Category : investing

The Dollar-A-Day Challenge

“That Einstein fella was a real idiot.”
-No one. Ever.

What’s the first thing that comes to mind when you think of Albert Einstein? The Theory of Relativity? Nuclear energy? Bad hair day?…All jokes aside, the guy was an absolute genius that provided some of the greatest intellectual contributions to humanity that we’ve ever seen. Yet with every invention or theory he and all the brilliant minds before him came up with, what has he famously named as mankind’s greatest invention of all time?

Answer: Compound Interest

If one of the smartest dudes to ever walk the face of the Earth said it, we here at blooom figure it’s worth a short blog post. Compounding in investing sounds boring, but trust me, it’s a magical thing for retirement planning.

If you aren’t familiar with the term, you can think of compounding as the way your money can be used to make more money, or the ability for your money to grow exponentially over time. Take just a single dollar, for example. If you invest a single dollar in the stock market and just let it sit untouched for 40 years, it could be worth around $31 by then. That’s a 3,000% (yes, three thousand) return on your investment for simply investing $1! And if you really want your mind blown, consider this – if you’re a newborn baby reading this, by the time YOU retire, that same single dollar invested could be worth $789! In other words, 788,000% growth. Not too shabby.

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Should I flip out market correction

401ks aren’t life or death. BUT they can feel like it. So go with me here for a second…

Imagine…the day has come to an end, you’re exhausted and ready to flop on to the couch for what is left of the evening. You flip on the TV and are instantly bombarded with reporters talking about how the stock market plummeted that day with images of stereotypical floor traders hysterically yelling “sell, sell, SELL out of the market”. Market corrections are happening. Naturally, you frantically grab your computer and log into your 401(k) account to see for yourself and you notice your account balance is down 5% for the day. How are you feeling about that?

Odds are you feel panicked and worried that your retirement is in jeopardy. You aren’t alone in having this feeling. Seeing a big loss on your statements can be nerve-racking. The thing to remember, however, is that a loss on paper is just as arbitrary as thinking you can never drive your car again once your gas tank reaches empty. It’s not the end of the world and if you don’t sell everything in a panic your investments will be back to normal in a matter of time, it just may take some patience.

There are a few important facts about market corrections that you should always keep in mind:

  1. Market corrections are inevitable. No matter how much of a market-timing wizard you believe that you are they can’t be avoided. What goes up must come down, and vice-versa with stock markets.
  2. Since 1928 there have been 26 market corrections, where the market dropped between 10-20%. The average length of each correction is 136 days. While that sounds like a long time it is actually quite brief compared to bull markets where markets grow for 464 days on average with gains of 55.86%. While some market corrections may be far worse than others and may take longer to recover the markets always recover and then some.
  3. Market corrections are beneficial to investors in the long term. If you continue to invest through a market correction you will bring down your average price-per-share getting you a higher number of shares for the same price. (See: What investing and ice cream have in common). This could lead to greater upside potential once markets begin to recover.
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samsung stock galaxy note 7

No, this isn’t another shipment of Samsung Galaxy Note 7 phones.

It’s really a set of flares being deployed by a C-130. But a great lesson can be found here about Samsung stock and investing in general.

On August 19th (with Samsung stock trading at near an all-time high of $23.55) Samsung launched its Galaxy Note 7 with a great amount of fan-fair. It was bigger than previous versions, it was waterproof, it had an iris scanning camera…oh, the excitement!!!

But it didn’t take long to discover it had another feature – it explodes. Five days later the first Note 7 explosion occurred and with it the stock begins to implode. And as of October 11th, 2016 the stock was trading at $19. That’s a 19.3% loss in value in less than two months. Poof.

Here’s the deal, somewhere in America there was probably a 401k participant that worked at Samsung that decided to “load up” on Samsung stock. And why not? At the time Samsung had one of the greatest competitors to the iPhone, probably had some nice fundamentals and promising future.

