Category Archives: Investing

Just Buy Low Cost Index Funds

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“The less you spend on investing, the more you get to keep.”. Rick Ferri

When investors who don’t manage their costs, they pay a significant price for their inaction and inexperience. As John Bogle has famously said, “In investing, you get what you don’t pay for.” The primary issue is that investment product providers, especially annuities and actively managed funds, and financial intermediaries are selling commission-based products that take advantage of unsophisticated investors by marketing high-fee, high-commission funds that earn low returns. 

Cost Matters Hypothesis.

It costs money to try to beat the market, according to Bogle, and you pay whether or not the manager succeeds. When a group of financial people try to out perform the market, some will win and be successful, some will lose, but collectively they will get the market’s return—before fees. After fees, they will get much less. Bogle once calculated that “active stock investors lose close to 3% a year in fees, trading costs and taxes.”

“Costs matter. They matter more than past performance.” John Bogle

Occasionally, you might get lucky for a year or five or ten. Eventually, though, your luck will run out. With each passing year it becomes more likely that you will be overtaken by the law of averages.

Buffet advice to investors

Billionaire investor Warren Buffett recommends that most investors should buy low-cost index funds. In his sage opinion, buying index funds would go a long way toward solving this serious problem of overpaying for investments. Buffett’s recommends inexperienced investors and investors without time or inclination to conduct research buy index funds. His view is that index funds, such as those that mimic the S&P 500 benchmark, are a smart investment that almost anyone can follow.

“Costs really matter in investments,” Buffett says in a CNBC interview. “If returns are going to be 7 or 8 percent and you’re paying 1 percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.”

The appeal of index investments is their low cost compared to most actively managed mutual funds and ETFs. With active funds and ETFs, according to Fidelity Investment, a manager attempts to deliver performance that outpaces a chosen index, often referred to as a benchmark. Passive ETFs and mutual funds, on the other hand, try to match the performance of a benchmark.

Benchmarks may include familiar indexes such as the S&P 500, as well as custom benchmarks created by a fund’s managers. Passive investments may not offer the potential to outperform an index, but they typically offer lower costs than active funds managed against a similar index or benchmark.

When evaluating cost, most investors focus on the expense ratio—the annual percentage of assets that mutual funds and ETFs charge investors to cover services such as investment management, recordkeeping, compliance, and shareholder services. In general, these costs are much lower for passive strategies than for active ones. And, even this expense that can vary dramatically even among seemingly similar passive index funds and ETFs.

Labor Secretary Thomas Perez said during a Senate panel meeting: “The problem with our [financial] system in the U.S. is it incentivizes complexity when simplicity is all too frequently what’s called for. … It incentivizes complexity because complexity generates more fees.”

The solution and best defense against those who prey on investor ignorance, according to Rick Ferri, is investor education and requiring financial literacy in our schools and colleges. Perhaps we need to scream continuously, “Just buy low-cost index funds!” every time an investor is pitched a hyped-up mutual fund advertisement or a high-cost fund.

Investing in index mutual funds and ETFs can be an outstanding low-cost strategy. And, like any other investment strategy, investing in index funds requires that you understand what you are investing in. You need to ensure that you are investing in a low-cost product that tracks a benchmark that fits with your investing strategy.

References:

  1. https://rickferri.com/forewarned-is-forearmed-on-investment-expenses/
  2. https://www.cnbc.com/2018/01/03/why-warren-buffett-says-index-funds-are-the-best-investment.html
  3. https://www.fidelity.com/viewpoints/investing-ideas/how-to-shop-smart
  4. http://johncbogle.com/wordpress/

Dividends are Important in Retirement

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“Get paid to wait” Kevin O’Leary

Noted Shark Tank investor, Kevin O’Leary aka “Mr. Wonderful”, has one simple rule when it comes to investing in a stock. If it doesn’t pay a dividend, he does not consider the stock. His investment mantra is “get paid to wait”.

“My whole investment strategy is built around cash flow”, O’Leary said. “I have a little Charlie Munger on my shoulder every day when I look at a deal, and he’s just saying two words: ‘cash flow, cash flow.'”

Know your cash flow.

How much do you make after taxes? How much do you spend. Investors in retirement must figure out how to generate cash flow without a job from multiple income streams to meet essential living expenses and spending while also making sure they don’t outlive their income stream.

Receiving regular dividends, or “getting paid to wait” reduces an investor’s dependence on the market’s volatility and the roller coaster like price swings by stocks to make ends meet.

Essentially, dividends could become investors “cash flow” in retirement. Naturally, then, the best retirement stocks to buy in 2021 (or any other year) to accomplish those objectives are ones that pay dividends.

Regular dividends lessen an investor’s dependence on the market’s fickle price swings because it reduces or eliminates the need to sell shares to generate income. Regardless of whether the market rises or falls in 2021, a portfolio of high-quality companies can provide you with predictable, growing dividend income.

