 Over the years, we've all heard the doom and gloom from all sorts of so-called market experts. Here's a very short list of some of what you might have heard:
Doom and gloom sound bites make headlines, help sell complex expensive investment products and fit nicely in the 240 character limit on Twitter. But other than that, most of the time they aren't good for much, except for creating fear. There is volatility in the stock market, there is no denying that. And there always will be. Period. In fact, any market where people are involved there will be volatility, but taking a well thought out approach to investing and financial plannning has proven to do very well over time. Volatility and not having absolute certainty about the future is a feature of investing, not a bug. The sooner you get used to it, the better off you'll be. There is always a reason not to invest...do it anyway. Your older wealthier self will thank you.
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Most people have been accustomed to believing that the more you pay for something the higher the quality to be received. And in many areas of life, this is very well true. You can think of expensive German cars vs. less expensive domestic cars. Step into a high-end department store and get fitted for a custom suit vs. off the rack discount store and you can immediately "feel" the difference. From restaurants, autos, clothes, and electronics, the list goes on and on; pay more, and you can expect to receive a better product or service. Well confusing to most people, this idea does not hold true when it comes to investing. In fact, many times the opposite is true when it comes to investing. Of course the sales literature of the largest financial firms will beg to differ, and the allure of paying for more expensive investment products to get better performance will attract some. Regrettably most investors will not experience this outperformance, but they are guaranteed to experience paying more. The large financial firms that create and sell investment products have created mutual funds, which have by and large been a great benefit to individual investors. A mutual fund at the most basic level is a basket that is created to hold securities. By doing this, it provides diversification to investors by allowing people to buy a basket of securities at one time and removing the risk of owning individual securities (see risk of owning individual securities here). So far so good. Until we dig a bit deeper and get into what can be called the mutual fund share class zoo. These same companies who create these mutual funds, create different share classes that can be sold to different investors. The various share classes are broken down the following way: class A, class B, class C, class I, etc., basically a zoo of letters. These various share classes hold the exact same securities in their basket, so there is no difference in terms of holdings, expected return, and risk. The only difference between these various shares classes is how much money is charged and how much the company and it's advisors are going to make. The equation is simple, the more you pay the less you make and the more your advisor makes. It is essential to consider which class of mutual fund shares is suitable for you. I'll let you in on a secret, shhh, all else being equal, buy the lowest cost option. Below is a chart of the Goldman Sachs Technology Fund and all of it's various share class options. Again, the various mutual funds all hold exactly the same securities, the only difference is the amount of money being charged to own this fund. It's a dramatic difference between the lowest cost share class fund and the highest cost fund. $100,000 invested 10-years ago would be worth anywhere between $542,000 and $484,000. This $58,000 dollar difference is solely due to which shares class your advisor used. Costs matter. Conflicts of Interest Matter. Sadly most financial advisors don't have to use the lowest cost option as these financial advisors will make more money if they use the more expensive option. Yuk.  Or if you really want to save money with essentially the same holdings and with historically better performance, the iShares Technology fund (IGM) is an option - see the purple line below. In fact, it's dramatically outperformed all of the Goldman Sachs Technology funds. Of course, past performance is no guarantee of future returns.  While the technology sector has performed extremely well recently, I use this just as an example of the share classes (and the affect costs have on peformance) many of the large financial firms use and not necessarily promoting technology focused investments right now.
The example above used Goldman Sachs, but this holds true for all the other large financial firms: Morgan Stanley, Wells Fargo, JPMorgan, and Merrill Lynch (Bank of America), just to name a few. They are all guilty of promoting more expensive funds to investors who may not be aware of all the mutual fund share classes. Be careful, It's a zoo out there. There is a reason why the vast majority of individual investors shouldn't own individual stocks. Lots and lots of companies don't do well, in fact, many can make horrible investments and some even go out of business. Buyer beware. Below is a 5-Year Chart of the 11 Worst Performing Stocks in the S&P 500 - while many other companies lost money over this same time period, in fact, 145 were money losers over the last 5-years. Or said another way, almost 1/3 of all companies in the S&P 500 index lost money over the last 5-years! The purple line is the S&P Index over the same time period. Basically over the last 5-years, which includes the current Covid crisis, the stock market is up over 61%, while many companies didn't fair nearly as well.  And it gets worse if we look at the Russell 3000 Index, which incorporates somewhat smaller companies that the S&P 500 doesn't include. However, these are still large companies with well-known names. Names like: Macy's, GNC, GoPro, Tupperware, just to name a few.  Picking individual stocks isn't easy, nor should it be. This is a highly competitive field, filled with lots of very smart highly skilled professionals who get paid large sums of money to correctly analyze companies and make money for their investors.
Every time you place a trade to buy a company's stock, you should consider who is on the other side of your trade...and what is it that they know, that you don't know? Buyer beware. Founded in 1892, General Electric has been around for over 128 years and the company has built and produced an amazing array of products from light bulbs, to jet engines, to magnetic resonance Imaging (MRI) machines, and almost everything in between during various periods of time. Understandably, many business school students and investors have studied, analyzed, and marveled over GE's long-term success. You can see below that a $10,000 investment in GE back in 1981 grew to almost $600,000 in less than 20 years. This is truly an amazing record and something very few companies achieve. In fact, the +20% annualized returns that GE produced over that time period are very similar to the returns Apple has produced from 2000-2020. Quite astounding to say the least.  But even with all its success, both for consumers and its shareholders, no company is immune to the extremely competitive business world. Like every global company today, GE competes in the most competitive arena the world has to offer, that arena is called Capitalism. Capitalism is fierce. And as such, the story changes dramatically for people who invested in GE anytime over the last 20 years. See the chart of GE below (2000 - 2020). GE has been dead money for two decades. Especially if you review how well the overall stock market performed during that same time period. $10,000 invested in GE back in 2000, an investor lost a whopping 7,400, leaving only $2,600. During this same time period, that same $10,000 invested the overall stock market grew to over $30,000.  As much as you, stock market analysts, Forbes, or your neighbor loves a particular company, even the most successful companies, some with 100+ year old track records might not provide good returns going forward. Sometimes history isn't a guide to the future and back in 2000 it wasn't for GE.
Understanding where a company competes, what are its biggest threats, what the business landscape looks like, determining their competitive advantage, answering another 100 or so difficult questions, and then properly being able to determine its value is paramount to having a chance of investing success. Ask yourself, back in 2000 after GE's amazing growth, wouldn't you have thought GE would continue to do well for the next 20 years? Competition is fierce, tread lightly. So, in the spirit of making predictions that will actually come true, here are my Top 10 predictions in order of certainty. In other words, Prediction #10 is pretty-darn-certain to happen while Prediction #1 is absolutely guaranteed.
