Author Archives: Claire Harrison

Claire Harrison
Claire Harrison is a Campaign Manager at blooom. A high-fiver, thinker, and coffee drinker, Claire loves the Oxford comma and clean design. She’s werkin’ hard to help people learn about their retirement savings and how easy blooom is to use.

An Open Letter From Our Co-Founder

I write to you, our blooom client, not as your investment advisor but as someone who cares deeply about you and your investing success.

I care about you because you (and 23,000 other retirement savers) cared enough about your own future to trust this little company called blooom with what very well could be your single most important retirement asset.  As one of the company founders, I will never be able to adequately share how much this has meant to us and the sense of pride we feel in being able to help this many people with something Kevin, Randy and I dreamed up back in 2013.  I want you to keep this in mind as you read through the rest of this.

For our clients that are under the age of 32, there is a very good chance that this recent drop in the stock market is the worst decline you have ever experienced as an investor.  I say this because it has been roughly 10 years since we last saw a drop in the stock market above 20%. Just recently we flirted with a stock market decline of roughly 20% from its all-time high just a few months prior.  But a decade ago we saw the stock market decline by OVER 50% from October 2007 through March 2009. So for all of you born after 1987 I want you to cut yourselves some slack – this is likely your first good ol’ fashioned butt whoopin in the stock market and you have every right to feel worried and possibly even scared.  BUT…I think this is important to keep in mind… it is totally normal and OK to feel scared, but it is NOT OK to act on that fear and make rash decisions with your money.

For the rest of you, born before 1987 (myself included) we have seen a few more of these market drops in our time as investors.  Not only do we painfully recall the Financial Crisis of 2008-2009 but many of you might also recall the dot-com bubble bursting in 2000, followed by terrible years in 2001 and 2002.  Going back a bit further, our clients over age 53 might painfully recall “Black Monday” when the stock market dropped 22% in one single day! Even though we have seen a few of these, all of us still to this day get worried and concerned too when the stock market drops like it has the past month.

I say all this in large part just to give a bit of context.  I think a big part of being a successful investor is being a good student of history and history has shown us that the stock market has had drops like we just recently experienced about 14 other times (by my count) since the end of WW II.  Yes, you heard me right – before this one, 14 other times the stock market has temporarily dropped by at least 20% and 3 of those times the market saw a drop of roughly 50% (half!) from peak to trough.

Moral of the story – market drops are a fact of life.  Every time they roll around it can and will be scary. Scary if you are experiencing a significant decline for the first time or scary if you are experiencing it for the 4th or 5th time.  I can promise you, each time it feels a bit different and the decline in the market is usually triggered by different sets of circumstances.

Now, having said all of this – here is the key takeaway….100% of the time after those 14 (now 15) significant market declines the stock market not only recovered everything it lost, it went on to make new all-time high levels!  I will say it again, after every single past drop in the stock market – 100% of the time the market has recovered. Not 90% of the time, not even 99% of the time….100% of the time the stock market has recovered everything it lost and then some.  

Unfortunately, now more than ever we live in a society where the news is in our face 24/7.  Social Media, the internet, round-the-clock cable news. All of those media outlets competing for our attention and advertising dollars.  Sadly, these sophisticated media outlets know all too well that by sensationalizing stock market drops we will tune in, stop scrolling and their advertisers will pay them more for your attention.  You don’t need to stop reading the news but PLEASE, PLEASE know that the media isn’t trying to help you make better decisions with your investments – they are trying to make themselves more money and they make more money if you click on their headline and watch their news.  The more they can sensationalize a story – the higher likelihood you will tune in. Think about it this way, if the stock market dropped 1,000 points tomorrow which headline would be more likely to grab your attention and pull you into their site where their advertisers lie in wait:

“Stock Market drops by 1,000 points but nothing to worry about”
or “Stock Market drops by 1,000 points signaling the beginning of what could be another Great Depression”

By now, as a student of stock market history you know that these stock market drops are nothing new and nothing unusual but the media needs your attention.  I think you get my drift.

Here are the 2 takeaways I hope you get from this:

  1. Historically the market has recovered every single time it has dropped.  EVERY. SINGLE. TIME.
  2. Investing in the stock market over a long enough period of time (think decades, not days) has produced higher returns than safe investments like bonds or cash.

Finally, I want to say this.  By rough estimates, there are about 100 million people (+/-) in this country that have money invested in the stock market earmarked for retirement.  Blooom is fortunate to help about 23,000 of them today, likely many more in the future. I can tell you for certain that a decent percentage of those 100 million people will get it wrong when it comes to their retirement savings.  Mainly because they get scared when the market drops and take drastic actions like stopping contributions to their 401ks when the market is declining or, worse, bailing out of their investments all-together. I wish there was a way for blooom to reach more of these people with messages like this but I at least want to speak to OUR clients and try my best to protect each of you from making mistakes like this.  