And in today’s low-interest-rate environment, dividend stocks can generate much higher income than many fixed-income instruments. Better still, many dividend-paying stocks grow their payouts, which preserves those dividends’ purchasing power. And dividend stocks, like other equities, also provide meaningful long-term price appreciation potential.

Whether or not the market rises or falls, a portfolio of quality businesses delivering predictable, growing dividend income is always preferred.

Dividend stocks, like other equities, can provide long-term price appreciation. Dividends are the periodic payouts investors can earn by investing. And because many companies pay a dividend — more than 80% of the S&P 500 stocks currently pay dividends, according to data from FactSet — investors can actually earn money even when the market is down.

Research firm Simply Safe Dividends published an in-depth guide about living on dividends in retirement here. However, a key component to this strategy is finding the best retirement stocks that can deliver safe dividends and grow in value over time.

What are Dividend Stocks

When investors buy stocks, they can make money two different ways. The first is by selling their shares for a price that’s higher than their original cost. The second is by collecting dividends. Dividend stocks are companies that pay shareholders a portion of earnings, as dividend, on a regular basis. Not all stocks pay dividends, but those that do offer shareholders a steady stream of income.

These payments are funded by profits and cash flow that a company generates but doesn’t need to retain to reinvest in the business. Shareholders can receive dividends as cash or additional shares of stock. As an investment category, dividend stocks also have an impressive track record of helping people build wealth over the long term.

To live on dividends in retirement, a key component to this strategy is finding the best retirement stocks that can deliver safe dividends and grow in value over time. Look for companies with a history of paying and increasing dividends, as well as sufficient earnings and cash flow from current operations.

Dividend Aristocrats

Dividend Aristocrats are a select group of S&P 500 Index stocks with a history of 25+ years of consecutive dividend increases. These businesses have both the desire and ability to pay shareholders rising dividends year-after-year. They are considered the ‘best of the best’ dividend growth stocks.

The Dividend Aristocrats have a long history of outperforming the market. The requirements to be a Dividend Aristocrat are that they’re in the S&P 500, have 25+ consecutive years of dividend increase, and must meet certain minimum market cap and liquidity requirements.

Dividend Yield

Dividend yield refers to a stock’s annual dividend payments to shareholders expressed as a percentage of the stock’s current market price. A stock’s dividend yield can and frequently does change over time, either in response to market fluctuations or as a result of dividend increases or decreases by the issuing company. And, it’s important to keep in mind that a high dividend yield alone doesn’t make a stock a great investment.

Dividend amounts and yield might seem small in mid-2019. The average dividend payment for U.S. stocks was 1.87% of your investment, according to Siblis Research. Regardless the size of the ratio, they can drastically impact an investor’s long-term investment performance and retirement income.

GE’s Dividend Story

General Electric (GE) has been one of America’s most widely held stocks, and countless retirees relied on the dividend payments. But, the company was under enormous balance sheet and cash flow pressure, and it became necessary to cut the dividend in half. By cutting, GE saved significant cash flow making it one of the largest dividend cuts in the history of the S&P 500 and the biggest for GE since 2009, according to S&P Dow Jones Indices.

But dividend cuts had been rare at the time since many companies were increasing them because the U.S. economy was healthy and the stock market was booming. GE’s dividend had been reliably paid for multiple decades.

Prior to GE Board’s decision to cut its dividend, GE was having problems and could not earn enough money to cover its dividend payments. Free cash flow, which measures how much cash is being generated after investing in the business, had deteriorated for six straight years.

Dividends: Cash Flow is King during Retirement

The distinction between income and cash flow is important during retirement. Generating income in retirement is focused on finding investments that pay a high yield, which necessarily means taking on more risk. Focusing instead on cash flow allows investors to take a broader perspective, assessing various aspects of their finances to determine how to creatively produce the money required for expenses. Cash flow strategies may allow retirees to reach their financial goals while not necessarily taking on a higher level of risk.

A primary financial goal in retirement is to guarantee a minimum daily standard of living so you don’t outlive your nest egg and can sleep well at night.  Some folks are able to meet that minimum income amount they need through some combination of pension income, Social Security payments, and guaranteed interest from certificates of deposit. 

 “I have found that retirement is all about cash flow, not net worth, especially after the real estate crash. I have met people who have a net worth of $2 million, which looks great on paper, but when it comes to retirement income, they are just barely squeaking by on their Social Security and a small pension. It’s great that you are worth $2 million, but ultimately, it’s your cash flow that will determine your quality of life in retirement, not your net worth.” Jason R. Parker, Sound Retirement Planning: A Retirement Plan Designed to Achieve Clarity, Confidence & Freedom

When picking dividend stocks, chasing yield can cause issues where the price has declined, which may be an opportunity for capital appreciation, but may create greater risk for income seekers since the stock may be cheap for a legitimate idiosyncratic reason.

It’s important for investors to find a company they feel comfortable with, and whose product line they understand. Next, they can look at the company’s ability to generate sufficient earnings and cash flow to pay their annual dividends, operate their business, and have enough left over to grow, remembering that not all quarters must indicate growth.

