Category Archives: Investing

Developing Good Financial Habits

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“It’s not the big things that add up in the end; it’s the hundreds, thousands, or millions of little things that separate the ordinary from the extraordinary.” Darren Hardy, author of The Compound Effect

Financial planning in small steps doesn’t take large sums of money to start.  In fact, financial planning can have a profound impact on financial security for Americans, especially lower-income households, by helping people improve their saving and budgeting habits. A written plan helps savers prioritize their goals and provides a way to measure success.

A disciplined, steady approach to saving, investing and ruthlessly managing spending wins out. Wealth-building habits don’t involve a get-rich-quick scheme —it is a slow, gradual process to accumulate wealth,” you must be persistent and consistent.

Savings habits

“The real cost of a four-dollar-a-day coffee habit over 20 years is $51,833.79. That’s the power of the Compound Effect.” Darren Hardy

While investing may appear at times to be complicated and risky, saving is pretty straightforward. Two-pronged approach to increase the saving amount:

  • Generate more cash inflow.
  • Reduce cash outflow.

Spending and saving often go hand in hand because whatever you don’t spend is potential savings. That’s why it is important to focus on buying things that will hold value or appreciate in value instead of allowing expenses to eat into savings through continuous consumption. To accumulate wealth, it is critical to manage expenses tightly. Instead of living just within your means, it is important to live below your means.

One way to reduce outflow is to maximize tax savings through retirement plans such as the 401(k). Another is to pay off debt and prioritize by paying the debts with the highest interest rate first.

Keep an eye on the prize

“There is a one thing that 99 percent of “failures” and “successful” folks have in common — they all hate doing the same things. The difference is successful people do them anyway.” Darren Hardy

Following the adage that it becomes easier to reach your destination or to achieve a successful outcome with an end goal in mind. Those who gain wealth believe that everything they do is ultimately done to fulfill their financial goals. For example, people should set a “retirement number” and a deadline for reaching that number. That number is the goal for how much cash and investments they need for a comfortable retirement and the deadline is the date to achieve the goal. Every time you put money toward saving, you’re a step closer to the prize.

Set It, But Don’t Forget It

Setting up an automated savings and payment system is one habit highly successful people practice to keep their financial house in order. They automate their savings, investing, bill payments and money transfers. But they don’t ‘set it and forget it’ once they set up the automated system. They know it’s important to maintain awareness and manage regularly, at least weekly, where their money’s going.

Automatic saving and investing

People have to be consistently reminded that to develop habits of saving and investing. The more you do develop the habit of saving and investing for the long term, the easier it will become. Consequently, it is recommended to set automatic savings protocols, if necessary, so a portion of your earnings goes directly from your paycheck into a separate savings account.

Habitually and automatically save 10% to 20% of every paycheck.

References:

  1. https://www.bankrate.com/finance/investing/financial-habits-of-wealthy.aspx
  2. https://jamesclear.com/book-summaries/the-compound-effect

3 mistakes to avoid during a market downturn | Vanguard

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Following a decade-plus of generally rising markets, a meaningful downturn in stocks may finally be here. We don’t know how bad it will be or how long it will last.

We do know that some investors will make costly mistakes before prices rise again. Here are 3 common errors worth avoiding.
— Read on investornews.vanguard/3-mistakes-to-avoid-during-a-market-downturn/

10 Money Lessons He Wished Heard — or Listened to — When Younger | MarketWatch

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Updated: February 23, 2020

Jonathan Clements, author of “From Here to Financial Happiness” and “How to Think About Money,” and editor of HumbleDollar.com., is the former personal-finance columnist for The Wall Street Journal. He has devoted his entire adult life to learning about money.

That might sound like cruel-and-unusual punishment, but he has mostly enjoyed it. For more than three decades, he has spent his days perusing the business pages, reading finance books, scanning academic studies and talking to countless folks about their finances.

Yet, despite this intense financial education, it took him a decade or more to learn many of life’s most important money lessons and, indeed, some key insights have only come to him in recent years.

Here are 10 things he wished he’d been told in his 20s—or told more loudly, so he actually listened:

— Read on www.marketwatch.com/story/10-money-lessons-i-wish-id-listened-to-when-i-was-younger-2020-02-12

1. A small home is the key to a big portfolio. Financially, it turned out to be one of the smartest things he had ever done, because it allowed him to save great gobs of money. That’s clear to him in retrospect. But he wished he’d known it was a smart move at the time, because he wouldn’t have wasted so many hours wondering whether he should have bought a larger place.