#10. Volatility will remain The stock market, the bond market, the commodities markets, the geopolitical landscape, pretty much all endeavors where people are involved are volatile – some more than others. This is a feature not a bug. #9. Sectors will rotate The S&P 500 has eleven sectors (technology, financial, real estate, health care, etc.), and guess what? Various sectors fall in and out of favor and therefore their returns will be all over the map. Market prognosticators will give a reason as why this happened...but always after-the-fact. #8. Congress will continue to be a lightning-rod Why? Because 535 people come from all over the country having all different agendas. However, the one agenda they all share is wanting to get reelected. #7. The business media will continue to talk about what the Fed is going to do next Economists enjoy talking about when the Fed is going to lower or raise short-term interest rates. Why? Because it gives people the idea that some so called experts know what the Fed is going to do - the secret is, they don't. Predicting almost anything related to the economy is next to impossible. My advice is to get comfortable being uncomfortable. #6. There will be earnings disappointments Some companies will do worse than expected. Some will even go out of business. Some will disappoint and then surprise in the future. #5. There will be earnings surprises Some companies will do better than expected. Some of these companies will buy other companies. Trying to predict which companies will continue to do well is harder than understanding quantum mechanics. Capitalism is fierce, tread lightly. #4. The housing market will change Mortgage rates, lending standards, building permits, and employment all effect the housing market and these 4 inputs are always changing so it’s nearly impossible for housing not to change. #3. The U.S. dollar will fluctuate Many factors affect the movement of the U.S. dollar and it's virtually impossible to predict the direction, but many will try. Don’t be one of them. #2. Patient long-term investors with a well-thought out plan will do well Past performance of course will not guarantee future results, but it is a pretty-good indication of what the range of outcomes will likely be. #1. My team will continue to serve you in a fiduciary capacity As always, we believe that making decisions based on evidence rather than predictions will give you the best odds of success. Together, we will help plan, build, and execute a financial roadmap that will allow you to live on purpose. And that is one prediction that is absolutely guaranteed. The Coronavirus Bear kicked the 11-year Bull Market of Wall Street very fast. A “bear market” occurs when stock prices in general are falling, and then widespread pessimism sustains the continued drop in prices. The stock market becomes a bear market whenever stock prices have fallen over 20% over the course of several months, as seen in market indexes like the S&P 500. Investors lose confidence in the market as they anticipate further losses.
A “bull market”, on the other hand, comes with rising stock prices and increasing investor confidence. Stock prices rise by at least 20% over the course of several months in a bull market. Looking at history, bear markets are typically shorter than bull markets. A bull market's average duration is about 3 years, while bear markets last on average about 18 months. The terms, “bear market” and “bull market,” come from the behaviors of these animals: A bull thrust its enemies upward, while a bear prefers to knock foes into the dirt. Stock Market Corrections It is important to distinguish a bear market from a market correction, which is shorter and involves less of a market decline. Market corrections are part of the normal ebb and flow of the market. They are short-term trends that typically last less than two months and involve stock market declines of about 10% - not the 20% fall in a bear market. Stock market corrections are a natural part of the stock market cycle. Stock Market Crashes Stock markets “crash” when stock prices plummet more than 10% in one day. The Great Crash of 1929 consisted of market drops of 13% and 12% on successive days. On March 16, 2020, the market crashed 13%. Bear Market Rally In a normal bear market, there will of course be days or weeks when prices increase. It is important, however, to distinguish a bear market rally from the beginning of a bull market. In a rally, the stock market posts gains for days or even weeks in a row. Investors might be tricked into thinking that a new bull market has begun. However, until stock prices increase by 20%, there is still a bear market. Recessions A recession occurs when the Gross Domestic Product (GDP) declines for two or more quarters in a row. Many of the same factors cause recessions and bear markets, but the stock markets and the economy do not always move together. Usually, however, a bear market and a recession overlap. Historical Bear Markets: Great Crash of 1929 (89% drop, 34 months) The depression was preceded by the Great Crash of October, 1929, with price declines of 13% and 12% on successive days. The crash also inaugurated the worst bear market of all time, with stocks dropping 89% through June, 1932. High unemployment lasted through the 1930s. Vietnam & Assassinations of 1968-1970 (36% drop, 18 months) A weakening economy, high inflation, a tumultuous year of assassinations and riots, and tensions of the Vietnam War influenced the development of a bear market, which accompanied a mild recession. Oil Embargo of 1973-1974 (48% drop, 21 months) The 1970s were marked by chronically high inflation. Stocks also underperformed during the decade, rallying and then fading in value. In 1973, the Arab oil embargo drove up gas prices, sparking double-digit inflation, a recession, and a bear market. Interest Rate Rise in 1980-1982 (28% drop, 21 months) By 1980, the country had faced almost a decade of sustained inflation, along with slow growth. In order to fight this “stagflation,” the Federal Reserve raised interest rates. This rate increase, coupled with a deep recession, led to a relatively shallow bear market lasting 21 months. Crash of 1987 (34% drop, 3 months) Due in large part to the excesses of automated computer trading, the market crashed, falling 22.6% in one day. The resulting bear market lasted only a brief 3 months. The GDP did not fall, so there was no recession. Dot.com Bubble of 2000-2002 (49% drop, 30 months) The Dot.com bubble consisted of soaring stock prices and excitement about newly emerging Internet companies. The bubble burst when investors realized that the newly emerging Internet companies showed little or no profit. The attacks of 9/11 deepened a mild recession and prolonged this bear market. Subprime Mortgage & Financial Crisis of 2007-2009 (56% drop, 17 months) A rising mortgage delinquency rate spilled over into the credit markets because a variety of financial instruments were tied to home loans. As a result, the U.S. and other countries enacted large economic stimulus measures. It was accompanied by the “Great Recession.” The Coronavirus of 2020 (30%+ drop, TBD) The pace with which the bear kicked the bull off of Wall Street was startling, as markets were setting record highs as recently as mid-February 2020. In fact, the speed with which the bear awakened from its 11-year slumber was the fastest in history. Volatility was rampant, the NYSE’s circuit breakers kicked on multiple times and the U.S. government rushed through aid packages worth over $1 trillion. A bear market is difficult to predict. Falling stock values might just be part of a stock market correction. Rising values might only signal a bear market rally, as opposed to a new bull market. Investors need to beware of the tendency to overreact to fears of a bear market or thrills of a bull market. Investors tend to tinker with their holdings, often selling after stocks have fallen sharply, instead of buying stocks at low prices (or buying after stocks have risen to unsustainable heights). Similarly, some investors sell stocks before the bear market begins but are then too frightened to return. Many factors affect the stock market. The depression was preceded by the Great Crash of October, 1929, with price declines of 13% and 12% on successive days. The crash also inaugurated the worst bear market of all time, with stocks dropping 89% through June, 1932. High unemployment lasted through the 1930s. The pace with which the bear kicked the bull off of Wall Street was startling, as markets were setting record highs as recently as mid-February 2020. In fact, the speed with which the bear awakened from its 11-year slumber was the fastest in history. Volatility was rampant, the NYSE’s circuit breakers kicked on multiple times and the U.S. government rushed through aid packages worth over $1 trillion. Trends and Predictions Bull markets feature investor optimism, but this turns to pessimism and panic during a bear market. Both bull and bear markets are driven by changes in investor attitudes as much as by economic fundamentals. Target Date Funds have become wildly popular in retirement plans over the last few years, and rightfully so, they help investors who don’t necessarily have a great understanding of investing or don’t have the time, the commitment, nor the energy to put toward researching and understanding how they should be invested. What is a Target Date Fund? It's a prebuilt portfolio that uses one input to determine how to invest your money. What's the one input? The date you expect or plan to retire. That's it. Is this really the best way to plan for your retirement? Probably not, but it's better than having your retirement money sitting in cash or your retirement plan's money market option. Long-term, cash and cash-like investments actually lose their value or purchasing power due to inflation (read here about inflation), so it's important to get your money invested. So Target Date Funds can help people get started in their journey to financial independence if they aren't sure what to do and want to get their feet wet investing. However, to have the highest probably of financial success, the following questions should be addressed and understood prior to making any investment decisions:
While Target Date Funds won't help answer the questions above, they can help people who at least want to get their retirement going and don't know where to start. Generally I agree that picking a Target Date Fund over the default money market option in most retirement plans is a pretty good start, but it’s definitely not the finish line, and quite honestly, it's closer to the starting line. Target Date Funds with the same target date have dramatically different returns over various time. Understanding how these target date funds are invested, what they’re invested in, how often they re-balance and the expenses they charged is critical to understand. Why? Well, this will determine how your portfolio will do overtime and how much money your portfolio may be worth in 10, 20, or 30 years in the future. Take a look at two charts below of many well-known Target Date Funds that all supposedly have the same retirement date. Notice the difference between returns and how volatile various target date funds can be even with the same retirement date of 2030. The below chart shows several 2030 Target Date Funds and how they faired during this recent downturn. They ranged from being down as little as -22% to down over -28% from their recent highs.  The chart below shows the 10-Year return of these same seven 2030 Target Date Funds. The returns differences are staggering, if you had invested $100,000 10-year ago your value today would have ranged from $178,000 to over $211,000 depending which Target Date Fund you might have been invested in.  Having a well-though financial plan, understanding what you are invested in (research, research, research & more research), and recognizing not all Target Date Funds are created equal is important to meeting your financial goals.
