What You Should Know About the Recent Market Drop

This is an excellent article by Larry Swedroe (one of my “very-trusted-advisors) about what has been going on with the market over the past couple of weeks.  Larry discusses many of the factors that are affecting the market today in an easy-to-understand way.

The most interesting point though is his conclusion about what you should do – which is:

“So what should you do about all this information? Assuming you have a well-developed investment plan, you should do nothing, as your plan should have anticipated that environments like this would occur. ”

If you don’t have a plan, I suggest you get one. And then have the wisdom and discipline to stay the course.

As always, I am interested in hearing your thoughts.

Steve

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Most likely, you’ve seen how stocks have been clobbered over the past few days. The S&P 500 index has dropped almost 8 percent since its May 21 close of 1,669, the highest of the year. Bonds haven’t been immune to tough market conditions either, with yields soaring in recent weeks. The 10-year and 30-year Treasury yields ended April at 1.70 percent and 2.88 percent respectively. Yesterday, they closed at 2.57 percent and 3.66 percent, respectively.

However, what you may not have seen are some of the positives we’ve been experiencing lately. My almost 20 years of providing advice to individual investors have taught me that it’s relatively easy to stay the course when things are going well, but we tend to stray from the disciplined and winning strategy of buy, hold and re-balance when things get rough. This is why it’s important to see both sides — the whole picture helps investors to stay the course. Here are some of the positives to keep in mind.

Housing

The housing industry is rapidly improving. Home prices jumped a whopping 12.1 percent in the past year, according to the S&P/Case-Shiller composite index. The supply of homes for sale in most markets is now below normal levels. That’s creating bidding wars in some markets. And even if interest rates were to rise a further 1 percent, they would still be well below historical averages.

Interest rates

…..

read the complete article here: What You Should Know About the Recent Market Drop — Larry Swedroe.

I’m Sorry, But My Long-Term Goals Will Just Have To Wait – Forbes

As markets reach higher highs and the frequency of articles espousing the “end is near” is increasing. There must be a corollary somewhere. Although, during the depths of the recession, I don’t recall seeing too many reporters urging investors to put their cash into the market. It’s kinda funny-but kinda not. The name of the game is to ratchet up the anxiety level wherever possible, and disguise it as news consumers should follow.

The fact is, the market could hit a snag at any time and we could watch the run up of the last several months disappear. However, it bears noting that real investing is not market timing! I wonder how many reporters are timing their 401(k) accounts, moving money in-out-back and forth based on the articles they are writing? I am hearing all too frequently, comments about the market being too high to invest. But if put in proper perspective, what is TOO high? Regardless of down markets and recessions, the markets have never failed to regain their losses and hit higher ground.

Let us look at some basics:

1. All markets (stock, bond, interest rate, foreign, domestic, etc) go up and down. You remember the old saying, “The tree does not grow up to the sky.” In other words, nothing just goes up forever to infinity; not even NYC real estate (oops, did I just say that?).

via I’m Sorry, But My Long-Term Goals Will Just Have To Wait – Forbes.

What’s the Plan?

More planning goes into an average vacation, than for one’s life in retirement. Yes, that’s a pretty bold statement, however, it is unfortunately so. While pre-vacation planning encompasses thinking, budgeting and a lengthy list of executable actions, most people, besides contributing to their company’s 401(k) program do very little real work towards success on what can be a lengthy segment of their life.

Think about it, one’s work life might extend from early to mid-twenties to mid-sixties; around forty years. As our mortality increases, the time in retirement become increasingly longer and rife with challenges and the need for some of that planning. There’s way more pleasure in buying those airline tickets and imagining yourself flying away to some exotic location than there is in trying to map out what is, from every aspect, a mine field of decisions about an uncertain future.

There seems to be very little logic in the energy put into R&R vs. one’s post career years. But if you scrap away some of the indignation, you can see that there’s joy and pleasure in idea of travel, rest, adventure and a respite from work. Retirement for many, on the other hand, is scary and far away into a future that is untouchable. It’s a great unknown of what to do, how much it will cost and sometimes, where to even begin.

via What’s the Plan? | Psychology Today.