2. Debts are negative bonds. From his first month as a homeowner, he sent in extra money with his mortgage payment, so he could pay off the loan more quickly. But it was only later that he came to view his mortgage as a negative bond—one that was costing him dearly. Indeed, paying off debt almost always garners a higher after-tax return than you can earn by investing in high-quality bonds.

3. Watching the market and your portfolio doesn’t improve performance. This has been another huge time waster. It’s a bad habit he belatedly trying to break.

4. Thirty years from now, you’ll wish you’d invested more in stocks. Yes, over five or even 10 years, there’s some chance you’ll lose money in the stock market. But over 30 years? It’s highly likely you’ll notch handsome gains, especially if you’re broadly diversified and regularly adding new money to your portfolio in good times and bad.

5. Nobody knows squat about short-term investment performance. One of the downsides of following the financial news is that you hear all kinds of smart, articulate experts offering eloquent predictions of plummeting share prices and skyrocketing interest rates that—needless to say—turn out to be hopelessly, pathetically wrong. In his early days as an investor, this was, alas, the sort of garbage that would give him pause.

6. Put retirement first. Buying a house or sending your kids to college shouldn’t be your top goal. Instead, retirement should be. It’s so expensive to retire that, if you don’t save at least a modest sum in your 20s, the math quickly becomes awfully tough—and you’ll need a huge savings rate to amass the nest egg you need.

7. You’ll end up treasuring almost nothing you buy. Over the years, he had had fleeting desires for all kinds of material goods. Most of the stuff he purchased has since been thrown away. This is an area where millennials seem far wiser than us baby boomers. They’re much more focused on experiences than possessions—a wise use of money, says happiness research.

8. Work is so much more enjoyable when you work for yourself. These days, he earn just a fraction of what he made during my six years on Wall Street, but he is having so much more fun. No meetings to attend. No employee reviews. No worries about getting to the office on time or leaving too early. he is working harder today than he ever have. But it doesn’t feel like work—because it’s his choice and it’s work he is passionate about.

9. Will our future self approve? As we make decisions today, he think this is a hugely powerful question to ask—and yet it’s only in recent years that he had learned to ask it.

When we opt not to save today, we’re expecting our future self to make up the shortfall. When we take on debt, we’re expecting our future self to repay the money borrowed. When we buy things today of lasting value, we’re expecting our future self to like what we purchase.

Pondering our future self doesn’t just improve financial decisions. It can also help us to make smarter choices about eating, drinking, exercising and more.

10. Relax, things will work out. As he watch his son, daughter and son-in-law wrestle with early adult life, he glimpse some of the anxiety that he suffered in my 20s and 30s.

When you’re starting out, there’s so much uncertainty — what sort of career you’ll have, how financial markets will perform, what misfortunes will befall you. And there will be misfortunes. he’d had my fair share.

But if you regularly take the right steps—work hard, save part of every paycheck, resist the siren song of get-rich-quick schemes—good things should happen. It isn’t guaranteed. But it’s highly likely. So, for goodness’ sake, fret less about the distant future, and focus more on doing the right things each and every day.

You can follow Jonathan Clements on Twitter @ClementsMoney and on Facebook at Jonathan Clements Money Guide.

Schwab Sector Views: New Sector Ratings for the New Year | Charles Schwab

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By Schwab Center for Financial Research

Macro environment:  Rising stocks and Treasury yields, fading U.S. dollar

We [Charles Schwab] continue to see a gap between the health of the manufacturing sector and that of the services sector and consumers. Despite recent U.S.-China trade war de-escalation, manufacturing activity remains under strain from ongoing tariffs, new tariff threats and still-elevated trade policy uncertainty, combined with slow global growth. On the other hand, the services sector continues to thrive amid strong consumer confidence and consumption, in large part due to a strong job market. 

While economic momentum overall has slowed, we do see signs of stabilization in both the United States and abroad. Accommodative monetary (central bank) and fiscal (tax cuts and government spending) policies have provided a strong tailwind for the global economy.

The signing of a “phase-one” trade deal between the U.S. and China, combined with congressional passage of the new U.S.-Mexico-Canada (USMCA) trade pact, have eased some trade uncertainty. Amid this apparent global economic revitalization and shrinking trade risk, Treasury bond yields have risen, the value of U.S. dollar has declined and U.S. stocks have advanced to record highs.

