Now that Spring has officially arrived many households will go through their annual spring cleaning phase. The same should be done with your finances.
Whether that’s checking your quarterly statements and discussing strategy with your advisor, or simply finding a higher yielding savings account to take advantage of this year, any little bit helps.
You could even kill two birds with one stone- while cleaning out under the couch seat cushions, take that left behind change and add it to your piggy bank.
Financial freedom isn’t a matter of sprinting to the finish line at the end of the race. It’s more of a long, methodical strategy consisting of good habits, discipline, and determination. It takes years and years of consistent saving, investing, and oftentimes sacrifice.
Just as you can’t expect to go from your couch to completing a marathon the next day. You can’t expect to go from a modest savings account to a fully funded retirement portfolio within a year, 5 years, or even longer.
So stick to your training regimen, and if you don’t have one make sure you reach out to a professional who can help you develop one. After all, slow and steady wins the race.
Just because you can afford to buy designer clothing doesn't mean you should
Just because you can take more risk doesn't mean you should
Just because you can take less risk doesn't mean you should
Just because you can spend more doesn't mean you should
With Easter being Sunday, it's a good time to reiterate the age old saying of "Don't put all your eggs in one basket". This applies to many things in life, but it is especially paramount in the world of finance and the creation of a comfortable retirement strategy.
Diversification should be the foundation of your financial goals. It represents mathematically the highest probability of reaching your financial hopes and dreams, and something I hope you're hearing over and over in the world of financial planning.
If you haven't heard much about it you must be hiding under a rock, much like some Easter eggs this Sunday.
Why Own Bonds?
You have heard of the importance of owning a diversified portfolio. For those who do not manage money professionally, the mantra to diversify by investment class is pounded into their heads by the consumer finance media and is rarely questioned.
The reason bonds are included in a balanced portfolio is usually to reduce the overall risk characteristics of a portfolio. For example, if an investor would be panicked by a short term 20% drop in the value of their holdings as reflected in their monthly statement, then we can add maybe 40% to the bond side, making it likely that a 20% drop in stock prices will only result in a 12% drop for that investors statement (.6 allocation to stocks X .2 short term drop in value). It is not that bonds offer superior returns, it is that bonds sometimes provide better returns than stocks with less volatility. The same reduction in risk can be achieved by holding cash and money market funds, but historically bonds have outperformed cash.
Yet when markets enter periods of extreme turmoil like 2008 and 2009 the usual correlations of investment returns fly out the window and bonds can tank at the same time stocks tank. And when interest rates rise bond prices will fall.
So my question to you is: Why do you own bonds? Are you afraid of the temporary drops in stock prices or are you just following the mantra of the popular press? With interest rates poised to rise would you be better off using cash as a buffer?
March Madness is upon us and we have already seen many underdogs coming out of nowhere to upset the perennial powerhouse college basketball programs. If you filled out a bracket, like many of our clients in our annual Oak Street Advisor's Bracket Challenge, then I'm sure you've been somewhat frustrated with this year's tournament, as it has been chaotic and more unpredictable than in many years in recent memory.
Just like this crazy tournament, the stock market can sometimes feel chaotic and unpredictable. Remember in January when some pundits were claiming another global financial meltdown was fast approaching as stocks slid lower and lower almost every day? The S&P 500 has now increased by 13% in the 5 weeks since the year's low on February 11th. Which actually puts the market UP for 2016.
So just as we understand that each year during March Madness there will be chaos and unpredictability, we must keep the same mindset when it comes to our investments. No one can predict what will happen in the future, but we can certainly count on it being unpredictable, and sometimes chaotic.
Now or Later
If you think risk is the chance your investment dollar will go down today, then I challenge you to ask the question “When should I take on risk?”
If you choose to put your money in a CD or savings account, you avoid the risk of any fluctuation of the principle. You do have the risk of interest rates. Will they be higher or lower a year from now? Five years from now? Twenty years from now? Your answer is as good as mine.
If you choose to instead invest in the ownership of great companies who provide great products and services to the world’s population, you have a very real risk that your investment could decline tomorrow. But what about a year from now? Five years from now? Twenty years from now?
You can take risk now, or you can take risk later. The choice is yours.
Not So Lucky
Today, we celebrate St. Patrick's Day in honor of the death of St. Patrick and Irish history and culture. There will be green everywhere, representing good luck, even in the many beers to be consumed today. One thing that we also hope to be green is our stock symbols.
However, when it comes to good financial standing, there is very little luck involved. Diversification, strategy, and good habits produce earnings and security in your portfolio. While there may be times when you get financially lucky, say, winning the lottery or a windfall of money from a little known distant uncle, you shouldn't count on this luck- you should bank on a comprehensive and thorough financial plan to get you to the end of the retirement rainbow.
All That is Gold Does Not Glitter
Boring, boring, boring. That’s how you might describe one of the best investments my kids will ever profit from. Back in 1990 my children’s grandparents bought them 50 shares of Disney common stock for around $500 per child. The kids received the dividend check each quarter and thought it was neat getting a little extra allowance every now and then.
It was something they never gave much thought to.
Now that boring Disney stock has grown to over $5,000 in value for each grandchild. Suddenly it’s not so boring anymore. No glitz, not even one of the best performing companies over that time span, but the results speak for themselves.
March Madness Bracket Challenge
Join Oak Street Advisor's Bracket Challenge!
Who will enjoy the bragging rights this year?
It's that time of year again, March Madness is right around the corner! Join our free Bracket Challenge to see who will be crowned the Bracket Champion for 2016. Simply click the link below and enter our phone number 843-946-9868 (numbers only) as the password to join!
Click this link: Oak Street Advisor's Bracket Challenge