November 2018 PastCast

Mostly Cloudy With a Glimmer of Sunshine

While the market remained bumpy at times, US stocks ended the month up slightly from where they ended October (down almost double digits). While the sun began to peak through the clouds slightly last month in the US, overseas markets continued to lag behind. Globally, stocks remain in the negative for the most part, with US stocks coming in slightly positive… but nowhere near the returns investors were bragging about at the dinner table last Thanksgiving.

 

Holiday shopping season is upon us, but as you’re planning to check gifts off your list this year, remember that the stock market tends to have several big sales every year too. While October wasn’t fun and November wasn’t great either, there are still great opportunities out there.

 

It can’t rain forever.

Market corrections can seem ominous, but remember, the occasional rain shower is necessary for your flower to grow. Also, this cloud isn’t lingering on your flower only! Most of the world is living with the same weather pattern. So put on those rain boots and make the best of these gloomier stock market days. Read more about how we’re approaching unpredictable markets here.

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How to Make the Most of Your 401k in 2018

2018 is coming to an end… are you making the most of your hard earned 401k dollars? Blooom breaks down the best ways to make the most of your existing company-sponsored retirement plan in 3 easy steps. Just ask yourself…

1. Does your employer match?

Contribute enough to get the full match! It’s essentially free money.

2. Can you max out?

2018 max contribution is $18.5k (below 50 years old), increasing to $19k in 2019. Savers above 50 have higher contribution limits.

3. Are you making the most of your funds?

See if you’re properly diversified… try blooom’s free analysis.

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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!

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Why does rocking the vote rock the markets?

Politics…not exactly a “safe” subject to be writing about in this polarized atmosphere we currently live in, but with the 2018 midterm election just about behind us, now is as good of a time as any to discuss a very common question/concern we’ve been hearing from clients on both sides of the political spectrum. Clients often ask:

“With the election coming up, how will the results impact my returns?”

 

First and foremost, a quick and very important reminder that blooom manages retirement accounts. The investments in which are determined based on your age and how far away you are from retirement. The closer to retirement you are, the less a stock market reaction to an election will impact your retirement account balance. But for the vast majority of blooom clients that are decades away from retiring and have significant exposure to U.S. stocks – no matter the results, markets movements in either direction will likely be reflected in your retirement account balance, for better or worse.

 

That being said, let’s talk about that question because it’s an important one and it’s what is on nearly every investor’s mind right now.

 

Neither party knows how the elections will affect returns.

October was bad one for stocks, with the S&P 500 dropping over 10% from all-time highs set in September. A lot of this can be attributed to the uncertainty of the midterm election and what it could mean for the economy and the stock market going forward. The stock market does not like uncertainty, but this is not something new by any means. The lead up to any election is often accompanied by increased stock market swings, both up and down. Historically, we’ve seen that the period following elections has, on average, been a positive one for stocks. But remember, that is an average. What actually happens this time is truly anyone’s guess.  

 

Why worry this time?

The truth is we tend to always think that this next election is different or more important than any other and we very easily seem to forget that political uncertainty and polarization are nothing new to the stock market. Wars, political scandals, terrorist attacks, you name it. We still don’t have a single example in our entire history of a market downturn that was not followed by a recovery, and often a robust one. So why worry this time? There is very little this market hasn’t experienced already at some point in the past and we know that no matter which party is in power, the impact on the stock market is not measurably different in a way that should influence any change in a long-term investment strategy.

 

You know what happens when you assume…  

Elections often provide us with fantastic examples of the reasons why attempting to guess or make short-term return assumptions (market timing) is one of the worst things you can do to yourself and your future when it comes to your investments. No matter what the market does in the month or months following this election, a simple chart dating back all the way to 1896 can show us why it truly doesn’t matter one bit. We often tell clients that it’s not a matter of timING the market, but instead time IN the market that makes the biggest difference in the end.

 

Source: https://www.oppenheimerfunds.com/investors/article/mid-terms

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The October PastCast

Riding out the storms.

As is the case in nearly all election years, this October was a stormy one for stocks. U.S. stocks were down about 7% for the month and at one point even crossed the dreaded 10% down threshold that officially marks what is often referred to as a “correction.” And remember that in September we had just seen brand new all-time highs for major U.S. stock indexes.

Corrections are normal.

We remind clients that corrections are normal and should be expected often between now and your retirement. Historically they tend to happen on average at least once per year. BUT, they have also always been temporary, 100% of the time! There is not a single example in history of a stock market decline that was not followed by a recovery. This is comforting evidence that can help put things in perspective. It’s the reason we continue to hammer home the importance of staying calm during these events. It can be frustrating for many to hear their advisor tell them the best thing they can do right now is absolutely nothing, but that simple advice is the time-tested approach that repeatedly proves itself the most beneficial over and over again every time we go through these turbulent and stormy periods.

This is not the first time.

Many forget that this isn’t the first time just this year that we’ve seen stormy weather in the markets. February and March saw some big dips as well, but the reason we forget is that those dips were quickly followed by full recoveries that sent the market to new all-time high after new all-time high. Remember that long-term growth in the stock market and your 401(k) does not happen in a straight line and despite many positive economic headlines, good news for the overall economy can often blur the reality of how the stock market is performing. Just look at a chart of the S&P 500 so far this year:

Chart source: https://money.cnn.com/data/markets/sandp/

 

The bottom line:

October was a dreary, stormy mess of a month in the stock market with a major election on the horizon (check out our blog!), but we have no reason to believe the sun won’t eventually come back out. As always, stay focused on the long-term and don’t let these moments get the best of your emotions as an investor. For better or worse, the decisions you make as an investor during months like October can provide valuable, if not very costly lessons to us all. Per usual, the great Warren Buffett often says it best:

“The stock market is a device for transferring money from the impatient to the patient”

Be the patient investor.

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