However, geopolitical risks—while reduced somewhat—remain elevated, and equity valuations are high. Given this combination, we think bouts of increased volatility and more frequent pullbacks are possible. This doesn’t necessarily mean the rally won’t keep going—it’s likely the strong momentum in stocks may continue until there is a catalyst sufficient to deflate the current extremely bullish investor sentiment—but the risks need to be considered.

— Read on www.schwab.com/resource-center/insights/content/sector-views

Schwab Sector Views: New Sector Ratings for the New Year | Charles Schwab

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Macro environment:  Rising stocks and Treasury yields, fading U.S. dollar

We continue to see a gap between the health of the manufacturing sector and that of the services sector and consumers. Despite recent U.S.-China trade war de-escalation, manufacturing activity remains under strain from ongoing tariffs, new tariff threats and still-elevated trade policy uncertainty, combined with slow global growth. On the other hand, the services sector continues to thrive amid strong consumer confidence and consumption, in large part due to a strong job market. 

While economic momentum overall has slowed, we do see signs of stabilization in both the United States and abroad. Accommodative monetary (central bank) and fiscal (tax cuts and government spending) policies have provided a strong tailwind for the global economy. The signing of a “phase-one” trade deal between the U.S. and China, combined with congressional passage of the new U.S.-Mexico-Canada (USMCA) trade pact, have eased some trade uncertainty. Amid this apparent global economic revitalization and shrinking trade risk, Treasury bond yields have risen, the value of U.S. dollar has declined and U.S. stocks have advanced to record highs.

However, geopolitical risks—while reduced somewhat—remain elevated, and equity valuations are high. Given this combination, we think bouts of increased volatility and more frequent pullbacks are possible. This doesn’t necessarily mean the rally won’t keep going—it’s likely the strong momentum in stocks may continue until there is a catalyst sufficient to deflate the current extremely bullish investor sentiment—but the risks need to be considered.
— Read on www.schwab.com/resource-center/insights/content/sector-views

Uncertain Financial Markets

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“Don’t gamble. Take all your savings and buy some good stock and hold it till it goes up; then sell it. If it don’t go up, don’t buy it.” Will Rogers

Since the financial crisis of 2008-2009, the U.S. stock market has been on a long-term uptrend. In the crisis’ aftermath, a nearly 11-year bull rally emerged from its ruins becoming the longest-ever uptrend in Wall Street history.

And, the American economy is equally robust as consumer spending remains strong and as the unemployment rate (3.5%) remains at the lowest in 50 years. Despite low employment, Federal Fund interest rates still sit near historical lows and the 10-year Treasury yields only 1.8%.

Financial Crisis

Bringing back painful financial memories for investors, the financial crisis of 2008-2009 wreaked havoc on the stock market. During the crisis, the S&P 500 index (SPX) lost 38.5% of its value in 2008, making it the worst year since the nadir of the Great Recession in 1931.

Today, many economists and financial industry pundits conclude that global economies will face an increasingly uncertain and potentially volatile future. Those future concerns range a gambit of political, geopolitical, economic and socio-political issues.

The uncertainties and concerns include the upcoming U.S. presidential elections, potential turmoil in the Middle East, growing fear regarding cross border spread of the Novel Corona virus, and the growth concerns regarding the economies of the rest of the world economies.

Investing in an Uncertain Environment

“Never under estimate the man who over estimates himself…he may not be wrong all the time.” Charlie Munger

When it comes to investing in an uncertain environment, it is difficult to know what actions to take. But, nobody knows with certainty what is going to happen next in the markets or can predict the direction with certainty of the global economy. Despite the many self proclaimed stock picking experts who promote their ability to forecast the markets and abilities to select the next Amazon-like stock, it important to always remember that no one knows what will happen in or can accurately forecast the future.

Recently, Charlie Munger, Vice Chairman of Berkshire Hathaway, shared his thoughts about investing in general and regarding Elon Musk and Tesla, specifically. He commented that Elon is “peculiar and he may overestimate himself, but he may not be wrong all the time…”.

Additionally, Munger commented that he “…would never buy it [Tesla stock], and [he] would never sell it short.” Prudent investors would be wise to heed Munger’s advice and be concerned not only about potential rewards but, more importantly, also concerned about potential risks investing in hot, high flying stocks.