This 401k behavior is a nationwide problem. In fact, Proctor & Gamble has 37.7% of its $3.1 Billion Savings Plan allocated to company stock, the $12.9 billion Honeywell International Inc. Savings and Ownership Plan has 29.8% in company stock, the $19 billion Chevron Corp. Employee Savings Investment Plan has and astounding 46.7% in company stock and General Electric Co.’s $27.5 billion GE Retirement Savings Plan contains 35.5% in GE stock. Data for all of these plans are for the year ended Dec. 31, 2014.

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Why should 401k Advisors care about financial wellness?

Financial wellness…What exactly is it and what’s all the buzz about anyway? For starters, here’s a quick overview, along with three reasons why plan level advisors really should start taking financial wellness seriously.

Financial wellness is the state of personal knowledge and access to resources to plan for and help manage fundamental financial events, which everyone is likely to face – budgeting, saving, transacting, borrowing, protecting, and investing. The typical talking points about financial wellness revolve around how financial instability affects employees and employers – lost productivity, increased work comp, medical and disability claims, theft, turnover, etc. Important stuff?! Advisors SHOULD care, but so far it doesn’t seem like advisors are fully on board. Maybe it’s simply due to the fact that nobody’s honestly discussed how it affects your piece of the pie.

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John Oliver Hammers the 401(k) Industry - Why blooom Loves it

John Oliver Hammers the 401(k) Industry, and Here’s Why We Love It

By now you may have heard about or seen a Facebook or Twitter share of the recent segment on John Oliver’s “Last Week Tonight” show, which discussed our screwed up 401(k) industry. Not exactly something you’d expect to get a good laugh out of, but in typical fashion, Oliver was able to make a not-so-entertaining subject extremely entertaining with a heavy dose of sarcasm and dry humor. Our take? He nailed it.

At blooom, we’re what’s known as a fiduciary (more on this in a second), which Oliver points out is an important thing to look for when it comes to truly non-conflicted investment advice. We represent what we hope will become the new normal in the industry at some point, although we understand that a change of this magnitude will take time. But until then, there are certainly things you can do to help yourself, which Oliver did a great job highlighting. Here are our thoughts on the main takeaways and a few things we’d like to add.

1) The best time to start is now…or maybe yesterday.
This really just comes down to math, but the power of compounding really is pretty incredible. If you start early, you’ll need to invest far less to end up with far more in retirement. But as Oliver mentioned, not everyone is in the position to save for their retirement. So how do you know if you are?

First and foremost, if you have a 401(k) at work, do whatever you can to contribute up to the full amount your employer will match. From there, here are your priorities from our point of view:

• If you have credit card debt or student loans, don’t contribute a dime more than the full match amount until that is paid down.
• If you have no debt and have enough in an easily accessible savings account to cover at least three months of your living expenses, contribute as much as you can above your employer’s match and get in the habit of increasing contributions by 1% each year until you’ve reached the maximum the IRS allows ($18k if you’re under 50, $24k if you’re over 50).
• If you don’t have a 401(k) at work but have no debt (other than mortgage) and an emergency fund that can cover three months of expenses, look into an IRA and reach out to one of our advisors for some direction on how to open one if you need it.

2) Use low-cost index funds and don’t pay attention to the markets
Not surprisingly, the vast majority of financial institutions continue to market high cost, actively managed products like they somehow perform better and are therefore better investments for their clients. Yet all the evidence seems to prove otherwise. And the case for low-cost passively managed index funds only gets stronger every year.

Instead of trying to beat the market or paying a fund manager a hefty and largely hidden fee to try really really hard to beat the market for you, just ignore the stock market and use an index fund, when possible. Investing for retirement is about retirement, not what the market does in the next week, month, or year. Stick to a long-term disciplined approach, or as Oliver says, “If you stick around doing nothing, while everyone around you f*&%s up, you’re going to win big”. And we don’t have to just take his word for it. John Bogle, founder of Vanguard, along with dozens of other investing icons, famously makes the exact same argument, albeit usually without an f-bomb.

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