I’ve told this to my children over the years when they get a little rambunctious. It may also be a good response now for investors whom may be getting a little “rambunctious” with their stock investing. To make this point, we will take a quick look at a classic illustration and provide some brief facts. First, the illustration – which needs no explanation:
Ever ridden in a car with worn-out shock absorbers? Every bump is jarring, every corner stomach-churning, and every red light an excuse to assume the brace position. Owning an improperly diversified portfolio can trigger similar reactions.
In a motor vehicle, the suspension system keeps the tires in contact with the road and provides a smooth ride for passengers by offsetting the forces of gravity, propulsion, and inertia.
A common question we receive (every four years), and a common concern that many have (and often erroneously use to make investment decisions), relates to how presidential elections may affect the financial markets. To answer that question in some detail, attached please find an analysis from Dimensional Fund Advisors.
Certainly, there can be short-term reactions to election outcomes, and it is tempting to think that “this time is different”. But what matters most are the underlying fundamentals of the economy and the financial markets – both of which we pay close attention to.
Continuing with the theme of our last blog, another comment we have recently heard from prospective clients goes something like this –”I’d hate to get started, only to have stocks take a serious fall right at the outset (which, by the way, completely ignores the fact that a diversified portfolio is not fully exposed to stocks). Maybe I should wait for the stock market to fall and then begin. What do you think?”
Well, while no one knows exactly what may lie ahead, a review of the evidence (again) sheds a bit of light on this subject.
There are a few recurring concerns that we here at BCM are hearing from prospective clients about the future outlook for the financial markets. While most who hear our approach to investment management become quite enthusiastic, these recurring concerns still cause consternation, so much so that it sometimes leads to analysis paralysis.
The first concern is the level of stock prices. “Prices seem too high” is what we hear. That’s an understandable concern at first glance. We all want to get a good deal when buying.
Even though the cost of a college education has risen dramatically it still proves to be a valuable investment. Aside from the financial boost, a college education opens many doors to a fulfilling, lifelong career. To fund a college education, the federally established 529 Plan is the most popular vehicle. Unfortunately, many who have taken advantage of this program have done so through their broker. A better option, especially for those residents of Louisiana, is with the state program of residency.
In this our first official new BCM Blog post, you better pour some coffee (or an adult beverage depending on the time of day) and get comfortable! This simple (but not simplistic) 30-minute video by Ray Dalio, Founder of Bridgewater Associates, shows the basic driving forces behind the economy, and explains why economic cycles occur by breaking down concepts such as credit, interest rates, leveraging and deleveraging. Watch the video below or here. We think you will find it compelling.
If you had bought an S&P 500 index fund thirty years ago, and somehow had not opened your statement until recently – you would have made two discoveries. 1) Each dollar you would have invested would now be worth more than $23. And, 2) you would rank as one of the greatest investors of all time, having outperformed virtually every single mutual fund and money manager in existence.
As we all know, one of the outcomes of the Great Recession of 2008 was a collapse in interest rates. With short-term rates still hovering just above 0%, and longer-term, 10-year rates holding at just above 2.5%, there can be no argument that rates remain amazingly (and for some, uncomfortably) low.