In Munger’s view, there exist too much “wretched excess” in the market and investors are taking on too much unnecessary risk. He worries that that there are dark clouds looming on the horizon. And, he believes markets and investors are ill-prepared to weather the coming market “trouble”.

References:

  1. https://www.marketwatch.com/story/wretched-excess-means-theres-lots-of-troubles-coming-warns-berkshire-hathaways-charlie-munger-2020-02-12

Passive Investing

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The ‘father of passive investing’, Burton Malkiel, Princeton University professor emeritus of economics and author of the famous investing book, “A Random Walk Down Wall Street“, believes that most investors should invest passively. This idea is embodied by exchange-traded funds that track major stock market indexes, such as the S&P 500, and passive mutual funds.

Malkiel’s theory is that investors are better off buying a broad universe of stocks, index funds, and minimizing fees rather than paying an active manager who may not beat the market. Index funds, also known as passive funds, are structured to invest in the same securities that make up a given index, and seek to match the performance of the index they track, whether positive or negative. As the name implies, no manager or management team actively picks stocks or makes buy and sell decisions.

In contrast, active funds attempt to beat whichever index serves as the fund’s benchmark, although — and this is important — there is no guarantee they will do so. Active managers conduct research, closely monitor market trends and employ a variety of trading strategies to achieve return. But this active involvement comes at a price. Actively-managed funds typically have significantly higher fees and expenses.

A 2016 study by S&P Dow Jones Indices showed that about 90 percent of active stock managers failed to beat their index benchmark targets over the previous one-year, five-year and 10-year periods; fees explain a significant part of that under performance.

Vanguard’s John ‘Jack’ Bogle – Stay the Course

Many industry leaders, including Vanguard’s John ‘Jack’ Bogle, who pioneered index funds, were influenced by Malkiel’s theory on passive investing.

John ‘Jack’ Bogle

Jack Bogle, who founded the pioneering investment firm Vanguard in 1975, is widely regarded as the father of index investing. Index investing is a strategy that functions best when investors sit on their hands for decades. This strategy is far removed from the thrill and excitement of trying to beat the market by picking individual stocks — but one that research says works.

Over the decades, Jack Bogle’s philosophy has acquired a plethora of devout investors whom follow his teachings. His followers, known as the Bogleheads, embrace long-term commitments to broad, boring investments. Bogleheads choose investments that are low-cost index mutual funds and exchange-traded funds (ETFs).

These low-cost index mutual funds and ETFs are designed to mimic their respective benchmark stock or bond markets, not beat them. Bogleheads’ core belief— stay the course — is so essential to their investment strategy. Bogleheads’ key tips for beginners are:

Early investing is better than perfect investing

Don’t get overwhelmed with your options and let decision paralysis keep you from investing sooner. The magic of compound interest is where your money grows that much faster because you keep earning interest on your interest. To illustrate the strategy, a person who starts investing small amounts in their early 20s will be better off than someone who starts later and invests larger amounts later to catch up.

Stay in the market; Don’t try to time the market

For Bogleheads, the best way to invest is through passively-managed index funds like those pioneered by Vanguard. That way, while your investment will rise and fall with the market, you’re not a victim to any particular company’s misfortune.

Investing in passively-managed funds is a core Boglehead tenet — and research shows the strategy is a sound one. The majority of actively-managed funds have underperformed the stock market for nearly a decade, according to an annual S&P Dow Jones Indices report. In other words, trying to pick winners doesn’t work; simply riding out the market’s ups and downs does.

Don’t peek; Set it and forget it

It is advised that investors check their investments a few times a year—but they shouldn’t react to market volatility or short-term corrections. The key to passive investing is to “set it and forget it”— that is, once you know what you’re investing in, leave it alone, let the market do its thing and be patient.

Over the past decade, passive investment has been closing the gap on active management. Yet, the ‘father of passive investing’ believes there are still too many investors who are not taking advantage of passive investing. Malkiel believes strongly that “…[passive investing] works. It’s the best thing for individual investors to do for the core of their portfolio.”

Keep it simple

In a nutshell, the best approach is a simple, low cost, diversified portfolio of index funds that matches the market return. Don’t try to beat the market—ignore hot tips and check your returns infrequently.