The Coronavirus Bear kicked the 11-year Bull Market of Wall Street very fast. A “bear market” occurs when stock prices in general are falling, and then widespread pessimism sustains the continued drop in prices. The stock market becomes a bear market whenever stock prices have fallen over 20% over the course of several months, as seen in market indexes like the S&P 500. Investors lose confidence in the market as they anticipate further losses.
A “bull market”, on the other hand, comes with rising stock prices and increasing investor confidence. Stock prices rise by at least 20% over the course of several months in a bull market. Looking at history, bear markets are typically shorter than bull markets. A bull market's average duration is about 3 years, while bear markets last on average about 18 months. The terms, “bear market” and “bull market,” come from the behaviors of these animals: A bull thrust its enemies upward, while a bear prefers to knock foes into the dirt. Stock Market Corrections It is important to distinguish a bear market from a market correction, which is shorter and involves less of a market decline. Market corrections are part of the normal ebb and flow of the market. They are short-term trends that typically last less than two months and involve stock market declines of about 10% - not the 20% fall in a bear market. Stock market corrections are a natural part of the stock market cycle. Stock Market Crashes Stock markets “crash” when stock prices plummet more than 10% in one day. The Great Crash of 1929 consisted of market drops of 13% and 12% on successive days. On March 16, 2020, the market crashed 13%. Bear Market Rally In a normal bear market, there will of course be days or weeks when prices increase. It is important, however, to distinguish a bear market rally from the beginning of a bull market. In a rally, the stock market posts gains for days or even weeks in a row. Investors might be tricked into thinking that a new bull market has begun. However, until stock prices increase by 20%, there is still a bear market. Recessions A recession occurs when the Gross Domestic Product (GDP) declines for two or more quarters in a row. Many of the same factors cause recessions and bear markets, but the stock markets and the economy do not always move together. Usually, however, a bear market and a recession overlap. Historical Bear Markets: Great Crash of 1929 (89% drop, 34 months) The depression was preceded by the Great Crash of October, 1929, with price declines of 13% and 12% on successive days. The crash also inaugurated the worst bear market of all time, with stocks dropping 89% through June, 1932. High unemployment lasted through the 1930s. Vietnam & Assassinations of 1968-1970 (36% drop, 18 months) A weakening economy, high inflation, a tumultuous year of assassinations and riots, and tensions of the Vietnam War influenced the development of a bear market, which accompanied a mild recession. Oil Embargo of 1973-1974 (48% drop, 21 months) The 1970s were marked by chronically high inflation. Stocks also underperformed during the decade, rallying and then fading in value. In 1973, the Arab oil embargo drove up gas prices, sparking double-digit inflation, a recession, and a bear market. Interest Rate Rise in 1980-1982 (28% drop, 21 months) By 1980, the country had faced almost a decade of sustained inflation, along with slow growth. In order to fight this “stagflation,” the Federal Reserve raised interest rates. This rate increase, coupled with a deep recession, led to a relatively shallow bear market lasting 21 months. Crash of 1987 (34% drop, 3 months) Due in large part to the excesses of automated computer trading, the market crashed, falling 22.6% in one day. The resulting bear market lasted only a brief 3 months. The GDP did not fall, so there was no recession. Dot.com Bubble of 2000-2002 (49% drop, 30 months) The Dot.com bubble consisted of soaring stock prices and excitement about newly emerging Internet companies. The bubble burst when investors realized that the newly emerging Internet companies showed little or no profit. The attacks of 9/11 deepened a mild recession and prolonged this bear market. Subprime Mortgage & Financial Crisis of 2007-2009 (56% drop, 17 months) A rising mortgage delinquency rate spilled over into the credit markets because a variety of financial instruments were tied to home loans. As a result, the U.S. and other countries enacted large economic stimulus measures. It was accompanied by the “Great Recession.” The Coronavirus of 2020 (30%+ drop, TBD) The pace with which the bear kicked the bull off of Wall Street was startling, as markets were setting record highs as recently as mid-February 2020. In fact, the speed with which the bear awakened from its 11-year slumber was the fastest in history. Volatility was rampant, the NYSE’s circuit breakers kicked on multiple times and the U.S. government rushed through aid packages worth over $1 trillion. Trends and Predictions Bull markets feature investor optimism, but this turns to pessimism and panic during a bear market. Both types of markets are driven by changes in investor attitudes as much as by economic fundamentals. A bear market is difficult to predict. Falling stock values might just be part of a stock market correction. Rising values might only signal a bear market rally, as opposed to a new bull market. Investors need to beware of the tendency to overreact to fears of a bear market or thrills of a bull market. Investors tend to tinker with their holdings, often selling after stocks have fallen sharply, instead of buying stocks at low prices (or buying after stocks have risen to unsustainable heights). Similarly, some investors sell stocks before the bear market begins but are then too frightened to return. Many factors affect the stock market. Be sure to consult your financial advisor for specific guidance. The depression was preceded by the Great Crash of October, 1929, with price declines of 13% and 12% on successive days. The crash also inaugurated the worst bear market of all time, with stocks dropping 89% through June, 1932. High unemployment lasted through the 1930s. The pace with which the bear kicked the bull off of Wall Street was startling, as markets were setting record highs as recently as mid-February 2020. In fact, the speed with which the bear awakened from its 11-year slumber was the fastest in history. Volatility was rampant, the NYSE’s circuit breakers kicked on multiple times and the U.S. government rushed through aid packages worth over $1 trillion. Trends and Predictions Bull markets feature investor optimism, but this turns to pessimism and panic during a bear market. Both types of markets are driven by changes in investor attitudes as much as by economic fundamentals. "The unfortunate truth is that intelligence and experience in one domain do no necessarily translate to another domain. More importantly, IQ tests do not assess whether a person is rational. Someone can have a very high IQ and yet not be very rational. A high-IQ individual may also not have well developed skills, such as judgment and decision making." - Tren Griffin. In fact, having a high-IQ may lead to over-confidence and not understanding where your circle of competence ends.