An investor’s particular situation must be considered such as their required income needs during retirement, weighed against their desire for capital growth— typically, lower-growth segments, such as utilities, pay more yield. Investors who allocate upwards of 80-100% of their portfolio to dividend-paying stocks to generate more income and achieve stronger long-term capital appreciation potential and income growth, are incurring greater risks.

Additionally, their specific risk/reward trade-off (and there is risk in all stocks), keeping in mind their ability to ride out a downturn without having to sell the stock on the way down.

References:

  1. https://markets.businessinsider.com/news/stocks/shark-tank-star-kevin-oleary-investing-yahoo-short-retail-pandemic-2021-1-1029932948
  2. https://www.kiplinger.com/investing/stocks/dividend-stocks/602016/21-best-retirement-stocks-income-rich-2021
  3. https://www.simplysafedividends.com/intelligent-income/posts/1-living-off-dividends-in-retirement
  4. https://www.forbes.com/sites/jonathanshenkman/2020/10/21/7-strategies-to-generate-sufficient-cash-flow-in-retirement/?sh=2fe4062b2ac4#click=https://t.co/qv3DensgA1
  5. https://www.spindices.com/documents/education/indexology-december-2017-can-dividends-yield-a-better-retirement.pdf?force_download=true
  6. https://www.fool.com/knowledge-center/dividend.aspx
  7. https://www.fool.com/investing/your-definitive-dividend-investing-guide.aspx

Becoming Ageless: The Four Secrets to Looking and Feeling Younger Than Ever

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Don’t try to overhaul your life overnight. Instead, focus on making one small change at a time. Over time, those small changes will add up to big transformation. Don’t give up!”

A reporter once asked Albert Einstein what’s man’s greatest invention was, and the scientist, after a long pause, simply replied: “Compound interest.”

Compounding—the idea of something gaining value exponentially into the future through better decisions made in the present—is one of the greatest lessons any human being can ever learn.

In Becoming Ageless, “it is never too late to reverse how you look and feel, and to develop the mindset of how you do it. Day in and day out, if you want to live longer and live better, you need a clear and basic understanding that the outcome of your journey is the sum of its steps.”

There are no guarantees with your physical or emotional health, just as there are no guarantees with your wealth. But, you can stack the odds in your favor by making sacrifices today that are worth the gains in the long term.

And with the principles explained in Becoming Ageless, you’ll be living longer—and with greater clarity of thought, mobility, and freedom from pain. Ultimately, you can take the tactical insights about daily living and the strategic insight into the larger quest to live longer and better. After all, you can be living proof that if you’re willing to consistently and incrementally implement small changes—while keeping your eye on the larger goal at all times—you’ll boost your chances of living longer and living happier than you ever imagined.

You can have the mind, body, and spirit of someone half your age, and add more years to your life. Or, you can have people stare in disbelief when they discover how old you really are. You can become…ageless?  You can. It’s possible.

Becoming Ageless: The Four Secrets to Looking and Feeling Younger Than Ever is the result of years of research into the science of longevity. It is about looking and feeling eternal. It has worked, and it will work for you. On this effective plan, you’ll:

  • Lose stubborn belly fat and watch the pounds melt away.
  • Enjoy amazing meals, workouts, and a sense of community.
  • Look and feel noticeabley younger—for life!
  • The strategies contained inside Becoming Ageless, you’ll discover:
    • An easy and effective program for everyone that will help you flatten your gut and become healthier than you ever thought possible.
    • Delicious, healthy, and easy-to-make recipes including hearty breakfasts, easy-to-make lunches, filling dinners, and even desserts.
    • A full workout plan that will sculpt your body and help you prevent back pain and sleep better.
    • A holistic mind/body approach that really works. Look and feel better than ever without deprivation dieting, counting calories—or ever feeling hungry!

    Becoming Ageless: The Four Secrets to Looking and Feeling Younger Than Ever, explains exactly what it takes to be fit and healthy at any age with all the research to support it.

    The three most interesting things Zelnick learned about keeping the mind and body young.

    1. Try the less-is-more approach.

    When it comes to staying youthful and increasing longevity, deliberately plodding along can actually be more effective than going all out. A 2015 study looked at more than 1,000 runners and found that those who jogged slowly had lower mortality rates than those who ran faster. “I was a terrible runner, so a few years ago I worked with a coach,” says Zelnick. Even though they suggested brisk, one-hour sessions, Zelnick insisted on 45-minute jogs. “That was just at the brink of what I could live with before saying, ‘I hate this so much, I’ll never do it again,’” he says. “Taking it slow and steady was my strategy.”

    2. Stay adventurous.

    Research from the University of Texas at Dallas found that trying new, cognitively demanding activities improves memory function in older adulthood. “It’s just not true that we lose the ability to learn or improve our performance after the age of 25,” says Zelnick. “I picked up skiing in my 30s, cycling in my 40s, boxing in my 50s, and I’m picking up gymnastics and squash now.” Not only is it possible to learn new skills as you age, but doing so can keep your body and brain young.