References:

    https://www.cnbc.com/2020/01/02/burton-malkiel-says-his-passive-investing-idea-was-called-garbage.html
    https://money.com/theres-a-super-secret-conference-dedicated-to-investing-legend-jack-bogle-heres-what-its-like-on-the-inside/
    https://us.spindices.com/documents/spiva/spiva-us-year-end-2016.pdf

U.S. Markets Overreacting

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Updated:  Monday, 2/3/2020 at 8:25 am

We never want to downplay the threat posed by the Novel Coronavirus in China and globally. The highly contagious coronavirus is a pneumonia-causing illness that infects an individual’s respiratory tract. It is now responsible for a reported 360 deaths in China as of Monday morning and 17,000 infections, according to Chinese officials and official figures from the World Health Organization. Furthermore, it can be confidently assumed that the Chinese Communist government has drastically under reported the magnitude of the spread and the total number of its citizens effected by the virus.

Consequently, the U.S.represents a relative virgin population for the Novel Coronavirus. Americans have little to no immunity to this strain of virus from previous spreads or vaccination.  Thus it does pose a potential temporary risk and impact to the U.S. economy.

Subsequently, the World Health Organization has declared the fast-spreading coronavirus a global health emergency — a rare designation that should help to contain the spread and outbreak.

On Friday, the Federal government decided to quarantine Americans arriving on U.S. soil from Wuhan and the Guangdong province in southern China. Additionally, the U.S. initiated measures to screen passengers arriving from all other regions of China. Those found without symptoms are released and asked to self isolate themselves for the fourteen days, the prescribed incubation period for the Coronavirus.

U.S. Influenza Season

However, most Americans are not aware that the CDC estimates that there has been 25 million cases of seasonal influenza in the U.S., 250K hospitalizations and 20,000 deaths reported. This is not abnormal for influenza season in the U.S. Moreover, influenza has been assessed as widespread in Puerto Rico and in 49 states.

Image if the media chose to report these statistics like the quantity of seasonal influenza cases, hospitalizations and deaths in the U.S. every hour and had quasi-infectious disease experts on-air to pontificate about the potential severity and potential deaths. Additionally, image if they had their reporters stoke fear by wearing a nurse’s mask to cover their respiratory system and displaying concern in their voices while reporting live from a mall in Chicago.

More than likely, the market would have been impacted by the over reporting of news.

Conclusion

Bottom line, the market has been  freaking out over the coronavirus outbreak, which doesn’t pose a threat to any long-term investor, as long as they remain calm and disciplined.  The media’s coverage and reporting of the coronavirus might be best described as over-dramatic. The effect has been the market sell off and market volatility. Additionally, the media appears to be now over hyping the preventive measure U.S. officials have taken to prevent the spread of the highly contagious virus on U.S. soil.

Friday’s U.S. stock market two percent sell off was definitely an overreaction to the over-reporting and over-hyping by the U.S. entertainment media.

References:

  1. https://www.cdc.gov/flu/weekly/index.htm#ILIActivityMap

Bill Miller 4Q 2019 Market Letter

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“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” Warren Buffett

Bill Miller, CFA, is the founder of Miller Value Partners, and currently serves as the Chairman and Chief Investment Officer. His fourth quarter 2019 Market Letter released 13 January 2020, to clients is loaded with useful insights for investors and followers of the financial markets. The letter has been discussed thoroughly by financial pundits and the financial entertainment media.

Market forecasts delivered by economists and the financial news entertainment media pundits on networks, such as CNBC, are rarely useful or insightful or accurate.  Bill Miller cited in his letter that “…the future is not forecastable with any degree of granularity”. 

The method most forecasters use is either to follow the consensus or to “believe that tomorrow will look pretty much like yesterday.”  He further mentioned that “one of the 20th century’s greatest economists, was once asked how far into the future a good economist could forecast”. He quipped: “One quarter back.””

“Short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.” Warren Buffett

Essentially, no economist or financial guru can accurately or reliability forecast the market’s direction (rise, flat or pullback) or its relative velocity of change. Despite their self proclaimed vast financial experience and inside knowledge of the inner workings of equity stock markets, the sophisticated financial tools available to them, and their early access to market news, they remain unable to reliably forecast the market.

Miller concluded in his letter that, “stocks will not move in a straight line higher even if the bull market continues in 2020, as I believe it will.”  He stated that,  “setbacks and corrections should be expected, but unless something causes the economy to tip into recession and earnings and cash flows to decline, which I do not expect even if the geopolitical situation gets grimmer, then the path of least resistance for stocks remains as has been for a decade: higher.”

