Go here to view the Q1, 2022 Market Summary Report. Q1 was a tough one for stocks and bonds; it was a double whammy. If one asset goes down, you’d, of course, like to see the other asset go up to help balance out those paper losses. I write paper losses because it’s only an actual loss if you sell. So, what prompts selling? A change in your investment strategy should be that answer. Has your long-term several decade retirement planning strategy changed because of one bad quarter? I hope not. If it did, then you’re not seeing the forest for the trees. In this quarter’s report on page 16, you’ll find a great article written by Dimensional’s vice president, Weston Wellington, you’ll see his answer to the question of, “Should I be doing something different with my portfolio?” The short answer is, “No,” and the article provides some great research driven data behind why we shouldn’t. So, it was a tough quarter, but tough quarters and even tough years happen, but both are more the exception rather than the rule. So put a sound investing strategy in place, get invested, stay invested, and your future self will thank you. To view this blog as a video go here.
How To Give Your IRA an Earnings Boost
This post (and accompanying video) is about how to give your IRA contributions an earnings boost…and the simple answer is time. Most investors wait until the tax filing deadline to make their IRA contribution, and that contribution is actually for last year’s tax year. At the time of this writing, I have the ability to make my 2021 IRA contribution, but I can also make my 2022 contribution now, as well. So I can actually get my current calendar year’s contribution in more than 15 months before the deadline. For example, 2022’s contribution I have until tax day of ‘23 to make, but I can actually get it in as early as January first of ‘22. Is there an advantage to doing this? There is. Think about it, I can give every single IRA contribution an extra 15 and a half months to compound, that’s an extra 15 and half months to work for me and to make me money. Year over year stock market movements are different, but, by and large, we start in January and get higher by December because more often than not the stock market gives us more years of positive returns than it does of negative returns. If you can afford it, get in the habit of making your IRA contribution as soon as that window opens in January, not when that window is about to close in April. Your future self with thank you for the extra money.
Feb. 24, 2022 Market Update
There’s been a lot of worldwide political uncertainty to the start of 2022. Inflation concerns and possibly upcoming interest rate hikes were top of mind in January, and now we have Russia’s invasion of Ukraine with airstrikes in the capital and other cities.
Uncertainty and geopolitical turmoil can definitely shock stock and bond markets. Today, Feb. 24th we saw the S&P 500 DOWN 2.45% at breakfast and by our midafternoon snack it finished the day UP 1.44% - that’s over a 4% swing in one single day. Markets move quickly to the down- and upside.
As this turmoil relates to your retirement portfolio, what can you do about it?
First, an understanding and an appreciation that we have it pretty good here – we are well insulated on our side of the world, so we’re lucky to not have to face those concerns of being invaded. But as it relates to our retirement portfolio, understand markets move quickly, so stay invested every day – you’re not gonna pick the right time to be in or out. Remember market down moves are temporary, but market up moves are permanent. It just takes time, and if you have a heavy stock exposure already, that means you already knew and understood that time is on your side and you have to be invested for the long-run. Secondly, diversification is - and will always be - your friend. Having exposure to big and small companies in the US, having exposure to established international companies, and incorporating some emerging market and global real estate exposure will help to smooth out the volatility and offer some baked in protection. And then lastly, you look for opportunities to take money from areas that have done really well and shift that into areas that haven’t done so well - this is called rebalancing. Stay with that approach over the long-term - and long-term is several years - and decades and your resolve will be rewarded with a sizeable nest egg to ensure a safe, secure and comfortable retirement. If you’re not comfortable doing this on your own, reach out to me at pen-fin.com.
To watch this blog post as a video go here.
Is your most important retirement asset getting the attention it deserves?
Most likely your 401(k) plan (or a 403(b) plan) is your most important retirement asset. While the equity in one’s home is a big driver for retirement dollars – think downsizing when kids are grown and on their own – a lot of a home’s value just depends on the area where you live and the real estate market there. But your 401(k) plan has soooo much riding on what you do. Are you making the right decisions with it? How much you contribute and how you invest is on you – so you have to get it right because you have one chance at a safe, secure, and comfortable retirement. And a target date fund does not know you: it does not know your level of risk and your comfort with volatility, and it doesn’t know what type of goals and return objectives you are trying to accomplish. One company’s 2050 fund can look a lot different than another company’s 2050 fund, so having me build out an appropriate investment portfolio does a lot better job of targeting your risk / reward profile. And you might not be taking enough risk, either…you could be missing out on hundreds of thousands of dollars or even more money over your working career by not being invested properly right now. If you’re in your 20s, 30s, 40s, or even in your 50s if you plan on working longer, you should have a very healthy stock exposure right now.
A Pensinger Financial 401(k) review will get you a risk tolerance survey report and video analysis; an investment allocation spreadsheet and accompanying video explanation. Plus, if you’re not comfortable making investment changes yourself, we can set up a Zoom screen share and I can walk you through how to make those investment changes.
A review from me, puts your most important retirement asset on a very solid foundation so that you can accomplish your retirement goals.
Q4 2021 Market Summary Report
Q4, 2021 (report here) saw the market make all-time highs. Page 3 shows how major markets performed over Q4, while page 4 shows how those same markets performed for 2021. As I said, in Q4, we made all-time highs, but to start 2022 we’ve pulled off of those highs and have had a bit of a sell-off.
What does the data look like when you invest and put money into the market at all-time highs compared to say now – at the time of this recording – when markets have pulled back a bit? Pages 16 and 17 of the Market Summary Report show us some data to answer that question. I highlighted a couple good points, and the take away is this: whether you invest at all-time highs or when the market has pulled back a bit or significantly, your long-term returns are about the same.
The best day to invest is today because you are taking away money that you might ordinarily spend now AND you’re putting it away for retirement most likely on a tax-advantaged basis. If you are investing in stocks that means you have a long-term outlook, so start investing, stay invested, and don’t worry if you bought in at an all-time high because that does not penalize you.
Thanks for watching, check out pen-fin.com to learn how we can advance your financial future.
Why Diversify?
With the ugly performance of the US stock market since the beginning of October it’s important to remember why we must diversify our retirement portfolios. There’s a world of opportunities in stocks, but only about half of those opportunities are in US companies, so the other half is outside of here in the foreign and emerging markets.
When we diversify (by investing in thousands of big and small companies in the US and abroad) we accomplish two things:
We decrease the likelihood that we’ll have the best or worst performing portfolio. And when it comes to our one shot at planning our retirement, we can’t swing for the fences and come away with either a home run or a strike out.
We reduce and help manage catastrophic losses that can come with investing in one area of the market or investing in just a handful of companies.
For more information, you can check out this article from DFA; I highlighted a couple areas I thought were important to read.