"A lot of people with high IQ's are terrible investors because they've got terrible temperaments." - Charlie Munger, Vice-Chairman of Berkshire Hathaway. Charlie also said, "Very-high-IQ people can be completely useless-and many of them are." An old joke about Albert Einstein illustrates this point, Einstein passed away and went to heaven where he was informed that his room was not ready yet. He was told by an angel who was responsible for new arrivals, “I hope you will not mind staying for a while in a dormitory, I’m sorry but this is the best we can do right now.” The angel then escorted Einstein to meet his roommates saying this is your first roommate, she has an IQ of 180. “That’s wonderful!” exclaimed Einstein, “we can discuss mathematics.” The angel then said here is your second roommate his IQ is 150, “That’s wonderful,” responded Einstein, “we can discuss physics,” The angel finally said here’s your third roommate his IQ was 100. “That’s wonderful, where do you think the stock market is headed?” Being humble and thinking your IQ is a bit lower than it actually is may in fact improve your investment success. This blog is written from ideas from Tren Griffin's book, "Charlie Munger, The Complete Investor" Never bet against America and more sage advice from the Oracle of Omaha
Warren Buffett, one of the most successful and admired investors of our time, held the 2020 Berkshire Hathaway Annual Meeting of Shareholders from the company’s Omaha, Nebraska headquarters on the first Saturday of May. The Berkshire Annual Meeting, which has become an annual Woodstock-like event for investors around the world, drew a record 40,000 visitors last year, but this year (2020) the event was live-streamed instead due to COVID-19. And the Meeting was also limited to 89 year old Buffett holding court without his 96-year old friend and colleague Charlie Munger, who did not attend given the stay-at-home orders. But the almost 5-hour event, even without the fans, did not disappoint. Buffett’s presentation covered a lot of ground, including the performance of Berkshire Hathaway, the airlines, stock buybacks, succession plans, cash positions, the coronavirus, the federal government’s response, his office attire during the shutdown (sweatpants) and America’s prospects going forward. Here are just a few takeaways from the Oracle of Omaha. Buffett Dumped All Airline Stocks Before the Annual Meeting, there was a lot of chatter about Berkshire’s selling of airline stocks in April – positions Berkshire started making in late 2016. In fact, Berkshire held 10.1% of Southwest, 10% of American, 9.2% of Delta and 7.6% of United as of December 31st. And he sold all of it.
High Regards for the Federal Reserve Chair As has been well documented, since early March the Federal Reserve has taken bold and drastic actions to combat COVID-19, with many suggestions that such drastic actions have not been taken by the Fed since the Great Financial Crisis of 2008. In all, the Federal Reserve’s actions have provided the bulk of the more than $6 trillion worth of liquidity to our financial system because they adopted:
Here is what Warren said about the Fed and its current Chairman, Jerome Powell:
“Never Bet Against America” That is not a pithy title, those are the exact words spoken by Buffett when asked about the impact of COVID-19. And he had a lot more to say. He acknowledged that the range of possibilities are wide and it will likely take years before investors truly understand the full impact of the virus, from an economic perspective but also from an emotional perspective. But he left no doubt that the markets would regain their footing, especially in the U.S. On comparing the current virus to the Financial Crisis of 2008:
On whether America will rebound:
Heading into your retirement years brings a slew of new topics to grapple with, and one of the most confusing may be Medicare. Figuring out when to enroll, what to enroll in and what coverage will be best for you can be daunting. To help you wade easily into the waters, here are 8 essential things you need to know about Medicare.
Medicare Comes with a Cost Medicare is divided into parts. Part A, which pays for hospital services, is free if either you or your spouse paid Medicare payroll taxes for at least ten years. (People who aren't eligible for free Part A can pay a monthly premium of several hundred dollars.) Part B covers doctor visits and outpatient services, and it comes with a monthly price tag -- for most people in 2017, that monthly cost is about $109. New enrollees pay $134 per month. Part D, which covers prescription drug costs, also has a monthly charge that varies depending on which plan you choose; the average Part D premium is $34 a month. In addition to premium costs, you'll also be subject to co-payments, deductibles and other out-of-pocket costs. You Can Fill the Gap Beneficiaries of traditional Medicare will likely want to sign up for a Medigap supplemental insurance plan offered by private insurance companies to help cover deductibles, co-payments and other gaps. You can switch Medigap plans at any time, but you could be charged more or denied coverage based on your health if you choose or change plans more than six months after you first signed up for Part B. Medigap polies are identified by letters A through N. Each policy that goes by the same letter must offer the same basic benefits, and usually the only difference between same-letter policies is the cost. Plan F is the most popular policy because of its comprehensive coverage. A 65-year-old man could pay from $1,067 to $6,772 in 2017 for Plan F depending on the insurer, according to Weiss Ratings. There Is an All-in-One Option You can choose to sign up for traditional Medicare -- Parts A, B and D, and a supplemental Medigap policy. Or you can go an alternative route by signing up for Medicare Advantage, which provides medical and prescription drug coverage through private insurance companies. Also called Part C, Medicare Advantage has a monthly cost, in addition to the Part B premium, that varies depending on which plan you choose. With Medicare Advantage, you don't need to sign up for Part D or buy a Medigap policy. Like traditional Medicare, you'll also be subject to co-payments, deductibles and other out-of-pocket costs, although the total costs tend to be lower than for traditional Medicare. In many cases, Advantage policies charge lower premiums but have higher cost-sharing. Your choice of providers may be more limited with Medicare Advantage than with traditional Medicare. High Incomers Pay More If you choose traditional Medicare and your income is above a certain threshold, you'll pay more for Parts B and D. Premiums for both parts can come with a surcharge when your adjusted gross income (plus tax exempt interest) is more than $85,000 if you are single or $170,000 if married filing jointly. In 2017, high earners pay $187.50 to $428.60 per month for Part B, depending on their income level, and they also pay extra for Part D coverage, from $13.30 to $76.20 on top of their regular premiums. When to Sign Up? You are eligible for Medicare when you turn 65. If you are already taking Social Security benefits, you will be automatically enrolled in Parts A and B. You can choose to turn down Part B, since it has a monthly cost; if you keep it, the cost will be deducted from Social Security if you already claimed benefits. For those who have not started Social Security, you will have to sign yourself up for Parts A and B. The seven-month initial enrollment period begins three months before the month you turn 65 and ends three months after your birthday month. To ensure coverage starts by the time you turn 65, sign up in the first three months. If you are still working and have health insurance through your employer (or if you're covered by your working spouse's employer coverage) you may be able to delay signing up for Medicare. But you will need to follow the rules, and must sign up for Medicare within eight months of losing your employer's coverage, to avoid significant penalties when you do eventually enroll. A Quartet of Enrollment Periods There are several enrollment periods, in addition to the seven-month initial enrollment period. If you missed signing up for Part B during that initial enrollment period and you aren't working (or aren't covered by your spouse's employer coverage), you can sign up for Part B during