There has been all sorts of media, companies and individuals pushing methods of "getting rich in the stock market". The proposed strategies range from stock picking to trading, all the way out to using esoteric long/short hedging strategies with options & futures.
The reality is that there is only one guaranteed method to get rich in the stock market. It involves time, diversification, low-cost funds, continuous investment, and patience.
1) Time
The first factor is time; you will need to be focused on the long term. Success in the stock market is not based on the next quarter or year, but the expectation for results over long periods of time akin to decades.
2) Diversification
It is important to be properly diversified based on your investment objectives, accepted risk tolerance, and time frames. You should be diversified across domestic stocks, international stocks, growth/income, and company size. The is also need for a balance between stocks, bonds, and other investments based on your age and objectives. There are many articles available that discuss proper diversification including - Why Diversification Is Important in Investing.
My earlier thoughts on 401K diversification can be found here - https://www.gregboop.com/2007/02/portfolio-diversification-401k.html
3) Low-cost Funds
Investment costs such as mutual fund fees can eat into a good portion of your returns over time. Funds with high fees don't offer better returns over time than index funds -- in fact many times their returns are worse than index funds. It is best to find mutual funds that mirror indexes offered from funds families such an Vanguard, Fidelity, and Schwab. Mutual Fund marketing fees, front end load fees, back end load fee and other assorted fees merely make financial people rich -- they don't help you are all.
4) Continuous Investment
The market goes through many cycles. By investing regularly - for example adding money each paycheck to a 401K or IRA - you are riding the cycle. When the market pulls back you are buying more at lower cost; when the market rises you are making solid returns on what you have purchased over time. Continuous investment provides a safety cushion for market cycles; it is a much better strategy than simply purchasing funds at one point in time. If you buy at the peak with all of your cash it is a harder climb to get solid investment returns.
5) Patience
Be willing to hold on an ride out market cycles. Do not panic when the market goes down. Do not take a lot of money out simply because the market is up (trying to time the market). You need to have a long term view and be patient. Getting "rich" in the stock market is a long term "play" not something that happens by next year.
Friday, December 13, 2019
Tuesday, December 10, 2019
Even the AARP is wondering "How much longer will Social Security be around?"
While the media continues to spew headlines proclaiming the death of pension plans ('It's really over': Corporate pensions head for extinction as nature of retirement plans changes)- an event for most corporations which occurred over two decades ago; there is minimal mainstream press over the risk of depending on Social Security in retirement and what planning actions you should take.
There have been numerous articles outlining how the system will run through its reserve assets by 2035 and will need to reduce payments if nothing is done (AARP: How much longer will Social Security be around?) and multiple politicians running for office in 2020 have proposed plans for "saving" social security. The bottom line is there has been no action in Washington D.C. for two decades. Either there must be a increase in the portion of salary taxed and/or for an increase in the ceiling on the amount of salary that is taxed.
This lack of political action, of course, has left the Social Security system in a unfortunate position where it will not be able to fulfill its obligations starting in 2035 (according to the 2019 Trustee Report). "OASI would be able to pay 77% of promised benefits when funds are depleted in 2034" according to USA Today What happens when Social Security goes broke?
The bottom line is that with no mechanism to rescue Social Security in place you should be expecting payment cuts of 23% in whatever payments you expect out of Social Security out in 2035 Your retirement planning should include this expectation plus the assumption of no cost of living increases.
Any retirement plan evaluating cash flow in your later years should have this assumption in place as one of the scenarios to be evaluated.
There have been numerous articles outlining how the system will run through its reserve assets by 2035 and will need to reduce payments if nothing is done (AARP: How much longer will Social Security be around?) and multiple politicians running for office in 2020 have proposed plans for "saving" social security. The bottom line is there has been no action in Washington D.C. for two decades. Either there must be a increase in the portion of salary taxed and/or for an increase in the ceiling on the amount of salary that is taxed.
This lack of political action, of course, has left the Social Security system in a unfortunate position where it will not be able to fulfill its obligations starting in 2035 (according to the 2019 Trustee Report). "OASI would be able to pay 77% of promised benefits when funds are depleted in 2034" according to USA Today What happens when Social Security goes broke?
The action needed in your retirement planning
The bottom line is that with no mechanism to rescue Social Security in place you should be expecting payment cuts of 23% in whatever payments you expect out of Social Security out in 2035 Your retirement planning should include this expectation plus the assumption of no cost of living increases.
Any retirement plan evaluating cash flow in your later years should have this assumption in place as one of the scenarios to be evaluated.
Monday, December 9, 2019
Trimming Underperforming Stocks from your Portfolio
A majority of the stocks in my portfolio have done well over time. There are a few under-performers in the mix; I have admittedly been lax about trimming them and trading them out over the years. There are the usual rash of rationalizations I make; they will come back or they represent a particular diversification that is desired.
One stock I failed to trim for over a decade now is Gannett Co., Inc. (GCI). I purchased GCI in Dec 2007 at the upper 30s in price; now it is at a mere 6 bucks.
