LOADING

Type to search

AARP: Can you still trust the stock market?

Breaking News

AARP: Can you still trust the stock market?

Share

 

I had a long conversation with Jill Schelsinger of AARP regarding the market sell off back in March. We touched on numerous topics, and you can see some of our discussion here and here. Based on their questions, I had sketched out a lot of prepared notes for the interview, much of which we never got to discuss. Perhaps you might find them of interest.  

 

 

Can you still trust the stock market?

The stock market is a place where companies that need capital and investors who want return meet to see if there is some mutually beneficial exchange that can occur.

I’m not sure “Trust” is the right word – but can you use the stock market to help plan your financial future? Yes.

I’m still recovering from the financial crisis…will there be another one and how can I sleep at night/prepare for the next one?

Yes, markets & economies are cyclical in nature: There is always a recession coming; there is always a bear market or a crash somewhere out there; We will eventually get over our PTSD from the last financial crisis and do something really stupid to cause the next financial crisis.  This is human nature.

To prepare for the next one, you need to do 3 things:

  1. Have a financial plan that targets what your goals are and gives you the least risky way to achieve them;
  2. Have a robust portfolio that can withstand a recession or a bear market or crash; this means having bonds to offset stock risk;
  3. Make sure you understand the cyclicality of this – that you are mentally and emotionally prepared for the next disaster

Remember, the optimal portfolio is not the one with the highest returns but the one that you can live with.

Will my house go down in value again?

I don’t know – it depends upon lots of variables, from demographics, immigration to interest rates and the economy. Real estate is very geographic and locally determined – some areas have done much better than others. There is even less clarity on this than usual; some people fear a collapse, others are expecting a suburban renaissance. (I know people hate that answer, but its true).

Will the skyrocketing national debt blow back on me?

So far, it has not – I have heard my entire life the Federal deficit is a danger, but the US debt to GDP ratio – a measure of our ability to service the debt – is 104%; In Japan, its 196.%.

We will probably be all right up until the moment we are not…

There’s always talk of low inflation—but I see costs rising for my own health care and also for my grandkids’ college education…should I worry about inflation?

There has been inflation in the things we needs but deflation in the things we want. But if we didn’t have inflation in 2019 with Unemployment near all time lows and the stock market near all time highs, when will be ever get inflation? Deflation remains the bigger threat.

Should I care about the outcome of the election as it pertains to my money?

As it pertains to your Money? No. About everything else? Yes.

What will happen if my company goes out of business? What if my pension fails?

I hope people learned the lessons of Enron and Lehman and GM and We Work + do not have too much concentrated positions in their employer’s stock.

That said, if your Pension fails, the Pension Benefit Guaranty Corporation (PBGC) will likely cover some or most of it – they are a government run insurer for pensions

Will America continue to dominate the world economy and does it matter for me? What about for my kids/grandkids?

Two thoughts:

1. It is going to be a more competitive world – especially with China and India, but lots of other players, too.

2. We are competing against countries whose governments invest a lot in their futures – we used to do that, but we have been doing less and less of this crucial planning for the future. YOU folks are patly to blame — Seniors tend to vote against infrastructure and education spending.

This is a massive long-term risk to our economic health. If you are concerned about your grandkids futures, well, then why not invest in them with big broad spending the way America used to after WW2?

Which econ report should I focus on if I had to pick one every month?

None – any single economic report is just one in a very noisy series, subject to large updates and revisions.

What you want to focus on is the long-term trends. Have we been creating jobs each month?  Has the economy been expanding each quarter? Are home sales (seasonally) growing?

Should I be worried about trade wars and America’s standing in the world?

Yes.

I am much more concerned about our standing in the world – we are interconnected, both economically and in terms of defense.

And immigration has been our greatest strength. Students comes here from China and Korea to become engineers & mathematicians. Many more of them are going home – they used to stay here. Half the senior executives of Silicon Valley tech firms are foreign born that’s our greatest growth engine

How can I retire if my savings account is only earning 1.5%? Do you see this changing any time soon?

Yes – but its been going down ! The 10 Year bond is now 1%. Treasuries are not the panacea they once were. Investment grade corporates add returns (and some risk) and Municipal bonds add after tax yield. As always, stay with quality and avoid the high risk junk.

Do you see tax rates going up/down?

U.S. Tax rates have mostly fallen the past 4 decades; but they might have reached its natural low point and if I had to bet, I would say higher — but I am not a political analyst, so that is only a guess. I really don’t know.

What Should I do right now ???

See these:

I Just Retired, Then All THIS happened…WTF Do I Do Now?

Why Your Behavior is More Important Than Your Portfolio

Missed the big market rally? Here’s what to do now.

 

 

Print Friendly, PDF & Email

Leave a Comment

Your email address will not be published. Required fields are marked *