    3. Accept the learning process.

    Study upon study shows the importance of grit in predicting success, and Zelnick believes it also keeps you young. You probably won’t pull off a world-class performance the first, even the 10th time you try something. “Don’t be afraid of failure or slow progress,” he says. “There are days when I play squash and I do really badly. And yes, I might get frustrated with myself but then I realize, you know what? I showed up, I did the best I could, I’ll do better the next time—or I won’t. But I’m still going to keep going.”

    With Becoming Ageless, you’ll feel fitter, sharper, and more energized than ever before—with the body of someone half your age! Boost your metabolism and enjoy all-day energy. Feel younger for life. All you have to do is follow the four secrets in the book.

    – Ageless Secret #1 You’ll Indulge in Delicious Foods 
    It’s true: You can eat to be younger. Most people associate eating for health or weight loss with a “diet”—It’s important to break that association. Diets fail. Instead, focus on “Forever Fuel.” It doesn’t mean you can’t eat your favorite foods; you’re just getting the best versions of them. On the Becoming Ageless plan, enjoy the following and lose 20+ pounds:

    • Unlimited Foods—Lean Protein, Salads, and Vegetables—eat as much as you want. bison, light tuna, chicken, eggs, grass-fed beef.
    • Limited Foods—Some fruits and dried fruits, nuts, and cheese—in moderation.
    • Highly restricted foods—no processed foods, fried foods, or added sugars. Processed foods account for 70% of the calories that Americans take in. They don’t just make you fat; they age you. Research has linked ultraprocessed foods to a higher risk for obesity, heart disease, and cancer. Intriguing new work even suggests that they may actually encourage overeating, possibly because their particular mashup of ingredients disrupts the hormones that control hunger, or it scrambles the gut-brain signals that tell us how much to eat.
    • Commit yourself to eating sensibly and eating yourself healthy.

    The book is packed with a ton of easy-to-make recipes that will help you get your best body ever. It’s true—even with a busy schedule, you can cook, because they’re that simple. And if you cook just three meals a week, you’ll live a decade longer, studies show.

    – Ageless Secret #2: You’ll Unlock Your Inner Strength
    Fitness is the foundation for so much success in many individuals lives—it improved their moods, shrunk their belly, got them out with colleagues (which led to promotions) and you don’t have to run an ultra-marathon or climb Mt. Everest. Just commit and be consistent. Get moving a little every day.

    Work out every morning and some evenings. Some moves take just minutes to do. Here’s a few ways to do it right:

    • Start slow—incorporate regular walks or body weight exercises to feel the burn.
    • Workout when you’re working—like with a stressball or a hand grip strengthener
    • Incorporate a complete exercise plan for building muscle. Use it and you’ll avoid back pain and get injured less.

    – Ageless Secret #3: You’ll Bulletproof Your Body
    You can’t feel younger if you’re sick all the time.  You want to turn your body into a disease-fighting machine. That’s why you should include:

    • Preventative measures—a complete checklist of all the tests you need, and when you should have them.
    • A guide to better sleep, so you can have a more peaceful rest.
    • Cover mental health too…favorite tip to boost confidence is to ditch the scale. Measure success by what you see in the mirror and how you look and feel. If you like what you see, what the scale reads isn’t important. That was a game-changer. Little changes mean big results.

    – Ageless Secret #4: You’ll Discover a Deeper Connection
    People who focus solely on the body and not the mind are shortchanging themselves. For lasting success, it’s essential to construct a support system that will hold you accountable—and provide incentives for you to succeed. Consider texting a friend after every workout, and revel in the virtual high-five; better yet, join a workout class. You’ll strengthen bonds with friends and loved ones and elevate your mood and productivity.

    It’s a benefit in embracing my spiritual side. For quiet reflection, personally integrate morning prayer. It’s life-changing, and feeds into personal success on every level. To help you focus, meditate, do yoga, and find a community that supports your new lifestyle.

    By following the pillars in Becoming Ageless, you’ll be happier and healthier; stave off disease; enhance your spiritual connections; and lose fat from where it matters most. That’s something you want at any age. It works.

    Start by asking yourself an important question: “What do I want?” That answer will drive every decision you make. It will also make the how easier to pinpoint and, eventually, accomplish. Here are a few answers to that question: You May want to . . .

    • Live as long and healthily as possible while being cogent and mobile.
    • Be fit and strong.
    • Perform my job at my highest level.
    • Have warm and meaningful relationships with my family and friends.
    • Push my limits both mentally and physically.
    • Look good in and out of clothes.
    • Feel youthful, happy, satisfied, and as stress-free as possible.
    • Be spiritually connected.
    • Help others achieve their goals.

    You don’t want is to be limited or defined by your age. Yet sometimes, we forget that, while there’s no stopping the passage of time, we can control how well we age. Because the notion that you’ll get too old to run marathons, too weak for century rides, too fragile to ski or snowboard, or too fatigued to keep up with your grandchildren at a park is just plain wrong.