the general enrollment period that runs from January 1 to March 31 and coverage will begin on July 1. But you will have to pay a 10% penalty for life for each 12-month period you delay in signing up for Part B. Those who are covered by a current employer's plan, though, can sign up later without penalty during a special enrollment period, which lasts for eight months after you lose that employer coverage (regardless of whether you have retiree health benefits or COBRA). If you miss your special enrollment period, you will need to wait to the general enrollment period to sign up. Open enrollment, which runs from October 15 to December 7 every year, allows you to change Part D plans or Medicare Advantage plans for the following year, if you choose to do so. (People can now change Medicare Advantage plans outside of open enrollment if they switch into a plan given a five-star quality rating by the government.) Costs in the Doughnut Hole Shrinking One cost for Medicare is decreasing -- the dreaded Part D "doughnut hole." That is the period during which you must pay out of pocket for your drugs. For 2017, the coverage gap begins when a beneficiary's total drug costs reach $3,700. While in the doughnut hole, you'll receive a 60% discount on brand-name drugs and a 49% federal subsidy for generic drugs in 2017. Catastrophic coverage, with the government picking up most costs, begins when a patient's out-of-pocket costs reach $4,950. You Get More Free Preventive Services Medicare beneficiaries can receive a number of free preventive services. You get an annual free "wellness" visit to develop or update a personalized prevention plan. Beneficiaries also get a free cardiovascular screening every five years, annual mammograms, annual flu shots, and screenings for cervical, prostate and colorectal cancers. You hear it all the time: you should make sure your retirement savings at least keep pace with inflation. But what is Inflation and how does it really affect your retirement savings? Let’s explore. In simple terms, Inflation is an increase in the general level of prices for goods and services. Deflation, on the other hand, is defined as a decrease in the general level of prices for goods and services. Example and some history: If inflation is high, at say 10% – as it was in the 1970s – then a loaf of bread that costs $1 this year will cost $1.10 the next year, and $1.21 two year from today. Inflation in the United States has averaged 3.29% from 1914 until 2016, but throughout history, it's varied quite a bit. It reached an all-time high of 23.70% in June 1920 and a record low of negative -15.80% in June 1921. Some will remember the high inflation rates of the 70s and early 80s when inflation hovered around 6% and occasionally reached double-digits. For comparison purposes, the inflation rate in Venezuela averaged 32.47% from 1973 until 2017, reaching an all-time high of 800% in December of 2016. So needless to say, Inflation around the world can and does vary dramatically. So how does Inflation affect your Retirement Account? The simple answer is: inflation decreases the purchasing power of your money in the future. Consider this: at 3% inflation, $100 today will only be worth $67.30 in 20 years, a loss of 1/3 its value. Said another way, that same $100 will only buy you $67.30 worth of goods and services in 20 years. And in 35 years? Well your $100 will be reduced to just $34.44. Think back to many good or services you paid for some years ago, and I bet you can say, "I remember when..." For me personally, I remember purchasing a gallon of gas for well under $1 per gallon in high school. How is Inflation calculated? Every month, the Bureau of Labor Statistics calculates indexes that measure inflation:
How the Federal Reserve Attempts to Control Inflation Up until the early part of the 20th century, there was no central control or coordination of banking activity in the United States. In fact, the US was the only major industrial nation without a central bank until Congress established the Federal Reserve System in 1913 with the enactment of the Federal Reserve Act. With the Federal Reserve Act, Congress set three very specific goals for the Fed:
These three goals are sometimes referred to as the Fed's "mandate." In order to help the Fed stabilize prices, Congress gave the Fed a very powerful tool: the ability to set monetary policy. And one way the Fed sets monetary policy is by manipulating short-term interest rates in an effort to control inflation. If the Fed believes that prevailing market conditions will increase inflation, it will attempt to slow the economy by raising short-term interest rates – reasoning that increases in the cost of borrowing money are likely to slow down both personal and business spending which therefore slows down the pressure for good and services, thus lowering inflation. The flip side is true too: if the Fed believes that the economy has slowed too much, it will lower short-term interest rates in an effort to lower the cost of borrowing and stimulate personal and business spending. As you might imagine, the Fed walks a very fine line. If it does not slow the economy soon enough by raising rates, it runs the risk of inflation getting out of control. And if the Fed does not help the economy soon enough by lowering rates, it runs the risk of the economy going into recession. Currently, the Fed believes that “inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Fed’s mandate for price stability and maximum employment.” What Investors Need to Remember Therefore, it is imperative that your long-term retirement strategies account for inflation and that you prepare for a decrease in the purchasing power of your dollar over time. As a financial advisor, I would suggest you assume inflation will be approximately 3%, its historical average. So in other words, your investment portfolio needs to AT LEAST cover the "cost" of Inflation or earn a rate of return equal to or greater than inflation. It’s true that inflation today hovers around 2% – the Federal Reserve’s target inflation rate – but I would prefer to use the last 100-years of data. If I’m wrong and we find that the inflation rate for the next 25 years turns out to be 2%, then the purchasing power of your retirement savings will be more, not less. And I’d rather err on the side of caution. Now more than ever, understanding how you are invested in your Retirement account(s) is critical. We use several powerful platforms to review, analyze, diagnose, and improve our clients portfolios to optimize for the greatest amount of return for the least amount of risk.  The nice thing about being an investor is that the forces that drive the markets change all the time. However, there are different “market regimes” in which a major narrative dominates market action.
Over the last 20 years of my career, there have been several ascendant market narratives: technology companies revolutionizing the world, followed by the “jobless recovery” of the early 2000's, and then the “Great Moderation” a few years later. Suddenly in 2007, we all had to become experts in housing and mortgage markets as subprime mortgages blew up the world. Then it was back to central bankers and such unconventional monetary policy as quantitative easing (QE) and “Operation Twist” that created a “new normal.” Then came the European debt crisis and austerity, which was replaced in recent years by geopolitics and the rise of populism. And while I am generally skeptical that individual geopolitical events will have a listing influence on financial markets, there are clearly circumstances — the US–China trade tensions or Brexit, for example — that can and do have a material influence on investments. The challenge then is how to forecast these events and their impact. For forecasting rules, the gold standard is described in Dan Gardner and Philip Tetlock’s Superforecasting — a mandatory read for anyone who forecasts. But there are other great resources, including Steve LeVine's 14 rules. Personally, I have created my own set of 10 rules that I try to use as guidance when forecasting economic or political events: 1. Data matters We humans are drawn to anecdotes and illustrations, but looks can be deceiving. Always base your forecasts on data, not qualitative arguments. Euclid’s Elements was one of the earliest texts on geometry, yet none of its oldest extant fragments include a single drawing.
