Ponderings For the Week of May 6 to 12, 2019

Strong Hiring Data Salvages Week for Investors

A surprisingly strong April jobs report lifted stocks last Friday to salvage what would otherwise have been a losing week. The unemployment rate declined to 3.6%, a half-century low. Stocks gained about 1/2 % for the week.

Corporate profits are always key drivers of stock prices and, with the first quarter earnings season drawing to a close, profits have risen year over year about 1%, not great, but better than had been projected. Economists and Wall Street professionals alike are becoming concerned that corporate profits have been trending downward over the past few quarters. Should this continue, investors may be in for a comeuppance, more so after stock prices have risen so much since last December. Those who share the concern that share prices have gone too far, too fast would be wise to rebalance a bit. Rebalancing after a spate of growth in equity values entails selling some stock investments – not a whole lot – and investing the proceeds in securities that haven’t risen very much, notably bonds and other interest-earning securities.


Thoughts on Investing Overseas

After a long period of moribund performance, international stocks have done quite well so far this year, besting most U.S. stock indexes. It is a mistake for investors to shun international holdings because they are an important ingredient to successful investing despite periods of underperformance. Here are two tips on making the most of your foreign holdings:

Diversify your foreign stock holdings. There are three different kinds of international stocks to consider. First, are the stocks of large companies that trade in developed countries, like Great Britain, France, and Australia. Most garden-variety international stock mutual funds and ETFs invest in these stocks. Second are the stocks of emerging countries like China, India, and Brazil. You can own a piece of this action with an “emerging markets” stock fund. Third are stocks of small companies based overseas that can be owned through an international small cap fund.

Avoid single country or single region international funds. Many investors are attracted to single country (China, for example) or single region (Latin America, for example) foreign stock mutual funds. Perhaps they’ve read a news report about an economic boom in a particular country or region. Or one of those funds just turned in a spectacular quarterly or annual performance. But I think investors should avoid single country or single region funds. Putting money into a narrow foreign market is too risky for most of us. We’re not very good at identifying the most promising foreign markets, so by the time we get in, it’s probably too late. Instead, let the manager of good garden-variety international mutual fund decide which countries and regions are the best places for your money. Most international stock fund managers are supported by analysts located throughout the world, so they have a big advantage over our uninformed intuition. Or if you prefer to cast a wide net of foreign stocks, invest in international stock index funds or exchange-traded funds (ETFs).



Smart Money Tips

  • Try online banking on for size. Less than half of us take advantage of online banking, and that’s a shame, because it can really simplify your otherwise hectic life. Even those who bank online may not be taking full advantage of the many available features. You can pay recurring bills automatically and instruct the bank to issue checks for nonrecurring bills. The service is free. The drudgery of filling out checks and going to the bank to make a deposit can be a relic of the past and your payment history is captured so that you can easily summarize your expenses for tax purposes or to gain an understanding of why you’re spending so much money. You can bank online using your computer or mobile device.
  • Travel insurance alert. Most people don’t consider purchasing travel insurance, but that could be a mistake. Travel entails many financial risks, including but not limited to accidents, illness, missed flights, canceled tours, baggage loss, theft, and emergency evacuation. Deciding on acquiring coverage depends on the chances you’ll need it (the older you are, the more likely you will) and whether you can afford to pay out-of-pocket for any losses or emergency needs, which could be astronomical. I was recently reminded of this when reading about travel to a popular but very remote location that has limited medical facilities. But, the writer reassured, a charter flight could be arranged to the nearest comprehensive medical facility – for a mere $40,000.

While policies may cover more than one – or all – travel risks, there are five main categories: trip cancellation and interruption, medical, evacuation, baggage, and flight insurance. Costs for comprehensive policies vary, but generally range from 5% to 12% of total trip costs. Rates rise significantly for those over 50. Since Medicare does not cover medical costs outside the U.S., check with your Medigap carrier to see if it covers emergency care overseas - probably not. (Thanks to my good friend, the peripatetic Pat, for suggesting this topic.) 




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