    It doesn’t matter if you’re a millennial or a centenarian: Right now, you have all the resources you need to make changes to obtain or reclaim the life you want. That’s if you know what you want. So think about what you want. Be honest and don’t edit your thoughts. Contemplate it for a week if you need to. Then write down five to 10 goals. Write them right now.

    About the Author

    Strauss Zelnick is founder of the private equity firm Zelnick Media Capital and president and CEO of Take-Two Interactive, the company behind blockbuster video games such as Grand Theft Auto and NBA2K.

    “Live your truth!”

    Purpose Driven Saving, Investing and Accumulating Wealth

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    Investing with a Purpose – “Start with the Why” regarding saving, investing and accumulating wealth.  It’s about your values and life goals.  It’s about keeping your eyes on the prize and on the why you’re saving, investing and accumulating wealth.

    There is an underlying reason why you invest your hard-earned money and it’s not just to earn more money.  While that may be the ultimate outcome, the “Why” or “Purpose” of investing is something completely different.  Simply put, you invest to achieve your financial goals in life. These goals are different for every person.  Maybe it’s retirement, a child’s college education, buying a beach house, or planning for the next generation. We all have our own goals, whatever they may be.  It’s your mission to plan out a clear path to achieve those goals. This is what is considered Investing with Purpose.

    Purpose-driven investing thrives by instilling a sense of purpose into any investment.  People seek to achieve real-life objectives such as saving for your kid’s college or your retirement.

    A firm purpose behind your saving for the future, investing for the long term and accumulating wealth will ensure that you are making the right money management decisions today to achieve long term financial success. Your risk will be optimized when your purpose for saving, investing and accumulating wealth matches your goals and timeline.

    People Invest to Achieve Personal Financial Goals

    “An investor without investment goals, objectives and a plan is like a traveler without a destination.” Anonymous

    Understanding your values and what you want to accomplish in life is essential to “Purpose Driven” saving, Investing and accumulating wealth.  Saving, investing and accumulating wealth are deeply personal undertakings, which is why you must always start with a discussion about what’s really important to you. This helps us shape your saving, investing and accumulating wealth strategy around three key dimensions of your financial life: liquidity, longevity and legacy.

    When people are asked why they invest, their answers typically are focused on family and future goals in life—buying a house, saving for emergencies, retirement, taking care of loved ones. Those are the big picture answers. But as in life, it’s often as much about the journey as the destination. Investors have specific expectations about the investment experience, as well as the outcomes.

    For example, some investors want long-term growth to build their retirement nest egg, but they don’t want to feel the volatility that can occur in the broader stock market. Others want regular income distributions after they reach retirement. Still others want investments that can help them manage through changes in the economic environment, or more personal economic challenges.

    Create the future you want for yourself and your loved ones. New to investing or an experienced trader. To be great and successful at any endeavor, you’ve got to sacrifice and put in the work, because anything easy is just average. To become great you have to make big sacrifices and work really hard — much above average.

    Wise spending is a subset of wise investing. And, it’s never too late to start investing.

    When you invest in assets over the long term, you are buying a day in the present that you don’t have to work several days in the future.

    I like this quote since it succinctly defines one of the primary reason for investing … “putting away money today so sometime in the future, you do not have to work to live”. And the seeds you sow today, will reap the financial harvest to live a life in retirement with dignity and financial security.

    Your actions dictate the consequences. Reaps what they sow, they suffer or benefit as a result of their own actions.

    Investments are the tools we use to make your financial plan successful.  With your plan as the guide, your stock portfolio should be designed around your personal situation, needs, and goals.

    Long-Term Investors Have Almost Always Experienced Positive Returns

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    S&P 500 rolling returns have been almost always positive over the long-term.

    One of the best ways to invest is over the long term and it’s more important than ever to focus on long-term investing. It’s long-term investing strategy where investors can accumulate wealth. By investing long term, you can meet your financial goals and increase your financial security.

    94% of 10-year rolling returns have been positive since 2000.

    Rolling returns are measured over consecutive periods starting with the earliest period and finishing with the most recent. For example, the period of measure for a 10-year rolling return for an investment as of the end of February, would be 03/01/2010 through 02/29/2020.

    Source: Bloomberg Finance L.P. as of 02/28/2020. Past performance does not guarantee future results. The referenced index is shown for informational purposes only and is not meant to represent the Fund. Investors cannot directly invest in an index.

    Investing and learning to think long-term

    While many investors of all ages think of investing as trying to time the market to make a short-term return on their investment, investing for the long-term investing is one of the best ways and a proven strategy for investor to accumulate wealth over time and achieve financial security. But the first step is learning to think long term, and avoiding obsessively following the markets daily ups and downs.

