns.


Posted in fear, fees, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, stock rallies, Successful living | Leave a comment

The equity markets keep churning higher in spite of…..

Here’s a partial list, for the faint of heart, of the worries and concerns that have beset individual investors over the last nine years.


Every one of these things were billed by the financial news guys on cable television as “the beginning of the end of the world.”

But we’re still here, and equities are still inching upward.  Will they always?

No, there will be a correction – even corrections.  But the end of the world is a counter-productive idea to invest in.  It’s like living, when there’s nothing wrong with me, as if I will die this week.  And living that way every week. Of course, it’s possible that I will die this week. But living with such negativity, when there is no overt reason for it, is an awful way to live.

And it’s an awful way to invest, too.

Investing that way is like those who think like the chart below.

Think about it.

Have a good summer.  Enjoy the gifts you have been given.  Live with gratitude and hope.  Be a blessing to someone today and every day.

God bless you, my friend.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, stock rallies, Successful living, The Great Recession | Leave a comment

Some charts to tell us where we are – or may be – in the investment cycle.

I read often these days that the market for us long term,, retirement investors is about to roll over and die, taking much of our gains with it?

Is that true?

I don’t think so, but then I don’t really know. I do know that the market seems to have a sufficient amount of worry to move higher on the ever-important wall of worry.  The scariest times, remember, are those when everyone, including the baggers at the grocery store and the guys in auto repair, are in the market and tallying up their gains.  That’s a moment when we should all run for the exits.

But that ain’t now.

Let’s look at a few charts to help us understand where we may be.

First, take a look at the indebtedness of individuals, an important index of people’s abilities to buy or manage things other than pay down debt.

That chart shows a lot of health of households, or at least management of their debt loads.  I wish I could say the same for the corporate sector and government, even if both of them make up, together, only about 30% of the economy.

Here’s a peek at the rising corporate debt loads.  Perhaps rising as steeply as it is because companies are loading up on debt while rates are still low. And borrowing is a lot less expensive than issuing new stock.

Then there’s government’s debt load, which is a problem even if, overall, government is maybe only 15% of the economy. I don’t have a very current chart for government, but suffice it to say, government’s debt load – state and federal – are not on diets. Here’s one image, a bit dated to help us see the magnitude of the debt load of the federal government.  I could understand the explosion in government debt to fight WWII, but more recent increases are to support a larger and larger welfare state.  What would we do if and when a real crisis comes along again?

Image result for image, chart of government debt

Next, I’ve used this one before to help us gauge the likelihood of the next recession, an event that typically tears stock markets up – and retirement savings.  The fact that the market has generally risen since March of 2009 is enough for some people today to say that its due for a fall.  I’d rather look at the data, and the data are not that encouraging to those who think our markets are about to tumble or are “cruising’ for a bruisin'”.  Here’s data from the St. Louis Federal Reserve, which I hope would lead a sensible investor to conclude that this bull market is still in place:

Then, take a look at Doug Short’s four key indicators of the likelihood of a recession coming down the tracks.  Right now, not one of his indicators in pointing in the wrong direction.  But a few months ago, some were – at least for a while.

So, in spite of the terrorist threats ranging around the world, and in spite of our government’s being tied up in knots, the business and investing worlds see opportunity and a lack of hostility from the government right now.

Things could be a lot worse.

God bless you.


Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, news biases, Personal Finance, retirement investing, saving, stock rallies, Successful living | Leave a comment

How are the experts doing in their predictions?

Check this chart out, my friends:

If you carefully read the headline information, you probably see why I am sending this chart to you.

But just in case you want or need help, the chart tells us the outcomes of investment predictions made by 68 of the best-known investment forecasters.  These advisors’ accuracy is as high as 72% and as low at 17%; or in other words, from getting 7-out-of-10 predictions right to as few as under 2 out of 10.  Many of these people are fixtures on cable, financial news. Most have expensive subscription services you can subscribe to “help” you in your investing. These folks may or may not be accurate, but they are always confident.

Beware of experts.

So many of us are so full of self-doubt when it comes to investing that we turn, in our confusion, to those who seem to know what’s ahead, yours truly included.  But be careful.  No one knows the future, but God.  And He ain’t talking to us about this stuff.

All you need to know are a few basics:

Pursue a broadly-diversified, low-cost, equity-oriented mutual fund or ETF strategy.  Rebalance your holdings at least once a year.  Try not to think too much about this stuff.  And stay away from watching financial news unless you can view it largely as entertainment.

Posted in economic recovery, fear, investment myths, investment wisdom, Personal Finance, retirement investing, saving, stock rallies, Successful living | Leave a comment