Category : investing

stock market returns election

President Proof Your Portfolio

Well, folks. We’ve nearly made it. The election is roughly 24 hours from being over. And with that will come a new person sitting in the Oval office – oh, and…the end of a bajillion political ads peppering our televisions!

Having advised investors for nearly 20 years, I’ve seen this all before.

With each election cycle, without fail, countless advisors, financial news outlets and of course, your know-it-all (INSERT: relative’s name here) will try to predict how the stock market reacts after the election depending on who wins the presidency.

Thankfully, we here at blooom have the real inside scoop on how to president proof your portfolio. Just follow this one piece of advice: RELAX.

Now, you may be thinking to yourself ‘I just don’t see how that protects my investments.’ So, I will explain a bit further: cooler heads always prevail. It is true that certain stocks may go up or down in value differently depending on which candidate is elected and how their legislative initiatives impact certain markets. However, these swings in value are just simple and normal market corrections (see: 401ks aren’t life or death. BUT they can feel like it. So go with me here for a second).

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Don’t Call Me Lazy

I am always intrigued by the comments we get on blooom’s Facebook page. Some are wonderful and uplifting, some are hilarious, and others. . . well let’s just call them “interesting.” But the ones that really catch my attention are those that are critical. And it’s why they are critical that concerns me. These comments criticize our clients for using blooom’s service. They are critical because these people believe that personal finance should remain personal—handled solely by that individual.

More specifically, the comments call out the blooom clients for being lazy or dumb. I came across one this past week and for some reason the following comment hit me hard and prompted me to write this blog:

Why pay someone to look over your money when you should be the one doing it[?] And you wonder why so many Americans are in debt, cause they are lazy with their finances. Sorry not paying someone to make money off of me cause I’m [too] lazy to watch over my own 401k.

When I read this, I didn’t get upset because I am an employee of blooom. I got upset because I am a client of blooom. According to this person, that makes me lazy and to some others who have commented, it also makes me dumb. So not on behalf of blooom, but rather on behalf of blooom clients, I feel compelled to provide a more expansive response to these types of Facebook comments.

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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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