    References:

    1. https://oshares.com/long-term-investors-have-almost-always-experienced-positive-returns/
    2. https://www.bankrate.com/investing/best-long-term-investments/

    6 simple ways to take action in your financial life without hurting your long-term goals | Vanguard

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    “It’s natural and human to feel like you need to take action and “do” something–anything–to stay in control and protect your financial interests.”

    Scientific studies have shown that the human brain really likes to feel in control. We’re built to take action to protect ourselves and the people we love when signs point to trouble.

    That’s why when markets become volatile, it’s natural and human to feel like you need to take action and “do” something–anything–to stay in control and protect your financial interests. You might feel anxious or worried. Don’t worry; you’re not alone in feeling that way.

    Taking action during uncertain times may help you feel more confident about the way things will turn out. That said, if you feel like you need to make changes to your portfolio, it’s important to make sure that the action you take won’t put your long-term financial goals in jeopardy.

    Here are some things you can do to feel in control without losing sight of the bigger picture:

    Run some numbers

    If you feel you have to do something, consider starting with your calculator. Numbers can give you a rational way of framing things that can settle some of those anxious feelings. For example, you can analyze how market conditions have affected your portfolio and compare it with the expectations you had based on your risk tolerance. Or compare your current asset mix with your target and rebalance if it differs by 5 percentage points or more.

    Speak the language of action

    Describing your strategy as “staying the course” or “doing nothing” may make you feel you’re not doing enough. Instead, describe what you’re doing as fighting the impulse to get out of the market or giving your portfolio an opportunity to rebound. You’re trusting your mix of assets to get you through market ups and downs, and that takes mental strength. Give yourself credit where it’s due.

    Talk it over

    Consider sharing your plan of action with others. Take a look at the Vanguard Blog for inspiration. When other people show support for what you’re doing and chime in that they’re doing it too, it can make you feel good about your choices. Helping others when they have questions can also go a long way toward building your confidence.

    Take comfort in history

    So far, every market downturn in history has been followed by a rebound. We don’t know when it will happen or how big it will be, but there’s good reason to believe that better times are ahead.

    Think about what you can control

    If you’re saving for retirement, you may be able to control how much you save or how long you can save (if you have a retirement date in mind). If you’re retired, you may be able to adjust the percentage of your portfolio you withdraw during a market downturn.

    Your spending habits are within your control too. Of course, it’s probably not realistic to expect that you’ll start clipping coupons, switch to generic brands, and skip your afternoon coffee run all at once. Try cutting down your spending in just one area at a time to see what works best for your life.

    We recognize that this is your portfolio, and you control your asset mix. We don’t recommend changing your asset mix in response to market movement, but if you’re determined to make a change to your portfolio, make it a small one. Some examples of small things you can do: Direct one of your stock funds’ investment earnings to a bond fund, or change the asset mix of a single account rather than your entire portfolio.

    Lean in

    Lean on personal financial advisors to provide you with the leadership you need to make it through uncertain times. Trusting a financial expert to bring order to a situation that feels out of control can help you ease anxious feelings.

    Source: https://investornews.vanguard/6-simple-ways-to-take-action-in-your-financial-life-without-hurting-your-long-term-goals/?cmpgn=BR:OSM:OSMFB:OTHERS:072920:TXL:OTM:xx::OTHR:OTH:OTS:XXX::XX&sf235757186=1

    Note: All investing is subject to risk, including possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

    Financial Planning and Market Volatility

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    “The first rule of investment is ‘buy low and sell high’, but many people fear to buy low because of the fear of the stock dropping even lower. Then you may ask: ‘When is the time to buy low?’ The answer is: When there is maximum pessimism.”  Sir John Templeton

    Market volatility is a fundamental part of trading and investing. When market volatility strikes, it’s common for investors to succumb to temptation and follow the herd to panic sell stocks.

    Financial Planning is About Long-Term Goals

    “All financial success comes from acting on a plan. A lot of financial failures come from reacting to the market.” Nick Murray

    Setting financial goals—and sticking with your plan—is key to potential long-term success. Rather than letting market volatility change your long-term financial plans, it is important to stay focused on your long term goals and disciplined in your investment philosophy.

    “Your financial goals aren’t set in stone,” according to Mark Gleason, senior manager of investment products and guidance at TD Ameritrade. “Circumstances change, and what you want might change. When that happens, it does make sense to change your approach.”

    “Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.” Peter Lynch

    Just remember, the time to make adjustments to your long term financial plan are due to changes in life circumstances and should not be in response to market volatility. Here are four reasons to adjust your financial plan:

    1. Change in risk tolerance. If something has happened to change your risk tolerance, making tweaks to your financial plan can make sense. When a recent shakeup forces you to confront where you stand, it might be time to adjust your approach.
    2. New life events. Perhaps there’s been a death in the family. Or you’ve added a new baby to the mix. Maybe you’re getting married or going through a divorce. All of these life events can indicate a change in your financial planning approach.
    3. Shifting to a new life phase. Sometimes your approach needs to change as you actually start approaching your long-term financial goals. When you move from preretirement to actual retirement, your strategy is likely to change. Likewise, if you’ve been growing your child’s 529 and you’re worried about potential market volatility, you might make a few tweaks to the portfolio.
    4. Setting new financial goals. Most people set different financial goals as they move through life. Maybe you decide that buying a home isn’t the goal now; you’d rather get an RV and travel. Perhaps your target retirement age has changed. Whatever the new goal, you might need different financial planning in order to meet it.