To read the entire letter, go to:  Bill Miller 4Q 2019 Market Letter

Sources:

  1. https://millervalue.com/bill-miller-4q-2019-market-letter/
  2. https://www.evidenceinvestor.com/warren-buffetts-advice-investors-25-quotes/

Stock Investing Basics

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“The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently.” John Bogle

Investing, especially in stocks, is about putting your money to work for you with the goal of growing it over time. And, the sooner you start investing the less you may need to save because your money gets to work that much sooner. The more you invest; the more those returns can add up.

Investing does involve risk. And the stock market particularly will experience volatility, meltdowns and melt ups. But there are ways and means to mitigate that risk. The key is to choose a strategy that incorporates a broad range of investments in stocks, bonds, and cash based on your risk tolerance and time horizon and never put all your money in one particular stock.

Intelligent investing is based on the relationship between price and value. One other important factor is time.  Assessing the stock price relative to its intrinsic value remains the most reliable way to invest for the long term. To protect yourself against market downturns, a long-term approach is essential.

Important steps to smart investing

All too often, people fail to think about how to start or just fail to start investing. To stay ahead of inflation, your money needs to earn more than a typical savings account pay. Research indicates that the best action a long-term investor can take is to start investing early in life, like in their early twenties—regardless of what the markets are doing.

Create an investment plan

“The man without a purpose is like a ship without a rudder.” Thomas Carlyle

Like a ship without a rudder, trying to manage your money and achieve your long-term goals are unlikely without a plan. You would not start a trip without planning and mapping out your route in advance. So,why would you save for retirement without first planning your path to achieving your short-, intermediate-, and long-term financial goals. You will need to:

  • Have an investment plan that is realistic and actionable.
  • Understand your plan, follow it, and adjust it when things change in your life.

Put your plan into action.

  • Keep your portfolio diversified with an asset allocation that’s right for your risk tolerance—and stick with it.
  • Don’t wait. If you invest now, you’ll start earning sooner.

Stay on track.

  • Do periodic checkups to keep your portfolio healthy.
  • Keep in mind that long-term goals are more important than short-term performance.

When you invest in a stock, you are buying ownership shares in a company—also known as equity shares. Your return on investment, or what you get back in relation to what you put in, depends on the success or failure of that company. If the company does well and makes money from the products or services it sells, you expect to benefit from that success. There are two main ways to make money with stocks:

  1. Dividends. Publicly owned companies can choose to distribute some of those earnings to shareholders by paying a dividend. Shareholders can either take the dividends in cash or reinvest them to purchase more shares in the company.
  2. Capital gains. When a stock price goes higher than what you paid to buy it, you can sell your shares at a profit. These profits are known as capital gains. In contrast, if you sell your stock for a lower price than you paid to buy it, you’ve incurred a capital loss.

Both dividends and capital gains depend on the returns generated by the company—dividends as a result of the company’s earnings and capital gains based on investor demand for the stock. 

The performance of a stock can be affected by what’s happening in the market, which can be affected by the economy as a whole or by changes in investor psychology. For example, if interest rates increase, and you think you can make more money with bonds than you can with stock, you might sell off stock and use that money to buy bonds.

If many investors feel the same way, the stock market as a whole is likely to drop in value, which in turn may affect the value of the investments you hold. Other factors, such as political uncertainty at home or abroad, energy or weather problems, or soaring corporate profits, also influence market performance.

Important Element of Investing

Stock prices will be low enough to attract investors again. If you and others begin to buy, stock prices tend to rise, offering the potential for making a profit. That expectation may breathe new life into the stock market as more people invest.

This cyclical pattern—specifically, the pattern of strength and weakness in the stock market and the majority of stocks that trade in the stock market—recurs continually, though the schedule isn’t predictable. Sometimes, the market moves from strength to weakness and back to strength in only a few months. Other times, this movement, which is known as a full market cycle, takes years.

At the same time that the stock market is experiencing ups and downs, the bond market is fluctuating as well. That’s why asset allocation, or including different types of investments in your portfolio, is such an important strategy: In many cases, the bond market is up when the stock market is down and vice versa.

Your goal as an investor is to be invested in several categories of investments at the same time, so that some of your money will be in the category that’s doing well at any given time.

Savers often think they can’t afford to lose any money by investing in the market. But they don’t realize that when they don’t make their money work for them, they are losing purchasing power. Inflation, for example, creeps up over the years and steals from your savings if you’re not earning enough to make up for it.

  1. https://www.oaktreecapital.com/docs/default-source/memos/nobody-knows-ii.pdf