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Ponderings For the Week of January 14 to 20, 2019

Investors Rush Back Into the Stock Market

You can pretty much bet that soon after stocks crater there is a rapid rebound. FOMO (fear of missing out) traders clamor boost their stockholdings when only a month ago they were equally motivated to get out. While their timing may stink, the gains that they propel benefit all stockholders. For the week, large company stocks gained around 3% while smaller stocks rose almost 5%. Even beleaguered international equity prices were boosted an average of over 3%.

The reason for the strength is not a spate of good news, but instead a dearth of bad news - hardly a compelling reason to justify the sizeable advance. Fourth quarter corporate profit reports and outlooks proceed apace over the next few weeks. This will likely dominate the business news and influence stock prices.

It’s easy to find fault with investors whose timing is the opposite of what it should be. As noted below, it takes considerable intestinal fortitude to hold on, if not add to your stocks when you’re losing investment money day in and day out.  


19 Financial Resolutions for 2019 (Part II)

Here is the second round of my 19 money resolutions for the New Year. The rest will follow in the ensuing weeks.

  1. Increase your retirement plan contributions at work.  Even if you make a small increase in the percentage of your pay that is contributed to your 401(k), 403(b) or other workplace retirement savings plan, you’ll reduce your 2019 tax bill and make more headway toward achieving a good retirement. You can always boost your savings to an even higher level later this year. If you haven’t started participating in your plan at work, do so now – don’t delay.
  2. Don’t be too quick to sell a losing investment. Stocks took a pounding last year, and some stocks, most notably those tied to the technology industry, have taken breathtaking dips. One common failing of investors is their inclination to sell an investment that has recently lost value. I guess this is natural. After all, who wants to lose money? But this is often a mistake. If the investment had previously been a good performer and fits well with your overall diversification target, the weakness is likely to be temporary. All good investments periodically go through periods of underperformance. Also, if you do sell the holding, what are you going to do with the money? Often, investors opt for one of their better performing investments. So, in effect, the hapless individual is selling low and buying high, the opposite of what successful investors strive to do. That’s why those who flee their losers in favor of the big winners fare so poorly compared with those who are more patient and rational. So the next time you are tempted to sell a losing investment, consider doing something shocking: buy a bit more of it by paring one of your more successful holdings. It’s usually a wise move.
  3. Budget without a budget. Preparing a household budget can be a useful exercise, but most people have neither the time nor the inclination to do so. The purpose of a budget is to motivate you to live beneath your means, to spend less than you earn. Of course, even a well-prepared budget is of no use unless you are prepared to live within its strictures. But there is another way to spend less than you earn without going through the drudgery of budgeting. All you need to do is to regularly and automatically contribute to a retirement, brokerage, or savings account. Automatic investing is a great way to both begin and stick with a regular savings schedule. The result is relatively painless budgeting. Since you never get your hands on the money that you put away, it shouldn’t be missed, particularly if you start small and thereafter gradually increase the amount that’s saved.




Smart Money Tips

  • It’s time to organize your income tax records. You’ll be receiving a lot of mail this month and next containing information that you’ll need to complete your tax return. Setting up a file now where you can put all your tax-related documents will be a big help when you get around to preparing your return or turning over the information to your tax preparer. Don’t wait until the last minute to assemble the necessary items. The better organized your records are, the lower the taxes you’ll pay and the less likely the IRS will come back with reminders of something you missed.
  • A great web site for active investors. Active investors or those who are just looking for some good investment ideas will find an enormous repository of information on the Reuters web site. It includes extensive mutual fund coverage as well as some really helpful information on exchange-traded funds and stocks. So if you like to make your own investment decisions or just want timely information on the investment markets, visit www.reuters.com and go to the “Markets” section.





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