    Stay disciplined when investing.

    Market volatility can cause discomfort, but it is important to realize that market volatility is short term and should not impact your long term goals and financial planning. You’ve set long-term financial goals designed to help you reach certain life milestones—and you don’t want to undo all your progress just to feel better during a market downturn.

    “Why is staying the course so important?  As an extreme example, consider the investor who lost faith in the markets and cashed out on March 23, the low point in the U.S. stock market. Stocks subsequently rebounded more than 39% over the next three months; the unfortunate individual who moved to a money market fund earned a meager 0.14%. Vanguard’s analysis found that about 85% of investors who fled to cash would have been better off if they had just held their own portfolio.” (Source:  Vanguard, https://investornews.vanguard/a-snapshot-of-investor-behavior-during-a-downturn/)

    Reference:

    1. https://tickertape.tdameritrade.com/investing/financial-planning-setting-financial-goals-amid-market-volatility-18160
    2. https://www.livewiremarkets.com/wires/ten-quotes-on-volatility-from-the-masters-of-the-market
    3. https://investornews.vanguard/a-snapshot-of-investor-behavior-during-a-downturn/

    Trading vs. Investing

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    Trading and investing are two approaches to participating in the stock market. Each approach brings its own opportunities and risks

    • Investing involves buying an asset you expect will rise in value over the long term, with the goal of long-term gains.
    • Trading, on the other hand, is about timing market short term moves and buying and selling stocks within a short period for quick returns.

    With trading, you’re hoping to earn quick returns based on short-term fluctuations in the market and stock price. Long-term investors, in contrast, tend to build diversified portfolios of assets and stay in them for the long term through the ups and downs (volatility) of the market.

    Investing basics

    Investing is geared towards managing and growing wealth in the market over a longer period of time like years or even decades. This means buying securities with a long-term outlook in mind and holding them through both market ups and downs until you reach your financial goal or are near the end of your investment time horizon.

    Investing involves putting money into a financial asset (stocks, bonds, mutual or exchange-traded fund, etc). that you expect will rise in value over time. Investors generally have a long time horizon and predominantly look to build wealth through gradual appreciation and compound interest.

    Diversification (owning a mix of investments) is important for investors as it can reduce their risk — mainly by mitigating the effects of volatility.

    Trading basics

    Trading is all about making frequent, short-term transactions with the goal of “beating the market,” or generating greater returns than you’d expect to receive by buying and holding over a longer time frame.

    Trading involves buying and selling stocks or other securities in a short period of time with the goal of making quick profits. While investors typically measure their time horizon in years, traders think in terms of weeks, days, or even minutes.  

    Two of the most common forms of trading are day trading and swing trading. Day traders buy and sell a security within the same trading day; positions are never held overnight. Swing traders, on the other hand, buy assets that they expect will rise in value over a matter of days or weeks.

    Trading can be a risky endeavor for the uneducated and unskilled trader. If a trade goes against you, you can lose a lot of money in a short period of time. If you have a low risk tolerance and want to avoid volatility, investing will be the way to go. But if you’re more of a risk-taker and would like the chance to earn bigger returns, trading could be appealing.

    https://twitter.com/jrdorkin/status/1332382094048202753?s=21

    Takeaway

    Although the terms — trading and investing — are often used interchangeably: trading focuses on short-term buying and selling, while investing involves buying and holding securities for an extended period of time.

    If you’re comfortable with the risks, trading a portion of your money can be rewarding and could lead to higher returns. If reducing risk and volatility are your main goals, then you’ll want to stick with long-term investing to build wealth.

    References:

    1. https://www.ally.com/do-it-right/amp/investing/trading-vs-investing/?__twitter_impression=true
    2. https://www.businessinsider.com/trading-vs-investing

    Invest for the Long Term

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    When the market is uncertain, following your long-term financial plan will be the best approach for growing your money and long-term investing success.

    Like a roller coaster ride, keeping up with the constant change in the stock market can be an intense experience. And, although those periods of market uncertainty can be unsettling, the good news is that investors who stay the course and continue investing tend to do better over time. It can be tempting to sell at a loss when markets are low, and some wait too long on the sidelines and miss a window of opportunity. If you’re concerned about investing at the right time, you could dollar cost average your investments, which is investing smaller amounts at regular intervals, as opposed to investing a single lump sum at one time. By spreading out your payments, you can take advantage of market corrections and discounted pricing without having to try to figure out the optimal time.  The key is to stay calm and stick to your long-term plans.