Predicting the next financial crisis will make you famous if you do it at the right time. It will cost you money and reputation at all others. Remember that there are only two kinds of forecasts: Lucky and wrong. 3. Reversion to the mean is a powerful force In economics as well as politics, extremes cannot survive for long. People trend toward average, and competitive forces in business lead to mean reversion. 4. We are creatures of habit If something has worked in the past, people will keep doing it almost forever. This introduces long-lasting trends. Don’t expect them to change quickly even with mean reversion. It is incredible how long a broken system can survive. Just think of Japan. 5. We rarely fall off a cliff People often change their habits in the face of a looming catastrophe. But for that behavioral change to occur, the catastrophe must be salient, the outcome certain, and the solution simple. 6. A full stomach does not riot Revolutions and uprisings rarely occur among people who are well fed and feel relatively safe. A lack of personal freedom is not enough to spark insurrections, but a lack of food or water or widespread injustice all are. The Tienanmen Square protests in China were triggered by higher food prices. So too was the Arab Spring. 7. The first goal of political and business leaders is to stay in power Viewed through that lens, many actions can easily be predicted. 8. The second goal of political and business leaders is to get rich Combined with the previous rule, this explains about 90% of all behavior. 9. Remember Occam’s razor The simplest explanation is the most likely to be correct. Ignore conspiracy theories. 10. Don’t follow rules blindly This applies to these rules as well as all others. Here is a link to the original article by Joachim Clement, CFA The above article is copied from the original.  Just Plan Critical for long-term success, your financial plan doesn't need to be complicated, but it should provide a starting point and create a baseline for measuring your goals and determining what’s most important to you. Just Cut Fees Physically review all financial statements (bank, brokerage, retirement, etc.), bills (home & auto insurances, utility, etc.), and subscription services (gym memberships, streaming services, internet providers, phone contracts, etc.) to uncover fees that you can eliminate or reduce. There's no excuse not to now...most of us are at working from home due to COVID-19. Find the time to spend just a few minutes which could end up saving you hundreds if not thousands of dollars every year. Just Budget You have to know exactly how much you need per month to live. The easiest way to create a budget is to track what you earn, save and spend. Keep it simple...but accurate. Do it. Just Invest Invest to earn a rate of return greater than inflation. Consider low-cost, broad-based index funds to diversify holdings, reduce management expenses and mitigate tax consequences. Just Plan for Retirement It's never too early (or late) to start saving for life after work. Make regular contributions to retirement accounts, like 401(k) plans, for tax deferred growth. Just Eliminate Debt Reduce or eliminate debt whenever possible - you'll find it easier to achieve your goals without having debt hanging around your neck. You'll sleep better too. Just Look Monitor your brokerage statements and 401(k) account to ensure you are on track for retirement. It is always a good idea to overestimate your needs. Expect the unexpected, plan for and invest for recessions to be part of our future. Why? Because they are. Having a solid financial plan can weather the toughest storms. According to reports from CNBC, 75% of Americans are going it alone, without the help of a financial advisor. To achieve their goals, everyone should have a financial advisor. But not just any advisor – a good one, and the right one for you. Just Relax We will get through this. We will. Just Appreciate Appreciate everything that is right in your life. Appreciate the people in your life. Appreciate the little things. Appreciate the big things. Appreciate your struggles...it's during challenging times that you can grow and become the best version of you. NOW GO OUT AND JUST DO IT.  One of the first steps to choosing the right manager for your wealth is knowing the right questions to ask. And knowing the right answers to see if they measure up to your financial goals. How long have you worked with high-net-worth individuals, and in what capacities? Although private wealth advisers often find working with high-net-worth investors to be satisfying, other career paths can offer insights about the technical knowledge required for client success. What training did you undertake to prepare for this role? Some larger firms offer specialized training courses, while practitioners elsewhere may enroll in classes or degree programs to prepare themselves. Have you earned any relevant professional credentials? There are many, many professional designations that private wealth advisers can attain. Inquire about the breadth of curriculum, hours of preparation required, and pass rates to determine how substantive each program might be. Describe any conflicts of interest that could exist between us, and how you would propose to address or manage them. Would you certify that you are acting as a fiduciary on my behalf at all times? While some business models may not permit an adviser to act as a fiduciary on your behalf (that is, someone who always puts your best interests ahead of any others, including their own or their employer’s), you should note how conflicts of interest are managed and mitigated. Have you ever been subject to any allegations of misconduct or disciplinary actions from a regulatory body? Details about disciplinary actions may be available on regulator websites, but advisers should also discuss allegations with you that did not result in disciplinary actions. Refer to the SEC’s guide https://www.sec.gov/reports pubs/investor-publications/investor-brokershtm.html for more information. Of the many dimensions of a wealth management offering (e.g. investment management, financial planning, behavioral coaching, financial concierge, family dynamics coaching) which do you think are your particular strengths and/or areas of emphasis? How do you work with external advisers? It is unlikely that any single professional can be an expert in all aspects of wealth management. Consider how your adviser addresses the dimensions of wealth management outside of their core expertise, as well as how they could work with any other existing advisers you currently have and like. Describe any conflicts of interest that could exist between us, and how you would propose to address or manage them. Would you certify that you are acting as a fiduciary on my behalf at all times? While some business models may not permit an adviser to act as a fiduciary on your behalf (that is, someone who always puts your best interests ahead of any others, including their own or their employer’s), you should note how conflicts of interest are managed and mitigated. What do you think your specific added value is, and how would I recognize that in our relationship? Your adviser’s answers should align well with your needs and be realistic and appropriate. Beware of unrealistic claims of potential performance or discussion of services that you don’t expect to be of interest to you. Is management of my wealth more about “winning” or “not losing?” How is that reflected in what you do for me? The most appropriate answer in many cases will involve some elements of both winning and not losing, but pay attention to how your adviser describes their philosophy and the tactics that reflect their approach. Consider how your appetite for risk fits with your adviser’s approach being sure to remember that returns without risk are unrealistic. What is your approach to investment management? Do you prefer a particular investing style? Do you prefer particular investment vehicles? Your adviser should be able to explain why they choose to execute their investment strategy in the way they do, and will often reflect priorities for diversification, expense control, tax management, or liquidity. Consider how your adviser has regarded more recent innovations in the marketplace to assure yourself that they bring fresh perspective to their strategy. Describe your proposed fee schedule. How does your fee schedule align with achieving my goals? Many advisers will assess a fee based on the market value of assets they manage on your behalf, which aligns with your interests to the extent that successfully growing assets within agreed upon risk parameters is to your benefit. Discuss with your adviser how such fee arrangements might affect their advice that would cause the level of assets under management to decline (for example, to buy investment real estate) as well as how growth in assets would affect the marginal cost of their advising services. What other expenses would I expect to incur as part of our relationship? To properly understand the cost of advice and make your adviser’s fees easily comparable to others, consider any additional fees that may apply including fees for financial planning, financial concierge services, custody, or other expenses. Download the PDF below for even more important questions to ask. 
The pace with which the Coronavirus bear toppled the longest-running bull market in history was startling. The Dow Jones Industrial Average officially entered the “Coronavirus bear market” in just 20 trading days, easily making it the fastest such slide in stock market history. The second fastest was 1929 and that took 36 trading days.
