Feb. 24, 2022 Market Update

There’s been a lot of worldwide political uncertainty to the start of 2022. Inflation concerns and possibly upcoming interest rate hikes were top of mind in January, and now we have Russia’s invasion of Ukraine with airstrikes in the capital and other cities.

Uncertainty and geopolitical turmoil can definitely shock stock and bond markets. Today, Feb. 24th we saw the S&P 500 DOWN 2.45% at breakfast and by our midafternoon snack it finished the day UP 1.44% - that’s over a 4% swing in one single day. Markets move quickly to the down- and upside.

As this turmoil relates to your retirement portfolio, what can you do about it? 

First, an understanding and an appreciation that we have it pretty good here – we are well insulated on our side of the world, so we’re lucky to not have to face those concerns of being invaded.  But as it relates to our retirement portfolio, understand markets move quickly, so stay invested every day – you’re not gonna pick the right time to be in or out.  Remember market down moves are temporary, but market up moves are permanent. It just takes time, and if you have a heavy stock exposure already, that means you already knew and understood that time is on your side and you have to be invested for the long-run.  Secondly, diversification is  - and will always be - your friend. Having exposure to big and small companies in the US, having exposure to established international companies, and incorporating some emerging market and global real estate exposure will help to smooth out the volatility and offer some baked in protection.  And then lastly, you look for opportunities to take money from areas that have done really well and shift that into areas that haven’t done so well - this is called rebalancing. Stay with that approach over the long-term - and long-term is several years - and decades and your resolve will be rewarded with a sizeable nest egg to ensure a safe, secure and comfortable retirement. If you’re not comfortable doing this on your own, reach out to me at pen-fin.com.

To watch this blog post as a video go here.

Is your most important retirement asset getting the attention it deserves?

Most likely your 401(k) plan (or a 403(b) plan) is your most important retirement asset. While the equity in one’s home is a big driver for retirement dollars – think downsizing when kids are grown and on their own – a lot of a home’s value just depends on the area where you live and the real estate market there. But your 401(k) plan has soooo much riding on what you do. Are you making the right decisions with it? How much you contribute and how you invest is on you – so you have to get it right because you have one chance at a safe, secure, and comfortable retirement.  And a target date fund does not know you: it does not know your level of risk and your comfort with volatility, and it doesn’t know what type of goals and return objectives you are trying to accomplish. One company’s 2050 fund can look a lot different than another company’s 2050 fund, so having me build out an appropriate investment portfolio does a lot better job of targeting your risk / reward profile. And you might not be taking enough risk, either…you could be missing out on hundreds of thousands of dollars or even more money over your working career by not being invested properly right now.  If you’re in your 20s, 30s, 40s, or even in your 50s if you plan on working longer, you should have a very healthy stock exposure right now.

A Pensinger Financial 401(k) review will get you a risk tolerance survey report and video analysis; an investment allocation spreadsheet and accompanying video explanation.  Plus, if you’re not comfortable making investment changes yourself, we can set up a Zoom screen share and I can walk you through how to make those investment changes.

A review from me, puts your most important retirement asset on a very solid foundation so that you can accomplish your retirement goals.

Check out more here or see this post as a video.

Q4 2021 Market Summary Report

Q4, 2021 (report here) saw the market make all-time highs. Page 3 shows how major markets performed over Q4, while page 4 shows how those same markets performed for 2021. As I said, in Q4, we made all-time highs, but to start 2022 we’ve pulled off of those highs and have had a bit of a sell-off.

What does the data look like when you invest and put money into the market at all-time highs compared to say now – at the time of this recording – when markets have pulled back a bit? Pages 16 and 17 of the Market Summary Report show us some data to answer that question. I highlighted a couple good points, and the take away is this: whether you invest at all-time highs or when the market has pulled back a bit or significantly, your long-term returns are about the same.

The best day to invest is today because you are taking away money that you might ordinarily spend now AND you’re putting it away for retirement most likely on a tax-advantaged basis. If you are investing in stocks that means you have a long-term outlook, so start investing, stay invested, and don’t worry if you bought in at an all-time high because that does not penalize you.

Thanks for watching, check out pen-fin.com to learn how we can advance your financial future.

Why Diversify?

With the ugly performance of the US stock market since the beginning of October it’s important to remember why we must diversify our retirement portfolios. There’s a world of opportunities in stocks, but only about half of those opportunities are in US companies, so the other half is outside of here in the foreign and emerging markets.

When we diversify (by investing in thousands of big and small companies in the US and abroad) we accomplish two things:

1. We decrease the likelihood that we’ll have the best or worst performing portfolio. And when it comes to our one shot at planning our retirement, we can’t swing for the fences and come away with either a home run or a strike out.

2. We reduce and help manage catastrophic losses that can come with investing in one area of the market or investing in just a handful of companies.

For more information, you can check out this article from DFA; I highlighted a couple areas I thought were important to read.

Q3, 2020 MARKET SUMMARY REPORT

Most stock markets have continued to rebound since a very dismal end of Q1 / beginning of Q2, 2020. Here you can see DFA's Q3, 2020 Market Update Summary. I want to point out two areas of the stock market that have recently performed very poorly: real estate and value stocks (you can see their respective returns on pages 4, and 8 – 10 of the attached PDF, and in the graphic pasted below).

I don’t need to define real estate for you, but maybe I do for a value stock. A value stock is defined as stock of a company that is trading at a low price relative to some fundamental measure of that company’s worth, whereas a growth stock is one that can be defined as stock of a company that is trading at a high price relative to some fundamental measure of that company’s worth.

Despite their recently poor performance, real estate and value stocks are included in our investment portfolios (along with many other styles and types of investments in the U.S. and abroad). These areas have been underperforming lately, but that is not cause for alarm. Not everything will be great at once, and likewise, not everything will be terrible at once, either. That’s why we want exposure to everything – known as diversification – because, at times, real estate will be great and at other times it’ll be down in the dumps, and right now growth stocks are hot (we own those, too) while value stocks are not, at some point that will change and value will be rewarding us with great returns while growth stocks lag behind. We don’t know when one area will do great or do poorly, so we own all areas, and when an area is down it gets a little more attention in the terms of additional investments – this is us buying good stocks while they are on sale. Right now when we rebalance or invest new money like rollovers and IRA contributions, we’ll look to put a little extra into the areas that are struggling knowing that those trends won’t continue for ever and our retirement portfolios will ultimately be rewarded for our resolve. Again, buying good investments while they are on sale makes for a fantastic long-term wealth building strategy.

Q3, 2018 Market Summary Report

Here you can view the quarterly report for Q3, 2018, it concludes with a write up called The Total Price of Ownership. Owning shares of a mutual fund come with a cost. Some mutual fund companies charge you a “load” or a commission to purchase or sell their mutual fund, while all mutual funds have operating costs and manager compensation baked into the price of the fund. This baked in cost is known as the expense ratio; an expense ratio of .50% means a cost of $500 (paid by you, the investor) is baked into an investment of $100,000, for example.

Loads are unnecessary and can be easily avoided so we choose to only use mutual funds that are “no-load” funds. Expense ratios can’t be avoided, so we make sure to use mutual funds with smaller expense ratios, because the less you pay to invest the more you make. Keep in mind, as the article points out, expense ratios aren’t the end all be all when making fund selections and they don’t always tell the whole story when it comes to the cost of owning a fund. You can give the article a read for a more detailed dive into the total price of fund ownership.