I got into this business in 1995 to help people make better decisions with their money.  At that time, I never dreamed I would ever be able to reach 10s of thousands, and potentially 100s of thousands of investors.  When my time is up in this career I just want to know that we reached the greatest number of people possible and armed them with this kind of historical perspective to HOPEFULLY protect them from making bad decisions with their money.  First and foremost, we want you, our blooom client to be protected from these common investor mistakes.

 

Chris Costello,

Co-founder of blooom

 

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December PastCast

When it rains it pours…
December was a historic month for stocks, and not in a good way. As the storm began to clear out and we rang in the New Year, we were left with the worst December for stocks since the Great Depression, and 2018 ended up being the worst full year for stocks since 2008. For only the second time in a decade, major US stock indexes closed the year lower than they started.

So, what happened?
There were several factors throwing a wrench in things last month. The Federal Reserve continued to raise short-term interest rates – something short-sighted stock investors do not like one bit, but something that ultimately tends to come as a result of continued strong economic growth. That said, there are indications that the Fed may ease up on its plans to continue raising rates in 2019, due to several economic indicators showing we “might” see growth slow globally this year. The combination of immediate rate increases and forecast of those increases slowing down in the near future caused a bit of a panic.

More drama in D.C.
With a shift of congressional power on the political horizon, a stalemate on the issue of immigration ultimately led to a partial government shutdown, that has now become the longest in US history. On top of that, trade negotiations with China hit several snags, leaving markets unclear on the longer-term global economic impact of the ongoing trade war. Uncertainty and a lack of confidence in Washington became yet another catalyst to accelerate the selling as the storm strengthened.

What else?
In years where stocks are down as December arrives, investors often accelerate those declines by selling shares in their taxable investment accounts (not 401ks or IRAs) to lock in losses, which can help to offset their tax liability for the year. For the first time in years, what’s known as tax-loss harvesting, may have also played a role in the sell-off.

Beyond that…
It’s tough and frankly kind of pointless to read too much more into the causes of these pullbacks, as things change so quickly that by the time you think you’ve figured it out, there’s a new reason tempting you to buy or sell. Our stance remains the same – Do whatever you can to ignore these events and do not let them tempt you to run away from investing. As an investor, severe pullbacks like we’ve experienced recently are maddening and discouraging, but just a little extra context can help all of us remember the bigger picture, and it’s quite a beautiful one.

As we officially entered into what Wall Street calls a “Bear” market (decline of 20% or more from a previous high) last month, just remember that every “Bear” market in our history has been followed by a “Bull” market. This proves why it’s so important to be the patient investor that views these times as opportunities. We’re here to not only remind you of that, but also to make sure you stay on track and have someone to talk you through the frustration. Stay calm during the storm!  

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Don’t put all your baskets in one egg.

Diversification Explained

“Don’t put all your eggs in one basket” is a phrase my mom used a lot when I was growing up. (Although once, memorably, she fumbled it into “don’t put all your baskets in one egg,” so of course that’s now how the saying goes in my family.) Essentially, putting your eggs in multiple baskets means spreading out your risk – if one basket gets dropped, you won’t break all your eggs. It’s an old adage that makes for good advice in a number of different situations, but especially when it comes to investing.

Currently, with the market in a rough patch, a lot of clients are reaching out to us with totally understandable questions around why we recommend their allocation include particular asset classes – such as stocks from emerging or developing international countries, for example – that are performing poorly. When an asset class declines in value, that should be a indicator to move into something better performing, right? Unfortunately, it’s not that simple. Sometimes the ‘obvious’ answer when it comes to investing is the exact opposite of what will yield the best long term results. This is because when we’re asking these questions and looking at the performance of these funds, we’re inherently looking at the past, rather than the road ahead.

Novel Investor Asset Class Returns TableSource: NovelInvestor.com

In the above chart you can see that the asset class I mentioned, funds from emerging markets (noted on the chart in purple), is indeed at the very bottom of the list for 2018, with an annual return of -14.3%. However, emerging markets is a great example of an asset class that has been both at the very bottom AND the very top of the chart in various years, including back to back. In 2017, it was up 37.8%! From 2004-2007 it was up over 25% for four years in a row!

This is why creating a diversified portfolio that includes many different asset classes is so important: what is up one year may come down the next and vice versa. Of course everyone would love to be invested solely in the top class every year, but trying to somehow predict what that will be ahead of time is a loser’s game, especially if you’re betting your life savings on getting it right! Instead, putting those eggs into multiple baskets spreads out that risk and leads to more stable long term performance.

The opposite is true as well though – we’re hearing from a lot of folks saying they’re going to move everything to cash to somehow ‘wait out’ the current market volatility. After all, cash is actually sitting at the top of the chart in 2018, right? But if we go back the two years previous, we can see that those sitting on the sidelines uninvested missed out on HUGE returns. Additionally, with a downturn already in progress, getting nervous and selling out only locks in any losses you’ve had so far. Remember: stocks aren’t money sitting in a bank, they’re a tangible item. The number of shares you own never declines unless you sell. Therefore, if you expect those shares to be worth more in the future, you do yourself a disservice by selling them now.