Lest we forget: the highest closing record for the DJIA was set on February 12, 2020, when it closed at 29,551.42. Less than one month later, on March 11th, the DJIA closed at 23,553.22, down 20.3% from its high and officially ending the longest-running bull market in history that started in March 2009. Bear Market Defined In technical terms, the stock market enters a bear market whenever stock prices have fallen over 20% from their recent peaks. A bull market, on the other hand, is when stock prices rise by at least 20%. There is debate as to where the true origins of these expressions came from, but many suggest that it has to do with how each animal attacks: a bull thrusts its horns and enemies upward whereas a bear swipes its paws and enemies downward. Neither sound pleasant. In fact, an examination of the historical performance of the S&P 500 from 1926 through March 2020 shows that:
The silver lining is that bear markets are shorter than bull markets. Stock Market Corrections & Crashes It is important to distinguish a bear market from a market correction, which is shorter and involves less of a market decline. Market corrections are short-term trends that typically last less than a few months and involve stock market declines of at least 10% – but not as severe as the 20% fall of a bear market. Stock market crashes, by contrast, are when stock markets plummet by more than 10% in a single day. The Great Crash of 1929 consisted of market drops of 13% and 12% on successive days. The stock market crash of October 19, 1987 – known as Black Monday – saw the market drop 23%. And on March 16, 2020, the market crashed when it dropped 13%. Historical Bear Markets Between 1926 and March 2020 There have been eight bear markets, ranging in length from about 6 – 24 months and bringing market declines ranging from more than -80% to just over -20%. Here are the more memorable bear markets.
The upside of a Bear Market The one great thing about Bear Markets, is they end. And almost more importantly they make way for a new Bull Market. Consider the rallies that occurred during a few of the past bear markets:
Thoughts for Investors The question is, should the average investor remain invested when a bear market starts swiping its paws and everything downward? While the answer to that question depends on the individual investor, it is important to beware of the tendency to over-react to fears of a bear market or thrills of a bull market. Often times, individual investors tend to let their emotions adjust their holdings, which can result in selling after prices have fallen sharply, instead of buying at low prices (or buying after stocks have risen to unsustainable heights). Whether you will be able to out-wait the Coronavirus bear market and rebuild your portfolio to your satisfaction depends upon a deluge of factors, including the duration of the Coronavirus bear, your risk tolerance, your time to invest, the strength of your investments and the choices you make going forward.  What's the difference between these two S&P 500 index funds? They both track the same index. They invest in exactly the same companies. They both are passively managed. So what might cause their dramatic difference in performance over the last decade? Simply, the amount of money they charge investors. The industry calls this fee their "expense ratio." If you had invested $100,000 in the most expensive S&P 500 index fund 10-years ago vs. the investing in one of the lowest cost S&P 500 index fund 10-years ago, you'd have $60,000 less. Let that sink in. $60,000 LESS. Again, these funds invest in the exact same companies. You simply paid more money for investing in the exact same companies, and in the end, the fund company kept more money and you earned less. Fees matter. Many investors and for that matter many Financial Advisors don't understand what they are actually investing in when they pick a particular investment fund. Many unsuspecting investors look at the name of the fund, do a quick glance at the historical performance and hit the "buy" button without fully vetting what the fund is actually invested in. For many investors the process I just laid out is what they call "research", but in truth it's nothing more than window shopping. Buyer beware. Take a look at the chart below of a fund that claims to be a "Low Volatility" fund...meaning, the goal of this fund is to be LESS risky than the market. This didn't work out so well for this fund and its investors. This particular fund has been actually MORE risky. Deep due diligence is required of all investments that are under consideration to be put into a portfolio to adequately understand the risks and the potential returns. Looking beyond the name of the investment is just the first step.  Depending on the time frame you are referencing, the Stock Market return has been great, horrible or something in between. It's important to understand, time can be considered a diversifier similar to diversifying across different assets and securities. Being invested across many different types of securities and across several asset classes is akin to using time to reduce risk, risk goes down with time. It's important to keep Stock Market returns and Time in perspective. In less than a month the Stock Market is up over 27% from the recent bottom.  Over the last 3 months the Stock Market is down about -13%  Over the last year the Stock Market is essentially flat.  The Stock Market is up almost 50% in the last 5 years.  In 10 years the Stock Market is up over 190%. 
“The worst thing mistake you can make in investing is to buy or sell based on current headlines.” - Warren Buffett During these challenging times, it's actually a great opportunity to review your Retirement Portfolio and your overall Financial Plan. There are some amazing opportunities to take advantage of what the market is providing long-term investors. With more people working from home right now, you might have some extra time to dig up a recent statement and make sure you are on track to meet your financial goals. Here are 8 quick ideas to help improve your Retirement Portfolio. 1. Have Clear Investment Goals The adage, “If you don’t know where you are going, you will probably end up somewhere else,” is as true of investing as anything else. Everything from the investment plan, to the strategies used, the portfolio design, and even the individual securities can be configured with your life objectives in mind. Avoid focusing on the latest investment fad or on maximizing short-term investment return, instead design an investment portfolio that has a high probability of achieving your long-term investment objectives. 2. Focus on the Right Kind of Performance There are two timeframes that are important to keep in mind: the short-term and everything else. If you are a long-term investor, speculating on performance in the short-term can be a recipe for disaster because it can make you second guess your strategy and motivate short-term portfolio modifications. But looking past near term chatter to the factors that drive long-term performance is paramount. If you find yourself looking short-term, refocus. 3. Diversify The only way to create a portfolio that has the potential to provide appropriate levels of return and risk in various market scenarios is adequate diversification. Often investors think they can maximize returns by taking a large investment exposure in one security or sector. But when the market moves against such a concentrated position, it can be disastrous. 4. Know What You Own Far too many investors don’t know what they are invested in. Not knowing what the specific risks of the investment are and not understanding how it does or doesn’t fit into their portfolio. Every investment should have a reason why it’s in your portfolio. Ensure that every investment in your portfolio has a reason to be there. 5. Control What You Can No one can predict the future, but you can take action to shape it! Similarly, you can’t control what the market will do, but you can control how you react to it. Right now the market is offering some great opportunities, use the market’s volatility to your advantage. 6. Reduce Your Media Consumption There are plenty of 24-hour news channels that make money by showing “tradable” information. The key is to parse valuable information out of all the noise. Successful and seasoned investors gather information from several independent sources and conduct their own proprietary research and analysis. Using the news as a sole source of investment analysis is a common investor mistake because by the time the information has become public, it has already been factored into market pricing. A focus on near-term returns leads to investing in the latest investment craze or fad or investing in the assets or investment strategies that were effective in the near past. Either way, once an investment has become popular and gained the public’s attention, it becomes more difficult to have an edge in determining its value. 7. Don’t Try to be a Market Timing Genius Market timing is next to impossible. For people who are not well trained, trying to make a well-timed call can be their undoing. An investor that was out of the market during the top 10 trading days for the S&P 500 Index from 1993 to 2013 would have achieved a 5.4% annualized return instead of 9.2% by staying invested. This difference suggests that you are better off contributing consistently to your investment portfolio rather than trying to trade in and out in an attempt to time the market. 8. Review Investments & Rebalance If you are invested in a diversified portfolio, there is an excellent chance that some things will go up while others go down. At the end of a quarter or a year, the portfolio you built with careful planning will start to look quite different. Check in regularly and rebalance to make sure that your investments still make sense for your situation. Download the 1-page PDF below
