the right way to invest blog
401(k) plans are a burden to administer and very time consuming. Wouldn't it be great to unload that burden and free up your time? When we handle your 401(k) plan, you'll be left to run your business and not your plan. Check out the below video to learn more.
Those with more money get better things! And it's no more true in the 401(k) world. Our HCBA Retirement Solution brings all the benefits the big 401(k) plans enjoy to the small and start-up 401(k) plans. Check out the below video to learn more.
Most business owners know 401(k) plans are a great resource to get your employees saving for retirement, but did you know offering a 401(k) plan doubles the benefit to the business owner? Check out the below video to learn more.
Here you can view DFA's Q1, 2020 Market Summary Report; on page 3, you’ll find lots of big red arrows! So far in Q2, we’re seeing green arrows across many major market sectors, we’ll know by the end of June if we can solidify those arrows for Q2, but we’ll be prepared and we’ll let markets do their thing – which is allow us to take on risk and uncertainty in return for wealth building and inflation beating.
“Markets are designed to handle uncertainty.” - taken from page 18
We are in very uncertain times right now – times we haven’t seen since 2008 / 09. Markets handle new information in real-time as that information becomes available. Throughout the second half of Q2, markets have digested new information resulting in a negative response sending market prices lower because investors are reassessing expectations of the future.
And this is OK…this is normal!
Short-term market expectations can be positive (markets move up) and negative (markets move down), but long-term expectations have only one position (positive) and one direction (up)! If our retirement portfolios call for owning stocks this means multiple things: we are looking to build wealth and invest in instruments that historically beat inflation’s purchasing power eroding abilities*; and we understand short-term stock movements are wild and unpredictable, but long-term stock movements are far less wild and far more predictable.
*that’s a cumbersome statement. Explained better: inflation erodes our purchasing power. Per the definition, over time what a dollar can buy today will buy less of tomorrow. Historically, inflation is about 3% per year; if we have $100 today, one year from now we’ll still have $100, but its purchasing power would be about $97. This is bad! Cash is comfortable, but it just sitting around and losing 3% of its purchasing power every year is very bad, so we need to counteract that. And we do that by investing our extra – extra because we first want to have a properly-funded emergency account – into stocks and bonds. Stocks give us the best inflation beating returns, but they come with the most volatility, while bonds come with less volatility but the trade-off being their less, if any, inflation beating returns.
Last week I posted the importance of understanding that markets move quickly. What could happen to your portfolio if you miss just a handful of the days when the market moves sharply up? The answer is a significant reduction in your portfolio’s value. And nobody knows when those sharp up (and down) days are going to happen, so the only way we can participate in those days is to be invested every single day. In doing that, we’ll take the bad with the good – fortunately there’s a lot less bad than good – but the key thing is that we’ll ensure we participate in every up day because if we miss just one or a handful of the best up days the ramifications are drastic. The graphic below shows the hypothetical growth of $1,000 invested in US stocks in 1970 and what would be the outcome if you stayed invested every single day, if you missed just the one best day (out of >12,500 days), and so on…
Michael Pensinger, CFP® is Owner and President of Pensinger Financial, Inc.
He grew up in Park Forest, Illinois and now resides in Lemont, Illinois with his wife, two children, and two dogs. Michael serves as Treasurer on the Lemont Area Chamber of Commerce Board of Directors and he volunteers for the Lemont Open Space Committee. Read More
Lemont, Illinois 60439