The Biggest Mistake You Can Make
/Top Of Mind...
I saw a news story the other day where supporters of President Trump were hailing him and his policies as the sole reasons for this persistent stock market rally. Ironically though, none of these people interviewed were investing themselves.
This got me thinking... As the U.S. stock market just completed its 4th-straight weekly gain to start the year and its 17th among the past 20 weeks, most of the conversation is about how impressive this market rally has been and how much longer it will continue. For me though, there is a more relevant, tangible conversation that should be happening that supersedes our sentiment on the market...
How you put money to work.
This is the most important thing you can do. It does not just mean buying stocks and bonds. You could invest in real estate. You could pay down interest-bearing debt. You could invest in your skills/education in order to boost your future career earnings potential. You could start a business. There are many ways to effectively use money rather than stockpiling cash or spending it frivolously.
This concept is simple, but gets overlooked if we are consumed by the ebbs and flows of the market or the impact that one, polarizing political figure might have on the economy. As I wrote on this blog pre-election, no one knows how the market will react to uncertain, future events. So there is no point wasting our energy trying to predict as much.
Instead, focus on the biggest known risk: Inflation. It is a fact that the price of goods and services will increase in the long run. Always. Yes, some markets have experienced peaks and valleys, like real estate and stocks did last decade. But both of those have since rebounded and gone on to new highs. Meanwhile, there are other areas where prices have constantly appreciated, recession or not. Here are three I often cite:
Child care -- Because people have not stopped having kids
College tuition -- Because kids have not stopped going to college
Health care -- Because no one has stopped aging
Prices will continue to rise, so how do we at least keep pace with inflation? By putting money to work. Invest in such a way that you outpace inflation. Pay down debt so that you increase your capability to invest. Invest in yourself so that you maximize your single greatest asset for making money... YOU.
It is important to maintain an adequate cash balance. In fact, this is one of the first things we address in financial planning because having cash means not having to take on debt in the event of a budget crunch or emergency. But cash is a little like Vitamin C -- the right dose of it is good for your health, but having more than you need will not make you any healthier.
I would recommend taking a step back and using tax season as a good opportunity to take inventory of how your assets and debts are dispersed. If you feel you are sitting on too much cash, are spending too much or are not investing enough, let's talk. The biggest mistake you can make is failing to put your money to work for your future. Most of us work years and years for money, but shouldn't that money work years and years for us in return?
In The Market...
The S&P 500 gained +2.2% this past week. Here is how the individual sectors performed:
(price data via stockcharts.com)
Another impressive week for the U.S. market. The S&P is now up +7.5% this month, which would be the best January since 1987 provided the bottom does not fall out in the three days remaining. This plays well for those who trust in The January Effect, which is a seasonality-based belief that however January goes, so goes the rest of the year. Historically, The January Effect has been more predictive than not, but the results are not overwhelming. In some ways it is self-fulfilling, given that the odds for the remaining 11 months will slant based on how January performs.
At the sector level this was arguably the best week of the year. Every sector was up more than +1.0%, This was good news for our positions in Financials, Utilities and the two growth-oriented index funds we own. It was also good news for the gains we recognized from selling our Technology sector fund (XLK) this week.
Somewhat surprisingly, bonds had a good week as well. I highlighted last week how long-term interest rates might be on the verge of a major breakout, which would be bad news for bond owners. The bond funds we own (high-yield, investment-grade corporate and long-term Treasury) managed to gain on the week despite the fact that the 10-year Treasury bond rate actually DID rise from 2.64% to 2.66%. It was a minimal increase, but an increase nonetheless. I am lukewarm on Treasuries right now and am actually looking for the right opportunity to sell that position (TLT) if it presents itself.
In Our Portfolios...
In Financial Planning...
One more note about tax forms (and hopefully my last)... As mentioned previously, TD Ameritrade tax forms will be available over the next month. In addition, for most of you there will be a second 1099 form for the time in 2017 that we held accounts at Scottrade. The following relates to how you will receive those Scottrade tax forms.
Your Scottrade Form 1099 -- whether for a taxable account or an IRA (or both) -- should be available in the next week or so. They will be sent to you using the same delivery method by which you were previously receiving Scottrade statements. For most of you this means email. For some of you the forms will be mailed to your home. For those of you who are newer clients and never had an account with us held at Scottrade, disregard this altogether.
In recent weeks I have said to ignore any notices you receive from Scottrade. Let me revise that... KEEP any notices you receive that resemble tax documentation. Unfortunately, I cannot call Scottrade on your behalf and request information because our firm is no longer a servicing firm to them. So, if for some reason you do not get the information you need or want to follow-up on something with Scottrade, you will need to contact them.
You can do so by calling: (800) 619-7283. Provide Scottrade with your old account number (which I can provide) and they should be able to put in a request with their back-office to provide you whichever forms are needed. I apologize that I cannot do this for you, but again, our firm is no longer authorized on those legacy accounts because they were closed out when the funds were migrated to TD Ameritrade back in May 2017.
Finally, if you deduct investment management fees as an itemized deduction in your taxes, I can provide you those fee numbers. This current tax season (2017) is the last year you can do so following the recent tax law changes.
What's New With Us?
I am a little under the weather, so I am hoping to be back in top shape in a day or two. My goal over the next month is to try and watch all of the Oscars movies nominated for Best Picture. Hopefully I can stream one or two of them this weekend. It seems like a good opportunity.
Have a great weekend,
Brian E Betz, CFP®
Principal