Picking an age-appropriate, diversified strategy and investing for the long term isn’t as exciting as chasing the latest hot stocks or betting on “expert” advice from pundits trying to sell better ad time. But it’s what’s proven time and again to be the most effective. It’s human nature when we see a perceived problem – like watching an account’s value decline – to want to take action to fix it. We want to change something, try something new. But when it comes to investing, as long as you’ve got your eggs sitting in the multiple baskets of a diversified portfolio, you’ve already done the right thing. We’ve all heard the adage a million times, but even if the market has you mixed up, try your best to remember what’s important…. don’t put all your baskets in one egg.

Written by Laura Cerveny, blooom’s Director of Learning and Development

This information is provided for discussion purposes only and should not be considered as advice for your investments.

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Nearing retirement? Check your buckets.

My dad recently retired from his lifelong career in higher education. Over the course of that career he worked hard to both provide for his family and to save diligently for the future, ending up with a sizable nest egg in his 403(b). But lately, with the stock market struggling this year, he’s been understandably stressed to see the value of his account decline over the last several months, especially after the record gains he saw in 2017.

In trying to explain to him why he shouldn’t panic, I realized that a lot of the arguments for staying the course in a down market resonate better with a younger audience than someone like my dad who’s already near or at retirement. “I don’t have years to wait for the market to rebound,” he told me. “Your mother and I are already drawing down from that account.” This anxiety is completely understandable, but it’s founded on a couple of false premises. When most people hit retirement they don’t withdraw their entire account at once, but rather slowly over time. Thus, the idea that you don’t still have years left for the account to grow is not necessarily correct.

Two Retirement Buckets

One way to conceptualize this is to think of your retirement account as being held in two completely separate buckets. If you’re a blooom client at or near retirement, these buckets are likely relatively equal in size (though one may be slightly larger or smaller based on your risk tolerance).

1: The Stable Bucket

The first bucket is the money that you are actually drawing down from. It’s held almost entirely in cash equivalent positions and more stable income funds, such as bonds. This bucket likely won’t grow very much, but it also won’t fall considerably either. It’s your income generating bucket. In a prolonged stock market decline, you can be relatively comfortable knowing that this bucket will help preserve enough of your nest egg to provide multiple years of income while you wait for the market to rebound.

2: The Volatile Bucket

The second bucket is still being held largely in equities, which are likewise still susceptible to big market swings. This is the bucket that likely makes you nervous when you see your account value decline, but remember: you’re not drawing down from this bucket! In truth, you need that volatility in this portion of the account, because it also brings with it historically much higher growth than your income generating bucket. If you’re hoping for your retirement to last 20+ years, continued growth is key.

 

When you hope to retire in six months and see your account value decline, it’s easy to worry like my dad that you “don’t have time” to wait out the market. But instead of thinking you only have six months, think instead about how many years you hope to spend in retirement. That is how long you truly have to still ride out the ups and downs of the market, while your income generating funds are more safely sheltered from any storms that might be brewing.

 

So if you’re in the same boat as my dad and find yourself frantically checking your account balance weekly or even daily, just remember that with an appropriately diversified portfolio time is still on your side, even after you’ve hit the promised land of retirement!

Written by Laura Cerveny, blooom’s Director of Learning and Development

 

Investing involves risk. Past performance is no guarantee of future results. Just because an investment performed well in the past does not mean it will do well going forward. And vice versa. The information is provided for discussion purposes only and should not be considered as advice for your investments.
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3 New Year’s Resolutions that Take 5 Minutes

Simple Resolution #1: Protect your credit.

Check it, then protect it. It’s now free to freeze your credit.

Did you know that it’s now free to freeze and protect your credit at all the major credit bureaus? Equifax, Experian and TransUnion allow you to take the precautionary measure to freeze your credit to prevent fraudulent activity. So if you don’t plan on opening any new lines of credit in the near future, you may want to put yours on lockdown!

 

Simple Resolution #2: Schedule your physical.

What good is financial health if you’re not around to enjoy it?

Feeling healthy? Great! It’s still worth a visit to the doc. Not only does it keep that line of communication open, you get that piece of mind knowing all your parts and pieces are in good working order. Plus, many insurance plans cover the cost of a yearly preventive health care visit. What’s up, doc?

 

Simple Resolution #3: Fix your 401k.

Which funds are best for your situation? Ask blooom.

Simply saving money is a HUGE step towards retiring comfortably. (So, pat yourself on the back for that one.) However, if you’re not 100% confident you picked the right funds for your situation you may want to look into our FREE checkup. No strings attached. After you see the health of your account, hire us to make the changes. We’ll keep your account monitored and managed alllllll yeeeeaaar long. New year’s resolution COMPLETE.

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