    Consider the Big Picture

    Sometimes, we forget that what’s happening in the market today is really just a snapshot in time. History has shown that even after a slump, the market recovers. Even better, given the lower stock prices, a down market could be a good time to add to your portfolio. You’ll likely be in a good position to take advantage of future gains, especially if you don’t plan to cash out your investments for years.

    Turn Off the Noise

    Resist the urge to make investment decisions fueled by emotion or the day’s headlines. Stay focused on your goals and how long you have to achieve them. Here are some ideas to help you follow or tweak your plan calmly:

    Assess your goals.

    Consider how long you have to achieve your goals. What do you hope to accomplish in 5, 10, 20 years? How long do you have until retirement? If your goals need to be tweaked or you need to cash out some investments sooner than planned, be sure to talk to a financial advisor.

    Review asset allocation.

    Review how much you have in stocks, bonds, ETFs and cash. Is your portfolio still a good fit based on your age, goals and risk tolerance? If not, rebalance it to stay on target.

    Start or continue to invest.

    Investing your money is the most reliable way to create wealth over time.

    If you’re new to the investing world, it’s time to get started and make your money work for you.  Your goal is to grow your money, and investing will yield higher returns than traditional savings options.

    Continue contributing to your future.

    Keep making regular contributions to your retirement plan. Prioritize these contributions as part of your monthly budget, so you’ll continue growing account balances without even thinking about it. And, keep in mind—participating in an employer-sponsored retirement plan or contributing to an IRA provides you certain tax and other advantages.

    Investing may appearing daunting, especially if you’ve never invested in stocks, mutual funds or bonds before. However, if you figure out how you want to invest, why you want to invest, how much money you should invest, and your risk tolerance, you’ll be well positioned to make smart decisions with your money that will serve you well for decades to come.

    Whether you prefer a do-it-yourself investor or prefer to seek assistance from an advisor, it’s important for you to develop good financial habits and for you to make sound choices.

    References:

    1. https://www.fool.com/investing/how-to-invest/
    2. https://www.navyfederal.org/resources/articles/life/investments.php?cmpid=em%7Cnl%7Cresources%7Carticles%7Carticles%7Clife%7Cinvestments%7C11/20/2020%7C31689%7CA%7Ccb4.4

    Disruptive Innovation Equals Growth

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    Innovation is the key to growth.

    In the late nineteenth century, three innovation technologies evolved at the same time and changed the way the world worked and its paradigm. Thanks to the introduction of the telephone, automobile, and electricity, the world’s productivity exploded as costs dropped, unleashing demand across the globe.

    Today, the global economy is undergoing the largest technological transformation and displacement in history thanks to disruptive innovations.

    ARK defines ‘‘disruptive innovation’’ as “the introduction of a technologically enabled product or service that changes an industry landscape by creating simplicity and accessibility while driving down costs.”

    Innovation meets three criteria

    “Over time, innovation should displace industry incumbents, increase efficiencies, and gain majority market share, offering growth opportunities for investors. More importantly, disruptive innovation impacts and concerns all of our lives and changes the way the world works.” Cathie Wood, Founder, CEO & CIO, ARK Investment Management LLC

    According to ARK Investment Management, disruptive innovation will:

    • Experience significant cost declines and unleash waves of incremental demand. When a technology crosses certain cost or performance thresholds, its addressable market can widen and diversify dramatically.
    • Cut across sectors and geographies. A technology that cuts across industries and geographies can enjoy dramatic increases in addressable markets as applications are “discovered” by different business sectors. Spanning across sectors also provides better product-market fits, insulates against business cycle risk, and garners attention from multiple disciplines.
    • Serve as a platform atop which additional innovations can be built. A technology upon which other innovations can be built may expand its use-cases in ways that are almost impossible to imagine. As a result, innovation platforms may be underestimated over expansive time horizons because successful forecasts require anticipation of the scope of new products and services.

    Today’s disruptive innovations include:

    • Artificial Intelligence
    • Robotics and Automation
    • Blockchain and Cryptoassets
    • DNA Sequencing and Gene Editing
    • Fintech Innovation
    • Energy Storage and Battery Tech
    • Next Generation Internet

    For example, artificial intelligence (AI)  learning systems will transform not only retail, media and telecom, as did the Internet, but all sectors in the economy, even those previously thought impervious to disruption, notably health care and financial services.

    Invest in the future

    Disruptive innovation displaces industry incumbents (like digital photography has erased Kodak and Fuji film companies), increase efficiencies, and gain majority market share.

    The threat to existing businesses is grave. The long-term opportunities for companies participating in this change could relate to exponential growth.

    References:

    1. https://ark-invest.com/investment-process/
    2. https://research.ark-invest.com/hubfs/1_Download_Files_ARK-Invest/Marketing_Material/ARK-Invest-Thematic-Investment-Process.pdf?__hstc=13933160.99f789dd545191653572e5ece0571091.1584118328216.1587939706096.1587954906355.105&__hssc=13933160.8.1587954906355&__hsfp=101573855
    3. https://ark-invest.com/invest-in-innovation/