When weather forecasts are inaccurate, we can usually change our plans with little consequence in the greater scheme of things. While making financial decisions does involve some guesswork, an educated guess—even with elements of uncertainty—sometimes can be better than making a decision with no forecast at all. Unfortunately, economic forecasting, like weather forecasting, is far from an exact science. Even professional economists may strongly disagree on the direction of the economy at any given point in time, based on their interpretations of conflicting economic indicators. Although many factors are pivotal in assessing the economy, let’s focus on two key points that may help you better understand the economy, and where it may be headed in the near future. 1. Consumer Spending: Since consumer spending has historically accounted for about two-thirds of the economy, according to the U.S. Bureau of Economic Analysis. Consumer cutbacks on spending are not usually the primary cause of a recession. Rather, consumers may buy more on credit, which leads to greater monthly payments. But at some point, consumers can spend only what their incomes will allow. When consumer debt rises, it becomes particularly important because of the impact of total consumer spending on our economy. It may also be helpful to understand the Federal decisions that lay the foundation for our overall economic climate. 2. U.S Government (Monetary & Fiscal Policy): The Role of the Federal Reserve Bank (the Fed) Even the casual observer of business news knows that “Fed watching” is a serious activity in the financial and business sectors. You may be wondering, what it is that makes the Fed so important. While consumers can affect the economy by spending according to their own situations and financial pressures, Federal policy decisions, such as fiscal and monetary measures, also have an effect on the economy. Fiscal policy, enacted by Congress in the form of tax and/or spending legislation, is the result of the political process and the prevailing political climate. In contrast, monetary policy is the responsibility of the Fed, whose role is to evaluate all factors influencing the economy (individual, market, and government) and take action in attempts to keep the economy on an even keel. The Fed can manipulate the flow of money in order to obtain a desired effect over time. However, the Fed’s most effective short-term policy decisions that can manipulate the economy involve short-term interest rates. Consequently, the Fed can realistically have only one target: inflation. If the Fed perceives that prevailing forces will increase inflation, it can attempt to slow the economy by raising short-term interest rates. It does this based on the assumption that an increase in the cost of borrowing is likely to dampen both personal and business spending. Conversely, if the Fed perceives that the economy has slowed too much, it can attempt to stimulate growth by lowering short-term interest rates, the theory being that lower costs for borrowing may stimulate more spending. The Fed walks a fine line in trying to maintain this balancing act. If it doesn’t tighten the reins soon enough by raising interest rates, it runs the risk of uncontrolled inflation. If it fails to loosen them soon enough by lowering interest rates, the economy could plunge into a recession. An argument could be made that the primary goal of the Fed is to keep inflation low enough that it does not affect business decisions. You & Your Financial Plan: Your own personal financial plan is really what will drive your success (or failure). By understanding what your goals are, where you are today and having a well-thought out plan to get you from where you are today to where you want to go is ultimately what's important. Understanding how the markets work, who the participants are, and realizing that many things are unknowable at the time you have to make a decision are extremely important. And it's this last part that is most important, knowing that you won't know everything you'd like to know beforehand is the hardest idea to grapple with. As the well known Nike saying goes, "Just Do It." Many times when you don't know what to do, it's wise to take advice from people who are experts in their respective fields and have been extremely successful. When things seem unsettled, these 3 savants offer timeless advice for investors. Such words of wisdom are especially appropriate amid the current turbulent circumstances: Stocks recently hitting lows and experiencing extreme volatility - to say the least. The variables change, but inevitably crises and problems occur and affect markets like they are today. But most importantly we ALWAYS overcome them. Here’s some food for thought from three great investors to help avoid investment mistakes: Crises in markets come and go: Shelby M.C. Davis. A legendary mutual fund manager. Human history is the history of crises and relative periods of calm. It’s no surprise that markets exhibit the same patterns of exuberance, fear and everything in between. Every crisis seems to have different origins, whether stagflation or inflation, collapsing or soaring energy prices, falling or climbing home prices. A wise investor acknowledges that crises ebb and flow, and that the best investment strategy adjusts to changes but avoids drastic over-reactions. As Davis puts it: “Crises are painful and difficult, but they are also an inevitable part of any long-term investor’s journey. Investors who bear this in mind may be less likely to react emotionally, more likely to stay the course, and be better positioned to benefit from the long-term growth potential of stocks.” Don’t let your gut emotions steer investment decisions: Benjamin Graham. Graham is considered the father of value investing, he taught Warren Buffett and wrote a number of classic books on investing. Graham said: “Individuals who cannot master their emotions are ill-suited to profit from the investment process.” Avoid market timing: Peter Lynch. He rose to fame by successfully managing the Fidelity Magellan fund from 1977 to 1990, racking up an eye-popping 29% annual rate of return. Sadly, the average investor in his fund during those 13 years earned a small fraction of 29% by jumping in and out of Magellan to try to enhance returns. Lynch once summed up his dim view of market timing this way: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." Another example of market timing’s weakness: The Standard & Poor’s 500 from 1992 to 2012 registered a nice 8.2% annual return. What kind of return did investors earn if they missed the best 10, 30, 60 or 90 trading days during those two decades, which is about 2,500 trading days? Investors who missed the best 10 S&P 500 days earned half as much, 4.5% annually those who missed the best 30 days realized zero the best 60 days, negative 5.3% the best 90 days, a whopping minus 9.4%. In other words, stay at a party from start to finish - don’t dart in and out if you don’t like the music or find the conversation boring. The lessons provided by these three investment sages is that your own mistakes may be a bigger source of your own poor return than economic and political factors that move markets and are beyond your individual control. Do nothing. Huh? I repeat. Do nothing. What? Our whole lives we have been told and our own experience shows us by working hard, getting good grades, keeping busy, and pushing forward is almost a sure bet to getting ahead and grabbing the brass ring. In investing, the opposite is true. Which is why it makes it so hard to do. Doing nothing is almost always the surest way to success. As Warren Buffett says, "The Stock Market is designed to transfer money from the active to the patient." The best-performing mutual fund in the first decade of the 21st century was the CGM Focus Fund. During the ten years covering two recessions, the fund managed to generate an impressive 18% annualized return. What's even more amazing than this impressive return is that the typical investor in the fund actually lost almost -11% annually. You read that right, an 18% gain for the fund and an -11% loss to the investor. Huh? How is this even possible? Investors were doing exactly the opposite of what they should have been doing; they were buying high and selling low. Investors plowed into the fund when it was high, and when the fund waned a bit, they sold. This is one of the surest ways to go broke. And the CGM Focus Fund’s shareholders are not alone. Several other studies indicate that equity fund investors underperform across the board, on average, by over 6% per year between 1991 and 2010, according to Davis Advisors. Why does this happen? You can blame biology, we are preprogramed to want to "do something" when we are scared. And it made sense tens of thousands of years ago when we had to decide if a large animal might attack us. Quick action made sense, run now and live to hunt another day. This evolutionary response was critical to our survival as a species for thousands of years, unfortunately, our biology hasn't kept up with our current 'survival' needs. So where does this fear come from today? It comes from the media, so-called 'advisors', friends, family, co-workers, and neighbors. Most unsuccessful investors chase performance, engage in panic selling, and adopt myopic thinking encouraged by watching daily prices. Successful investors realize that no one can time the market consistently and therefore they ignore all the fear around them. They know the most important thing, is to have a plan, stick to their plan, and when others are selling, they do nothing. Warren Buffett said it best, "Investing is simple, but not easy." - Paul Rossi Below is a letter that Warren Buffett penned in THE NEW YORK TIMES during what would become known as the Global Financial Crisis. During these turbulent times, I think it's important to re-read what he wrote, it's sage advice for investors. By WARREN E. BUFFETT OCT. 16, 2008 THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So…I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities. Why? A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now. Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over. A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price. Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497. You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy. Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts. Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.” I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities. Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company. 
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