What’s the Plan?

More planning goes into an average vacation,, than for one’s life in retirement. Yes, that’s a pretty bold statement, however, it is unfortunately so. While pre-vacation planning encompasses thinking, budgeting and a lengthy list of executable actions, most people, besides contributing to their company’s 401k program do very little real work towards success on what can be a lengthy segment of their life.

Think about it, one’s work life might extend from early to mid-twenties to mid-sixties; around forty years. As our mortality increases, the time in retirement become increasingly longer and rife with challenges and the need for some of that planning. There’s way more pleasure in buying those airline tickets and imagining yourself flying away to some exotic location than there is in trying to map out what is, from every aspect, a mine field of decisions about an uncertain future.

There seems to be very little logic in the energy put into R&R vs. one’s post career years. But if you scrap away some of the indignation, you can see that there’s joy and pleasure in idea of travel, rest, adventure and a respite from work. Retirement for many, on the other hand, is scary and far away into a future that is untouchable. It’s a great unknown of what to do, how much it will cost and sometimes, where to even begin.

via What’s the Plan? | Psychology Today.

Create Your Desired Life

I’m pretty sure at least one person reading this blog has a magnet or card hung at her desk with the words, “What are you going to do with your one precious life?” As far as we know, we only get one go around. So while the question may be overused, what are you going to do with the time you’re given?

I have an existential friend who is trying to convince me that there is no such thing as time. I am not persuaded. All we have is time, and it’s the only thing we can’t get back. You can gain weight and lose weight, make money and lose it, make friends and lose them, but you can never get back your time. So what are you doing with your time?

I had the privilege of being interviewed by Greg Giesen, one of my graduate school professors, about my new book. During the interview Greg asked how I define success. I answered with, “If I am pursuing what’s most important to me, I am successful [living my desired life].” If I’m doing what I think I should be doing or what someone else wants me to do, then I’m living someone else’s life.

A few questions to consider:

What do you love doing most? How often are you doing that?

What’s most important to you in life? Does what’s most important to you make up a majority of where your time and energy goes?

via Create Your Desired Life.

4 Ways to Calculate Your Retirement Number – Yahoo! Finance

When it comes to retirement planning, most of us are consumed by figuring out “the number” – that elusive savings goal we aim to hit by age 65, or there about.

Figuring out how much to save for retirement can be confusing, to say the least. You’ve got to factor in your current income, your retirement lifestyle expectations, inflation, income growth, returns and possible Social Security checks. To complicate matters, different financial planners and accountants recommend different calculations to find “the number.

“Each calculation approach has its own pros and cons, and each will probably lead you to a different retirement goal. It’s up to you to decide which approach or combination of approaches works best for your needs so that you can calculate your own retirement plan.

Keep in mind that there are top-down and bottom-up approaches to retirement goals. The top-down approach attempts to determine how big your nest egg will need to be at retirement, such as 25 times your annual expenses. The bottom-up approach seeks to determine how much you’ll need to save each year to reach your goals, perhaps 15 percent of your salary.

via 4 Ways to Calculate Your Retirement Number – Yahoo! Finance.

Build Trust, Prepare Family for Inheritance

As usual – Rick Kahler has written a great article with some powerful ideas worth thinking about – asking whether or not it is wise to leave your children money.

Steve

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“I’ve never seen money passed from one generation to another in a manner that actually benefited the recipient.” When a psychologist said this to me several years ago, I was dumbfounded.

Many parents scrimp, save, and sacrifice so they can “leave something to the kids” with the intention of doing them good. It’s hard to accept that inheritances may actually do harm instead. Most of us have money scripts that don’t support this idea.

Typically, I used to hold several money scripts around inheritances. One was that leaving money to your children is a loving thing to do. Another was that parents should always leave their money to their children. A third was that anyone who received an inheritance would invest it wisely, using only the earnings to improve their lives.

via Rick Kahler: Build Trust, Prepare Family for Inheritance | Financial Awakenings.