Gannett does represent a particular niche in my portfolio. It is in a tax protected account with a diversified portfolio of stocks focused on strong dividend yield using stocks that allow dividend re-investment into more shares.
Gannett is in a tough industry that has been steadily declining; newspaper publishing. Back in 2007 there was still a glimmer of hope that newspapers would adapt in a digital world and come back - not so much anymore a dozen years later.
Still GCI represents a diversification point in my portfolio; it is the only individual stock that covers paper-based media. It still has a a strong dividend yield; with the stock price down at $5.97 the forward yield is an astounding 23.38% (based on $1.52 yield). However even with this yield the drop in stock price over time nearly wipes out the yield returns - when calculating quarter by quarter.
On top of this back in mid-November shareholders of Gannett Co. Inc. (NYSE: GCI) signed off on a roughly $1.2 billion proposal for the McLean company to be acquired by the parent company of rival GateHouse Media. I doubt that the new company will still offer very high dividend yield; this further drives the plan to bail out of paper media stock and rotate into another sector.
The time has come to trim GCI and a few other under performers that I have held onto for more than a decade. My New Year's resolution will be to do this in January... or is this just a way of procrastinating and putting this off for yet another month.
One interesting point will be to compare my portfolio of dividend focused stocks to a mutual fund (or index) that follows the same strategy and see how the performance compares over a decade. Have I beat the indexes with my stock-picking or not -- this will be an upcoming subject next year when I finally rotate out of the under-performers.
One stock I failed to trim for over a decade now is Gannett Co., Inc. (GCI). I purchased GCI in Dec 2007 at the upper 30s in price; now it is at a mere 6 bucks.
Gannett does represent a particular niche in my portfolio. It is in a tax protected account with a diversified portfolio of stocks focused on strong dividend yield using stocks that allow dividend re-investment into more shares.
Gannett is in a tough industry that has been steadily declining; newspaper publishing. Back in 2007 there was still a glimmer of hope that newspapers would adapt in a digital world and come back - not so much anymore a dozen years later.
Still GCI represents a diversification point in my portfolio; it is the only individual stock that covers paper-based media. It still has a a strong dividend yield; with the stock price down at $5.97 the forward yield is an astounding 23.38% (based on $1.52 yield). However even with this yield the drop in stock price over time nearly wipes out the yield returns - when calculating quarter by quarter.
On top of this back in mid-November shareholders of Gannett Co. Inc. (NYSE: GCI) signed off on a roughly $1.2 billion proposal for the McLean company to be acquired by the parent company of rival GateHouse Media. I doubt that the new company will still offer very high dividend yield; this further drives the plan to bail out of paper media stock and rotate into another sector.
The time has come to trim GCI and a few other under performers that I have held onto for more than a decade. My New Year's resolution will be to do this in January... or is this just a way of procrastinating and putting this off for yet another month.
One interesting point will be to compare my portfolio of dividend focused stocks to a mutual fund (or index) that follows the same strategy and see how the performance compares over a decade. Have I beat the indexes with my stock-picking or not -- this will be an upcoming subject next year when I finally rotate out of the under-performers.
Sunday, December 8, 2019
Gummy Stuff Archive of Financial Spreadsheets and Tutorials
Gummy Stuff is a large number of financial spreadsheets and tutorials created by Peter Ponzo after he retired from the University of Waterloo.
An archive of the information he created can be found at - https://www.financialwisdomforum.org/gummy-stuff/gummy_stuff.htm
A modern version of his tutorial list can be found at - https://www.financialwisdomforum.org/gummy-stuff-tutorials/
Gummy Stuff is a great resource for financial information and valuable spreadsheet resource. It is all free! I urge people to check it out.
An archive of the information he created can be found at - https://www.financialwisdomforum.org/gummy-stuff/gummy_stuff.htm
A modern version of his tutorial list can be found at - https://www.financialwisdomforum.org/gummy-stuff-tutorials/
Gummy Stuff is a great resource for financial information and valuable spreadsheet resource. It is all free! I urge people to check it out.
Thursday, December 5, 2019
Retirement Calculators
I have finally reached the point in life where I am looking for retirement calculators. Maybe this is just wishful thinking because there is someway to go before I am eligible for social security.
Along the way I have been searching for online retirement calculators and articles. I have created a spreadsheet for savings, investments, and spending by year -- which at some point when its perfected I will post.
In the meantime I found a good article which references several good on-line retirement calculators.
Along the way I have been searching for online retirement calculators and articles. I have created a spreadsheet for savings, investments, and spending by year -- which at some point when its perfected I will post.
In the meantime I found a good article which references several good on-line retirement calculators.
5 Excellent Retirement Calculators (And All Are Free)
https://www.forbes.com/sites/robertberger/2015/07/12/5-excellent-retirement-calculators-and-all-are-free/#7631ca374d1c
Subscribe to:
Posts (Atom)